Charles Cohen’s Delinquent Office Debt Tops $600M

Two months back, Charles Cohen was struggling with half a billion dollars of delinquent debt.

The billionaire landlord, who brushed off office delinquencies earlier in the pandemic, hadn’t made a payment in over 30 days on loans for 3 Park Avenue, 222 East 59th Street, 750 Lexington Avenue and the Decoration & Design building at 979 Third Avenue.

The exception was Crystal Pavilion at 805 Third Avenue. Its loan was watchlisted but current, and wasn’t due until 2029.

Now that building, too, is in trouble. Cohen is more than 30 days late on payments.

The mortgages at the Decoration & Design building and 222 East 59th Street are similarly delinquent. And Cohen hasn’t made a payment on 750 Lexington or 3 Park in more than two months. On the latter, Fitch Ratings is considering a credit rating downgrade.

All told, that’s $635 million of loans past due.

In a statement, a spokesperson for Cohen’s firm, Cohen Brothers Realty, said it had not defaulted on any loans and is “working with lenders to bring any past-due loan payments current.”

The spokesperson attributed the troubles to a tough leasing market, a byproduct of remote work.

All of the buildings with delinquent debt experienced occupancy declines throughout the pandemic and have not recovered, Morningstar data show.

Still, Cohen’s spokesperson said the firm anticipates office occupancy improving. But 805 Third Avenue could contend with an even greater drop in tenancy as early as next year.

Crystal Pavilion’s occupancy rate was 86 percent in September 2020, Morningstar shows. By the end of 2022, it had slipped to 62 percent. At the end of last year, the building’s cash flow was barely covering debt payments on the $150 million mortgage.

Meredith Corporation is the property’s largest tenant with over 35 percent of the total rentable area, according to Trepp. The publisher’s lease is set to expire in 2026. But Meredith has a termination option that would end its lease in 2024.

It’s unclear whether Meredith will tap that option, although the publisher moved to Brookfield Place in 2018 and began subleasing its space at 805 Third. The Cohen Brothers spokesperson said it was unlikely Meredith would exercise the right “because of a substantial termination penalty.” The publisher did not respond to a request for comment.

Trepp, in a recent review of the debt, couldn’t nail down Meredith’s next move. Two of the three notes comprising the total loan balance list Meredith’s lease as expiring in 2024, Trepp commented.

“For some servicers, this is a tell that the termination has been exercised,” the Trepp review noted. But one of the loan’s servicers confirmed that Meredith’s lease still runs until 2026.

After Meredith merged with Time Inc. in 2017, it subleased four of its eight floors to Kroll Bond Ratings Agency and another two to private equity fund administrator Gen II Fund Services. A sublease for the remaining two floors was not reported.

The Cohen spokesperson said that Meredith’s subleases extend to the end of the lease term in 2026 and that many of the sub-tenants are discussing lease extensions.

The Third Avenue building may be the least of Cohen’s problems. Occupancy at the four other properties with delinquent debt is worse, Morningstar shows. At 3 Park Ave and 750 Lexington, cash flow was only covering half of debt service at the end of last year.

And at 222 East 59th, revenue is not enough to pay any of the loan’s monthly payments.