Charles Cohen Faces Fresh Trouble On Park Avenue
Billionaire property scion Charles Cohen is having cash flow issues at another of his family's Manhattan office buildings, this one tied to a $182M mortgage.
A piece of the CMBS loan tied to 3 Park Ave. was transferred to special servicing last month for “imminent default due to cash flow issues," according to commentary from new servicer LNR Securities.
Cohen is the guarantor for the loan, which was originated in 2019. It covers 640K SF of office space on floors 14 through 41 and 26K SF of retail space in the 41-story tower, according to a loan document filed with the Securities and Exchange Commission. A Success Academy high school occupies the rest of the building.
The Murray Hill property has been bleeding tenants in recent years and was 54% occupied at the end of March, according to servicer commentary in the Morningstar Credit database. It was 86% occupied in 2019 when Citi Real Estate Finance originated the $182M mortgage at a $505M valuation.
The loan was broken into four senior notes, and the A-2 note covering $34M and securitized into the GS Mortgage Securities Trust 2019-GC38 was transferred to the servicer. Morningstar Credit Analytics Senior Vice President and Sector Lead David Putro said the other three pieces are expected to transfer shortly as well.
“It looks like it’s simply an occupancy issue here,” Putro wrote in an email.
Occupancy has hovered below 60% for several years, Putro said. The result is that net cash flow was $5.8M at the end of 2023, far below the $16.1M projected in underwriting. Houghton Mifflin is the building's largest tenant with roughly 100K SF, and its lease expires in 2027.
Cohen Bros. Realty has poured extra cash into renovations, including the removal of the scaffolding bridge and completing lobby upgrades, per an August commentary note. Cohen was current on the loan through August, but was late on the September payment, according to the Morningstar Credit database. The loan had previously fallen delinquent in November and January before being brought current again.
The mortgage has a net worth and liquidity covenant requiring Cohen to maintain a net worth of $500M and liquidity of $50M. Cohen is both landlord and tenant at the building, where he holds the ground lease as well as the leasehold of the commercial condo.
Neither Cohen nor his company immediately responded to Bisnow’s request for comment.
The trouble surrounding 3 Park Ave. follows a bruising few months for Cohen Bros. Realty.
The firm had its ground lease at the 41-story office tower at 135 E. 57th St. terminated, PincusCo reported. The ground lease secured Cohen’s interest in the office tower and acted as collateral for a $100M loan that was part of a $534M package originated in 2022 by Fortress Investment Group. The collateral as it relates to the ground lease is now worth nothing, according to PincusCo.
Cohen defaulted on the $534M loan package this spring, resulting in Fortress pursuing a Uniform Commercial Code foreclosure in an effort to seize a nationwide portfolio tied to the debt. A UCC foreclosure can happen more speedily than a traditional foreclosure proceeding.
A judge ruled earlier this month that Fortress has the right to pursue a $187M personal guaranty from Charles Cohen related to the loan, The Real Deal reported. Cohen appealed that ruling this week, PincusCo reported.
Fortress can’t collect the sum yet. First, it has to go through with the $534M UCC foreclosure proceedings against Cohen, which could result in the transfer of assets the billionaire has long controlled, including the 1.6M SF Pacific Design Center in West Hollywood, the Le Méridien hotel in Dania Beach, Florida, and as many as 50 movie theaters, per TRD.
Those assets were set to be auctioned off in July, but a new date has been set for Nov. 8. It could be the largest UCC foreclosure of all time, TRD reported.
