RFR Holding, a prominent real estate firm led by Aby Rosen and Michael Fuchs, is facing a new financial challenge as lender Wilmington Trust initiated foreclosure proceedings on the office building located at 17 State Street in New York City’s Financial District. This development marks another significant hurdle for RFR in 2024, adding to a series of financial pressures the company is currently navigating.
The lawsuit, filed by Wilmington Trust and special servicer Rialto Capital Advisors, alleges that RFR defaulted on a $180 million loan associated with 17 State Street over the summer. According to the report by Crain’s New York Business, the plaintiffs claim that RFR owes $183.5 million as of early November, a figure that includes accrued interest and fees. In the event that RFR fails to settle the outstanding debt, the lenders are seeking to foreclose on the 42-story property, with the intention of seizing and subsequently selling the prime real estate asset.
While RFR has not issued a formal response to the foreclosure lawsuit, a company spokesperson indicated to Crain’s that they are actively engaged with the special servicer to address these “procedural steps” and maintain their ownership of 17 State Street. This stance echoes the company’s public statements from earlier this year when similar debt servicing concerns arose. At that time, RFR expressed intentions to refinance the debt in the near future.
Despite the current financial strain, 17 State Street appears to be a fundamentally sound property. As of mid-August, the building boasted a strong occupancy rate in the mid-90 percent range, according to data from Morningstar. Furthermore, financial records from the end of the previous year indicated robust cash flow, exceeding debt service obligations by a factor of 3.5.
However, issues have emerged in recent months that have contributed to the current crisis. The lawsuit details allegations that RFR failed to deposit adequate rental income into a designated account as stipulated by the loan agreement. Specifically, it is claimed that in July, while RFR collected approximately $3.4 million in rent from 17 State Street, only $2.3 million was deposited into the required account. Additionally, RFR is accused of obstructing a request to audit the company’s financial records pertaining to the 17 State Street property.
The unfolding situation at 17 State Street, a 571,000-square-foot office tower in the heart of the Financial District, is not an isolated incident for RFR. The company is grappling with broader financial headwinds as the year concludes. Just last month, RFR defaulted on a substantial $219 million senior loan linked to 285 Madison Avenue, following a previous default on mezzanine debt for the same property. A company spokesperson reiterated a commitment to collaborate with the special servicer in that instance as well. Adding to their list of concerns, RFR is also embroiled in a dispute with Cooper Union concerning lease terms at the iconic Chrysler Building.
The legal action surrounding 17 State Street underscores the ongoing challenges faced by commercial real estate owners in the current economic climate, particularly in major urban centers like New York City. As RFR navigates these complex financial situations across its portfolio, the future of 17 State Street remains uncertain, pending the outcome of the foreclosure proceedings and RFR’s ability to address the loan default.
