Charles Cohen Presses On With New Projects Despite $1B In Defaults

Charles Cohen is attempting to rehabilitate his real estate portfolio as lenders aggressively circle the billionaire's properties.

Cohen Brothers Realty Corp. has filed an application with the city to convert 623 Fifth Ave., a 38-story tower connected to the Saks Fifth Avenue flagship, to 175 housing units. At 15 E. 54th St., the family-owned firm has filed permits to demolish a nine-story, 283K SF office building, Crain's New York Business first reported.

The permits represent a proactive step for the embattled property mogul, whose family firm owns 12M SF of commercial property nationwide, much of which is in some form of distress. 

As employees' desire to work from home, sparked by the pandemic, has sustained, owners of older buildings with heavy debt loads have been sent into a tailspin. Last week, just half of New York metro employees visited the office at the rate they did before the pandemic, according to data from building access firm Kastle Systems. A competing report from cell phone tracking company Placer.ai found that New York City offices had just 17% less foot traffic in April than they did five years prior.

Office vacancy hit 23.4% in Manhattan last quarter as the supply of vacant space rose to a historic high of 98.4M SF, according to a report by Cushman & Wakefield.

Cohen’s firm, which was founded in 1950 and owns an array of decades-old skyscrapers in Midtown, has been particularly impacted. At this point, Cohen's late debt totals to almost $1B altogether.

After defaulting on $534M in debt from Fortress Investment Group, the lender launched a Uniform Commercial Code foreclosure on a wide-ranging Cohen portfolio, including properties in New York, South Florida and 50 movie theaters, a business that Cohen has said is his true passion. The UCC foreclosure may be the largest of all time, TRD reported. 

Fortress, which was just sold by SoftBank Group to Abu Dhabi's Mubadala Investment Co., also alleged that Cohen himself was on the hook as he had personally guaranteed the loan.

But Cohen has shot back with his own lawsuit. He claims that Fortress’ actions were taken in “bad faith without prior warning,” calling the UCC notice “defective” and “commercially unreasonable,” according to court filings.

Representatives for neither Cohen nor Fortress responded to Bisnow’s request for comment. However, emails submitted in court pull back the curtain on Cohen’s attempt to salvage his portfolio. 

In a Feb. 27 email, Cohen told Fortress that he had previously submitted a proposal to restructure the loan. Writing from Europe, he called the proposal “a solution and not another band aid,” according to court records filed May 1. 

“As you and the FIG group know, the CRE assets are challenging assets that need time and a full commitment to achieve success,” Cohen wrote, proposing a 30-day standstill agreement in the meantime. “Over the last 20+years, we have always found a way forward together.”

The proposal was immediately rejected by Fortress. 

“You’ve not made your last payment, and you’ve not demonstrated that you understand or prioritize the severity of your situation,” Fortress co-Chairman and Managing Partner Dean Dakolias wrote in a Feb. 28 email filed in court records. “Our modifications were designed in part to provide you time/opportunities to develop and act on plans to try to improve your situation. You’ve squandered those opportunities. Another 30 days isn’t appropriate.”

Dakolias told Cohen that Fortress would entertain a plan with the 1.6M SF Pacific Design Center in West Hollywood as replacement collateral and specified asset sales to shore-up liquidity and pay amortization. 

A month later, Fortress notified that a public auction of Cohen's seven-property collateral would take place.

Separately, the special servicer on $130M in CMBS debt backed by 750 Lexington Ave. has also filed a foreclosure action against Cohen, The Real Deal reported, adding to the chaos. 

And now, even the $35M loan collateralized by the Pacific Design Center is on a watchlist due to low income and high expenses. As of June, the property was 77% occupied, and as of September, 58 leases — occupying 11% of the building's rentable area — have or will expire in the next 12 months, according to commentary in the Morningstar Credit database.

The loan backed by 222 E. 59th St. has also been watchlisted after Cohen failed to make February, March and April payments. Polo Ralph Lauren, which took up 20% of the building's net rentable area, vacated in 2019. It was previously specially serviced in February, according to Morningstar. 

The $44.3M loan collateralized by the 515K SF Decorative Center of Houston has also been watchlisted due to deferred maintenance, per Morningstar. 

But Cohen is attempting to get current elsewhere. For the $50M loan backed by the 29-story office building at 805 Third Ave., he has caught up on payments after falling delinquent but continues to have outstanding late charges. The loan is also on a watchlist, according to Morningstar.

The $60M loan backed by 3 Park Ave., a 41-story office and retail development, is also watchlisted as tenants have steadily exited leases. It's currently approximately 54% occupied, according to Morningstar commentary. The recently renovated building was last appraised at $505M. Despite bleeding money, Cohen is current on payments.

Outside of New York City, Cohen has been actively trying to find a new purpose for his Doral-Arrowwood resort property in Rye Brook. Plans introduced to village officials include 115 residential units, a 220-room hotel, three restaurants, parking and space for activities such as tennis courts, swimming pools, a lawn and a lake house, according to Lohud.