The Charles Cohen foreclosure saga continues.
Earlier this year, news broke that the billionaire real estate magnate—whose holdings include design centers in New York, Houston, Los Angeles and Dania Beach, Florida—had defaulted on a $544 million debt to Fortress Investment Group. In response, Fortress sued to foreclose and auction off the equity that had been put up as collateral, a grab bag of commercial real estate assets that includes a struggling movie theater chain, a hotel, the site of a former golf club and the Design Center of the Americas.
Cohen sued first to dismiss the case, then to delay the auction. His legal team was successful in pushing back a proposed summer sale, but last week a New York judge ruled that it can continue this fall. Barring any additional legal twists and turns, the DCOTA will hit the auction block on November 8.
The ruling followed an oral argument in which both sides sparred over the specifics of the case, ranging from whether Fortress had reneged on an agreement to extend its loan, to how a potential auction would play out. Lawyers for Cohen sought to push a sale to early 2025, while Fortress’s attorneys argued for an expedient sale. Though the judge, Joel M. Cohen, expressed reservations about the speed of the auction, he ultimately ruled that it was “commercially reasonable” and allowed the sale to proceed.
The provisional agreement hammered out in court suggests that each asset in the portfolio of collateral will be sold in separate auctions all taking place on the same day, and any remaining pieces will then be bundled together and sold as a bulk package. According to several reports in the commercial real estate press, it could be the largest foreclosure auction of its kind—conducted via UCC, or Uniform Commercial Code—in U.S. history.
Though the focus of the legal battle has been on Cohen’s debt, documents filed in the case shed light on the struggles of the DCOTA. According to paperwork introduced as evidence, the building is only 50 percent occupied, and is losing $2.7 million every year after servicing its debt. In oral arguments, a lawyer for Fortress referred to the building as a “distressed asset,” stating that “a major tenant is coming up for renewal, and most other tenants are month-to-month.”
In another letter submitted to the court, a leasing agent for the DCOTA refers to the difficulties of converting empty showrooms to suburban office space—a long-running initiative in the building. “Our biggest challenge to convert a large portion of this design showroom building to a suburban office building has been the large 50,000 sf floor plates that are very deep and offer limited light even for larger (+/- 15,000sf) Tenant,” he writes. The building’s limited parking space is also an issue, and more conversion to office space would likely require the construction of a costly new garage, a $15 million to $20 million endeavor.
The news comes amid a challenging year for Cohen’s portfolio, as a depressed market for commercial real estate has affected occupancy at his Midtown office buildings. Meanwhile, Crain’s New York Business has reported on financial troubles at the D&D Building. Cohen Brothers Realty did not respond to a request for comment in time for publication.
