NEW YORK—Sotheby’s announced on Feb. 9 that it has completed the repurchase of its headquarters for $370 million. In a statement, Sotheby’s CEO Bill Ruprecht said the building is “a strategic asset to this organization and we are extremely excited to be able to own it once again.”
In January of last year, Sotheby’s entered into a contract to reacquire the property on Manhattan’s York Avenue from real estate company RFR Holding Corp., which is controlled by developer and contemporary-art collector Aby Rosen (ANL, 1/22/08). The deal was not scheduled to close until July 1 of this year, but RFR had the option to accelerate the sale, which it exercised last November.
Under the terms of the contract, Sotheby’s “also agreed to give the principals of RFR certain terms for future sales of works of art at Sotheby’s auctions.” Asked about those terms, a Sotheby’s spokesperson declined to elaborate on what they are or how long they are in effect.
According to a Sotheby’s statement, the auction house financed the purchase with an initial $50 million cash payment upon signing of the agreement in January of last year, an $85 million cash payment made at the closing on Feb. 6, and the assumption of RFR’s $235 million mortgage on the property. According to a filing Sotheby’s made with the U.S. Securities and Exchange Commission on Feb. 9, the mortgage “has an interest rate that is favorable in the current market.” Sotheby’s said it intends to prepay the mortgage, which matures on July 1, 2035, around July 1, 2015, when the interest rate increases and it has an option to pay off the loan.
In February 2003, faced with more than $50 million in domestic and international antitrust fines as a result of the price-fixing scandal with Christie’s, Sotheby’s sold the land and building to an RFR affiliate for $175 million, then leased back the property for an initial 20-year term. The deal allowed it to pay off its debt, as well as a $20 million fine that had been imposed by the European Union.
Ownership of the building also eliminates Sotheby’s capital lease obligation, which had a 10.4 percent rate, and replaces it with a mortgage-obligation rate of 5.6 percent, according to the SEC filing. Sotheby’s said this would result in annual cash interest expense savings on the building of approximately $4 million in 2009.
As a result of the building purchase and of “significant auction guarantee losses” that the house incurred in the second half of 2008, Sotheby’s also announced that it has amended the terms of its credit agreement with Bank of America Securities. Under the new terms, Sotheby’s will pay a higher interest rate on its outstanding debt and its total borrowing capacity is reduced to $250 million from $300 million. According to the SEC filing, Sotheby’s management “concluded that this reduction is appropriate as operating cash flows and cash balances . . . are expected to be adequate to meet the Company’s anticipated short-term and long-term commitments, operating needs and capital requirements” of the credit facility through its expiration in September 2010.
Meanwhile, on Feb. 9 credit rating agency Standard & Poor’s placed Sotheby’s on “negative CreditWatch,” according to an S&P report, citing the “substantial decline in the worldwide auction market that has resulted in a significant loss on guarantees and the necessity for revision of the company’s leverage covenant.”