The Real Deal New York

Georgetown claims it’s owed 50% of Related development rights deal

Adam Flatto-led firm accuses IAC of withholding its share of $35M transfer near High Line

March 15, 2016 06:05PM
By Rey Mashayekhi

IAC Building

The IAC Building at 555 West 18th Street in Chelsea (inset: Adam Flatto)

Adam Flatto’s Georgetown Company and internet media giant IAC are going to court to determine the outcome of a Chelsea development rights deal that the parties recently struck with the Related Cos.

In a complaint filed Friday in New York State Supreme Court, Georgetown said it is seeking a declaratory judgment “that it is entitled to 50 percent of a $35 million rights fee” that the Hudson Yards developer recently paid to acquire development rights from IAC’s headquarters building at 555 West 18th Street.

Georgetown helped the media company, which owns dating apps such as Tinder and OkCupid, develop the 10-story, Frank Gehry-designed IAC Building. The property opened in 2007.

Flatto’s firm claims the two sides struck an agreement in 2004 that “when the parties obtain rights or options to purchase an interest in any property adjacent to the new IAC building,” they would do so “on an equal economic basis.”

Such an opportunity arose in 2014, when Georgetown and IAC obtained an option from Related to purchase an interest in the developer’s new project adjacent to the IAC Building, according to the lawsuit. In turn, Related “monetized the value of the interest it provided” by paying the two companies $35 million in exchange for property development rights from the IAC Building.

Georgetown claims that the rights fee received was the result of efforts it had undertaken beforehand “identifying and advocating” new zoning provisions for the block in question, which it says “were not needed for the development of the IAC Building, but were intended to capture future development opportunities” pursuant to the agreement it had struck with IAC.

“Without Georgetown’s foresight, planning and cooperation, Related would have never provided an option to purchase an interest in its property or monetized the interest into the $35 million rights fee,” the complaint states.

But despite closing in September on the development rights deal with Related, Flatto’s firm claims IAC “refuses to release any of the funds to Georgetown,” and is now seeking a declaratory judgment that it is entitled to 50 percent of the $35 million fee.

In a statement to The Real Deal, Georgetown said it is “extremely proud of our collaboration with IAC” on the latter’s headquarters building, which it said “has been the catalyst for rapid development in West Chelsea and also enabled this particular transaction.”

The firm noted that it “jointly agreed with IAC to ask the court to interpret our agreement” regarding the rights fee transaction, “as we believe the agreement provides that we share the proceeds of that transaction 50/50 as was always intended.”

IAC, also known as IAC/InterActiveCorp, declined to comment, while Related could not be immediately reached.

Related purchased the Chelsea development site adjacent to the IAC Building, which holds a two-story parking garage and a parking lot, for $205 million – or more than $700 per square foot – in 2014. The firm financed the acquisition with a $125 million loan from Deutsche Bank.

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