NYC Property Mogul Charles Cohen Sticks With Buy-and-Hold Plan in Crisis
(Bloomberg) -- All over Manhattan, trouble is brewing for billionaire Charles Cohen.
Rent collections lag at the Decoration & Design Building, his Midtown showroom palace for interior designers. He’s 60 days delinquent on loan payments for his 42-floor office tower at 3 Park Avenue South.
Even Quad Cinema, his beloved art-house theater in Greenwich Village, is dark -- yet another sign of the travails facing the Cohen empire in the time of Covid-19.
If Cohen is sweating, he’s not admitting it. He is, after all, the scion of one of the city’s great real-estate families, with the psychic freedom of a $3.6 billion fortune.
“New York is going to get through this,” Cohen, 68, said during an interview from his Lexington Avenue headquarters. “At the end of the day, there’s no place like New York.”
Still, the pressure is building -- and not only for Charles Cohen. The pandemic threatens every corner of New York’s property market. Shuttered boutiques and restaurants may never reopen. Office towers stand deserted. Apartment vacancies are hitting records. The trouble may cascade from tenants to landlords to banks, insurance companies and other global investors who’ve bet big on Manhattan as a real estate fortress.
While Cohen’s private business is dwarfed by public giants like SL Green Realty Corp. and Vornado Realty Trust, his 12-million-square-foot portfolio ranks in size among better-known New York family dynasties -- the Dursts, Milsteins and Rudins. And like many of his peers, Cohen has endured hard times by playing hardball.
“He’s tough,” said Joseph Aquino, a commercial real estate broker who’s dealt with Cohen for 35 years. “He’s a major player. Don’t count him out.”
Cohen owes approximately $1 billion in commercial mortgage-backed security debt. Payments on about half of those loans have missed monthly deadlines since April, when the virus began taking its toll on rent collections, according to loan filings.
He was at least a month late on installments for several Manhattan buildings, including the Decoration & Design Center; 465 Park Avenue; 3 Park Avenue South; and 805 Third Avenue. Cohen says those were “timing issues,” such as slow-paying tenants whose rent goes directly to the lenders under lockbox provisions in the CMBS contracts. Cohen may never touch the money, but he’s required to make up shortfalls, according to David Fogel, a senior vice president at Cohen Brothers Realty Corp.
“It’s our obligation to pay what we’re obliged to pay,” Fogel said.
Cohen Brothers Realty was founded in the 1950s by Charles’s father, Sherman, and his uncles, Edward and Mortimer. They began building towers in the 1970s, when interest rates were soaring and de-industrialization and White flight brought the city to the brink of bankruptcy. Their strategy was, and still is, to buy and hold.
“We’ve never lost a building, ever,” Charles Cohen said. “We have no loans in jeopardy. We have no defaults.”
Bankers have been amenable to temporary loan relief, Cohen said, but CMBS contracts that prioritize protecting bondholders are less flexible. CMBS loans are attractive to landlords because they’re non-recourse, so the lender can’t go after other assets. The tradeoff is that troubled loans go to workout firms known as special servicers, who charge hefty fees and offer little sympathy.
Most Cohen buildings were bought decades ago and their value has soared. Manhattan office prices more than tripled over the last 10 years alone to $794 a square foot, according to Real Capital Analytics Inc. Today, that equity is Cohen’s life preserver.
“Because he’s so in the money, he has opportunities to play the game,” said Shlomo Chopp, a commercial real estate restructuring and turnaround adviser.
Some loans have struggled over issues predating the pandemic and not restricted to New York. His four furniture marts, massive halls with dozens of showrooms, have suffered as designers shift their shopping online. In January, Cohen liquidated delinquent debt on the Design Center of the Americas in Florida. The $114 million loss was the biggest CMBS writedown in the first quarter, according to Moody’s Investor Service.
The Pacific Design Center in West Hollywood, California, was on ratings service watchlists in 2017 and 2018 for rising vacancies, but added tenants after a partial conversion to office space. And interest in the showrooms is on the rise -- “a flight to security,” Cohen called it -- after nearby street-front stores were looted following peaceful demonstrations for racial justice in May.
In Manhattan, the Decoration & Design Building was 90% leased in December, down from 96% when the debt originated in 2016. Payments on the building’s $165 million loan were late for April and June but current as of July, according to monthly remittance reports.
His New York office buildings also faced rising vacancies before Covid-19. Last year, occupancy fell below 80% at 750 Lexington. It was at 100% when the CMBS loan was issued in 2015.
Meanwhile Landmark Theatres, an arthouse cinema chain that Cohen acquired in 2018, have been shuttered due to the virus. Audiences will return from their couches, though, Cohen says: “There’s no experience like sitting with other people in a state-of-the-art facility.”
After spending the early months of the pandemic at his Connecticut country estate, Cohen started reporting to his Lexington Avenue headquarters in June as new virus hot spots elsewhere convinced him Manhattan was as safe as anywhere.
In June, he also bought 58,800 square feet of air rights from St. Bartholomew’s Church on Park Avenue, which he plans to use for additional floors in a new development at the site of his building at 3 East 54th Street. The rights allow expansion above the current permitted height.
“I believe New York City offices will continue to attract people,” he said.
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