The moment of truth is finally here … probably. After months of back-and-forth sniping in a lawsuit between billionaire design center landlord Charles Cohen and his lender Fortress Investment Group, a critical date is upon us. Barring any last-minute settlement, a parcel of Cohen-owned assets that includes the Design Center of the Americas will be auctioned off to the highest bidder this Friday.

If it happens, we won’t know the results of the auction until the end of the week at the earliest. But for now, it’s worth taking a moment to look how we got here, and what’s at stake.

Who is Charles Cohen?
Charles Cohen is the billionaire scion of a Manhattan real estate family. After taking over as president of his father and uncles’ company in the 1980s, Cohen grew its portfolio to encompass a reported 12 million square feet in commercial real estate. Today, his empire includes four design centers: the Decoration & Design Building in New York, the Decorative Center Houston, the Pacific Design Center in Los Angeles, and the Design Center of the Americas in Dania Beach, Florida. Cohen Brothers Realty is one of the design industry’s biggest landlords.

How did we get here?
In September of 2022, Cohen borrowed $533 million from Fortress, an investment management firm, largely to refinance prior loans. As part of the deal, he put a parcel of properties—including the DCOTA—up as collateral and personally guaranteed $187 million of the debt. By February of this year, Cohen’s company was missing payments to Fortress, and the lender quickly took legal action.

Cohen’s team insists that he was in the process of a good-faith negotiation with Fortress on repayment terms, and the move to foreclose was rushed. Fortress disagrees, and a judge has allowed the company’s proposed foreclosure auction to proceed.

What is this auction, and will it happen?
Fortress is moving to auction off its collateral, a portfolio of real estate assets that includes the DCOTA. The auction is being conducted under what’s known as the Uniform Commercial Code, or UCC, a set of rules that govern commercial transactions. Simply put, a UCC auction allows Fortress to sell off the collateral quicker than a “normal” auction. If it goes through, this is believed to be the largest UCC auction in U.S. history.

The auction is technically scheduled for Friday, November 8. However, there has been serious doubt as to whether it will actually occur. The sale has already been delayed once, and in prior communication with Business of Home, a representative for Cohen Brothers Realty said he “did not expect [a foreclosure sale] to take place.” The rumor mill of DCOTA tenants is rampant with speculation that Cohen—a billionaire—will come through with the necessary funds to put it off at the last minute.

However, in the run-up to the auction, Fortress has filed a trove of documents that suggest otherwise. According to their legal team, Cohen has transferred ownership of various assets over the past year—including a $20 million Connecticut home and yachts totaling roughly $50 million—in a fashion that might shield these properties from a potential seizure. All of those moves suggest the possibility that Cohen is bracing for the worst-case scenario: The auction happens, the proceeds do not cover his debt, and Fortress will come after him personally for the $187 million he guaranteed.

Documents from the lawsuit also paint a dire picture of Cohen’s business operations. A December 2022 audit showed that his business empire was operating at a loss, with negative equity of $500 million, and that there was “substantial doubt about the company’s ability to continue as a going concern.”

What would happen at the auction?
Fortress would sell off ownership of the collateral properties, which includes the DCOTA as well as a chain of movie theaters and a Florida hotel and golf club development. The money would go toward paying off the nearly $600 million balance on the loan (it has grown from the original $533 million as interest has accrued).

In many auctions of this nature, the creditor—in this case, Fortress—ends up winning the assets through what’s called a credit bid, a mechanism that allows the creditor to bid in the auction using the money owed to it. In that scenario, Fortress would end up owning the DCOTA. However, it’s possible that another bidder will come along and snap up the Florida design center at auction.

What happens after the auction?
There are many possibilities. However, it’s likely that—if the auction occurs—the DCOTA will change hands at least once. In that event, the new owner will have to seriously consider whether it wants to operate the building as a design center, sell it, or transition over to another business model. Court documents have shown that the DCOTA is currently losing money—given that, there will be a clear incentive to change something.

The UCC auction is also by no means guaranteed to generate enough money to cover the $600 million debt Cohen owes to Fortress (most observers say it will not). If it doesn’t, the lender will be legally entitled to go after $187 million worth of Cohen’s personal assets, as well as whatever it can extract from Cohen Brothers Realty. In short, this auction is likely not the end of this story.

What does all of this mean for the design industry?
The implications of this lawsuit and potential auction are wide-ranging and unpredictable. If Cohen loses the DCOTA and he and his company are still liable for hundreds of millions in debt to Fortress, one possibility is that Cohen Brothers Realty will be pushed toward cost-cutting measures. Read: Don’t expect big renovations at the D&D or PDC anytime soon.

There’s also the possibility that Cohen will be pressured or forced into selling other design centers to cover his debts. If that comes to pass, it will represent a profound shift in the cities where these centers operate. New owners might be inclined to revitalize and reinvigorate these buildings for the next generation of designers. Or they might be just as inclined to repurpose them for another use entirely.

Cohen continues to fight the case in court, and it’s possible the auction will be postponed or canceled. Further legal twists and turns are likely. But for now, all eyes are on Friday.