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Sotheby’s and Its Landlord Battle Over Building’s Sale


May 11, 2007

It sure looked like a perfect match in 2002.

That’s when Aby Rosen, a wealthy developer who has amassed a collection of trophy buildings and art, bought the Sotheby’s building on the Upper East Side for $175 million and leased it back to the venerable auction house, which sits at the center of the high-flying international art market. The thought was that Mr. Rosen could appreciate the Sotheby’s mission, its need for cash, and the cutthroat, yet genteel world in which it operates.

But after Mr. Rosen put the 10-story building at York Avenue and East 72nd Street on the auction block this year for $500 million, the two sides went to war. The meetings have been particularly acrimonious, with threats flying in all directions, one executive involved in the contretemps said.

Final bids for the property are due today. But on Tuesday, Sotheby’s quietly dropped a bomb. In a quarterly statement filed with federal regulators, Sotheby’s said that it intended to pursue Mr. Rosen for violating the terms of its lease, and that if successful, the action “could result in a material benefit to the company.” That could mean about $200 million for Sotheby’s if the building sells for $500 million.

Mr. Rosen, a principal at RFR Holdings, said yesterday that he was surprised to hear of any problems with Sotheby’s and had “no idea” what it was about. The auction, however, is moving forward.

“We’re definitely finishing up the bids tomorrow,” said Mr. Rosen, whose office on Park Avenue is stocked with works by Andy Warhol, Garry Winogrand, Jean-Michel Basquiat and Damien Hirst. “If we like what we see, we’ll sell.”

Diana Phillips, a spokeswoman for Sotheby’s, said the company would not comment “beyond the filing.”

But two people familiar with the dispute, who spoke on the condition of anonymity because neither side is supposed to be commenting on it publicly, say that Sotheby’s contends that Mr. Rosen should have offered to sell the building back to Sotheby’s in 2005 for about $300 million, under what is known in real estate circles as its “right of first offer. ” Sotheby’s did not discover this right until after Mr. Rosen put the building on the auction block this year.

Mr. Rosen, of course, has another number in mind, something more like $500 million. His marketing book for the property does state that a sale is subject to Sotheby’s right to match the best offer he gets, according to a real estate executive who has seen the document. It is unclear how many bidders will show up today to pay what brokers suggest is a very high price.

Sotheby’s itself was in tough shape in 2002 when it decided to sell the building to Mr. Rosen for $175 million. The auction house had completed a $150 million expansion of its building, adding six floors to the four-story structure. But it was also reeling from a scandal over its collusion with rival Christie’s International.

A. Alfred Taubman, then Sotheby’s chairman, was convicted in December 2001 of fixing art commission prices at auctions and served part of his yearlong sentence in a federal prison.

The sale allowed Sotheby’s to pay off $100 million in short-term debt and a $20 million fine related to the scandal. At the same time, the auction house signed a long-term lease for the building.

Mr. Rosen, whose company controls more than 7.5 million square feet of office space, including the Seagram Building and Lever House, appeared to be the perfect landlord. He is known on the city’s social scene and has a private collection of contemporary art, with about 800 works.

Mr. Rosen promptly sold a 90 percent stake in the Sotheby’s building to a German investment fund, SachsenFonds, in which it took on a $125 million mortgage and paid Mr. Rosen $60 million, according to an executive who has seen the documents from the 2003 deal. It allowed Mr. Rosen to make $10 million.

In 2005, Mr. Rosen bought back the stake from SachsenFonds in a $320 million deal. That transaction, Sotheby’s now contends, activated its right of first offer under the terms of its lease. But Mr. Rosen failed to notify the auction house of its matching-offer rights, Sotheby’s says. Now, the auction house wants to exercise those rights.

The dispute may go to arbitration, or end up in litigation.

Copyright 2007 The New York Times Company

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