Issue #198  6/30/2013
Sotheby's Once Again Considers Selling Its Building in New York

By Alex Novak

As reported in both the New York Post and New York Times, Sotheby's is trying to sell its York Avenue address once again.

The York Avenue building was first occupied by Sotheby's in 1980, after the building had been first a cigar manufacturer and then a Kodak warehouse. The auction house eventually bought the building for $11 million and completed a $140-million expansion and renovation before selling it, as I reported in early January 2003, for $175 million to RFR Holdings, Ltd. with leaseback provisions.

The building had largely been the brainchild of disgraced former Chairman A. Alfred Taubman. Sotheby's at the time was under a great deal of financial and legal pressure due to Taubman's price-fixing conspiracy between Sotheby's and Christie's. According to the New York Times, that "affair, culminating in a trial of Sotheby’s former chairman and principal owner, Alfred Taubman, drained Sotheby's of cash," prompting Sotheby's president, William Ruprecht to sell the building.

Less than seven years later in 2009 Sotheby's turned around and bought the building back at $370 million in the middle of one of the deepest recessions that this country has seen.

Ironically, in the first quarter of this year, Sotheby's reported a three percent decline in revenue from a year earlier and a net loss of $22.3 million, after auction seller commission margins were squeezed and seller guarantees returned. That followed a 37% decline in net income to $108.3 million in 2012. So, in one of the strongest art markets seen since it bought back its headquarters, Sotheby's appears to still be in such bad financial shape that it is looking to sell its building once more to gain immediate cash.

Douglas Harmon of Eastdil Secured, which is the company that Sotheby's has hired to sell the property, claimed that the property was of "trophy quality." "It is a beautiful building in a very good location," he said. He also described it as "a blank canvas". Others in the past have described it more fittingly as a "white elephant".

It will be interesting to see where exactly Sotheby's winds up in New York. At one point before the 2002-2003 deal was finally settled, Sotheby's was rumored to be moving across from its rival Christie's in Rockefeller Center. A move to any place outside of midtown Manhattan would clearly signal increasing weakness in this once dominant house. Virtually all of its competitors have moved to upscale midtown locations trying to cement their movement upward to challenge the "big two", including Phillips de Pury (which recently parted company with its name-sake chairman), Bonhams and Heritage. Christie's move many years ago to Rock Center seemed to also solidify its position.

It will be an open question whether or not Sotheby's move will be seen to strengthen its position in an increasingly competitive field, or provide a further opportunity for hungry competitors to challenge the auction house.