Flatiron Dreams Fizzle as Buyer Misses $19M Deposit

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Good morning. The Flatiron Building's future is uncertain as bidder Jacob Garlick failed to pay 10% of the $190 million winning bid earlier in the week. Meanwhile, Chicago’s office market is starting to feel the impact of a real estate pullback in the tech sector.

Today's edition is brought to you by Greysteel’s Women & Leadership Group.

Flatiron Building Could Be Auctioned Again as Buyer Misses $19M Deposit

Despite his surprising winning bid to acquire the Flatiron Building last week for $190M, Jacob Garlick - who has been the talk of the town in New York's real estate scene this week - was unable to provide the necessary deposit to finalize the purchase of the property.

What we know: As per the sale agreement, Jacob Garlick was required to pay $19 million, which is 10% of his bid of $190 million, by the end of business hours on Friday. However, several sources familiar with the transaction reveal that Garlick has not yet submitted the funds, which raises doubts about his potential ownership of the renowned property.

On the clock: Garlick refused to discuss the deposit or deal on Friday. If an extension is needed, a court-appointed referee may grant more time. However, if an extension is not granted, a group led by Jeffrey Gural from GFP Real Estate, the second-highest bidder in the auction with a bid of $189.5 million, will have the opportunity to purchase the property as per the court filing.

➥ THE TAKEAWAY

Big picture: Garlick, an unknown investor, fulfilled his lifelong dream of owning the historic Flatiron Building after outbidding Gural with $190 million. Garlick's Abraham Trust invests in private equity, mergers and acquisitions, and venture capital. The acquisition process arose from a partnership dispute between the former ownership group, who couldn't agree on the building's future. However, Gural's group could purchase the property if Garlick fails to extend the $19 million deposit. Otherwise, it could go back to the auction block.

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Salesforce Seeks to Shed Large Block of Office Space in New Chicago Tower

Chicago is starting to feel the impact of a real estate pullback in the tech sector. Salesforce is expected to shed 125K sq ft of office space in its 60-story building in Chicago, just two months before moving to the almost finished trophy tower.

Cutting space: Salesforce is putting up 500k sq ft of office space for sale in Chicago, thanks to job cuts, real estate reduction plans, and economic uncertainty. The announcement comes just two months before the company plans to move into a 1.2M sq ft tower along the Chicago River. Meanwhile, Meta is cutting back 44% of its lease in the 35-story Franklin Street building.

Silver lining: Amidst the pandemic, tenants seeking high-quality office space may find Salesforce Tower appealing. In Chicago, top-tier riverfront buildings are doing better than the overall market, but there are few large blocks available. As other companies in Chicago seek sublease tenants, the building's space may become a more attractive option.

➥ THE TAKEAWAY

Zoom out: Chicago is struggling to rebound from the pandemic as remote work increases vacancy rates, causing tech giants to reconsider their real estate footprint. This has resulted in 7.8 MSF of sublease space that needs to be filled, which is 4.5M more than when the pandemic started. However, Google's expansion and commitment to buy the 1.2-million-square-foot James R. Thompson Center brings hope for the city's commercial real estate sector.

• Occupational hazard: A San Diego broker has pleaded guilty to a conflict-of-interest charge for advising the city on buying an unusable asbestos-ridden office tower.

• Secondary marketplace: After listing Blackstone Real Estate Income Trust shares, LODAS Markets saw more investor interest in the first week than in the full month since its biggest nontraded REIT competitor was listed, indicating strong demand for Blackstone shares.

• Magic City: A prime waterfront Miami parcel has received five offers over $1B for a 15.5-acre (6.3-hectare) site, previously home to the Miami Herald newspaper, potentially breaking property sales records.

• Tunnel vision: Elon Musk's companies are building facilities nationwide, promising jobs and economic growth. However, rural residents near Austin fear the loss of farmland to industrial development.

• Air travel: United Airlines and Archer Aviation plan to launch an air-taxi route between Chicago airports via Vertiport Chicago, North America's largest vertical aircraft facility.

• Fulton Market family drama: Despite his son's success in securing a $35M property sale with one of the nation's largest builders, Michael J. Lerner filed a lawsuit against him for his achievement.

• Roll Call: Apple continues to struggle to lure employees back to the office, so it's monitoring attendance to ensure three office days per week.

• Cannabis shops: Gov. Kathy Hochul has proposed a new plan to curb the illegal weed trade in New York - hit the sellers with fines so huge that they'll be seeing stars. The proposed legislation could give state officials more power to tackle the illegal cannabis market.

If the Fed Funds rate continues to rise for five or more years, it may signal the end of a 40-year bond bull run following the 2021 inflation. Examining 200 years of interest rate history, we can see long-term trends in both directions for short-term rates, including a 36-year increase after WWII and a 40-year decrease from 1981 to 2021, as shown in the graph.