In mid 2020, when Covid’s assault on the New York office market had just begun, Charles Cohen was already struggling to make payments on a crop of office-backed debt.
The billionaire landlord brushed off the delinquencies as “timing issues” with tenants’ rent payments and decried the dire predictions about office buildings as a “knee-jerk reaction.”
Cohen is again delinquent on loans totaling hundreds of millions of dollars. Only now, there’s data to back the doomsday prophecies and a consensus that it will only get worse.
The head of Cohen Brothers Realty is at least 30 days late on half a billion dollars’ in loans collateralized by 3 Park Avenue, 222 East 59th Street, 750 Lexington Avenue and the Decoration & Design building at 979 Third Avenue.
Debt on 805 Third Avenue, the Crystal Pavilion, is also watchlisted, bringing his total flagged debt to $634 million, according to data from research firm Morningstar.
Cohen did not respond to requests for comment.
The landlord’s troubles reflect what office owners have faced since the rise of remote work. Occupancy has declined, dragging revenues at some buildings too low to cover their mortgage payments.
On Cohen-owned properties with updated vacancy figures, occupancy averages 62 percent, according to Morningstar. Across the five troubled buildings, revenue covered less than 30 percent of debt service, on average, at the end of last year.
A cocktail of unfortunate leasing decisions, rising debt service and ill-timed upgrades set off the distress.
On the $7.5 million of loans secured by 222 East 59th Street, Cohen’s missteps predate the pandemic.
The scion moved his own offices out of the building in 2018, leaving nearly a third of it unoccupied. “The property has never recovered since,” Morningstar wrote.
Then, in the winter of 2019, Polo Ralph Lauren vacated its space, which accounted for a fifth of the building. By the end of last year, the property’s expenses exceeded its revenue, according to Morningstar. The negative cash flow meant 222 East 59th Street wasn’t covering any of its debt service.
It’s unclear how much of the building is now occupied. Morningstar shows the top 5 leases amount to 57 percent of the leasable space but updated occupancy figures are not available.
Cohen Brothers Realty moved its offices to 750 Lexington, but that building isn’t doing much better. It is 66 percent occupied, with revenue covering just half of debt service and Cohen is two months’ behind on debt service, according to Morningstar.
The landlord got squeezed eight months into the pandemic when principal payments on the Midtown property’s 10-year, $130 million loan kicked in.
Cohen secured Covid relief in May 2021 that reduced taxes, interest payments and deferred the monthly principal due. Still, debt service at 750 Lexington has surged from $163,000 to $1.9 million, “a burden too heavy for the property to support both today and in the foreseeable future,” the servicer wrote two months ago.
That future doesn’t look bright, given that WeWork is the building’s largest tenant, occupying a fifth of the building. WeWork has shuttered locations across the city over the past few years, driving some buildings into default, and warned this month of “substantial doubt” that it can continue operating.
If the co-working firm goes bankrupt, it could exit its leases without penalty.
Cohen, who inherited a real estate empire and has described his true passion as film – he owns the Quad Cinema in Greenwich Village – has some time before his loans come due. The debt on 3 Park Avenue and 805 Third Avenue doesn’t mature until 2028 and 2029, respectively. But Cohen will need to pay off or refinance loans backed by 750 Lexington and 222 East 59th in a little over two years.
If demand remains low and valuations fall further, the landlord will be hard pressed to boost revenue and shore up financials at his buildings.
Cohen, whose net worth Forbes pegged in 2021 at $3.5 billion, may then face the same tough choice some of his peers have already had to make: kick in more capital or hand back the keys.
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