RFR Holding, a prominent real estate firm, is facing a new financial challenge as lender Wilmington Trust and special servicer Rialto Capital Advisors have initiated a foreclosure lawsuit concerning 17 State Street, New York City. This legal action marks another significant hurdle for the company in 2024, though it may not lead to the outright loss of the office building.
The lawsuit, reported by Crain’s New York Business, was filed this week and centers around an alleged default on a $180 million loan that RFR secured for the 17 State Street property. According to the plaintiffs, RFR’s outstanding debt has escalated to $183.5 million as of early November, encompassing accrued interest and fees. Should RFR fail to settle this amount, Wilmington Trust and Rialto Capital Advisors are seeking to foreclose on the 42-story 17 State Street building, with the intention of seizing and subsequently selling the prime Financial District asset.
While RFR has not officially responded to the specifics of the lawsuit, a company spokesperson conveyed to Crain’s that they are actively engaged with the special servicer in what they termed “procedural steps.” The spokesperson also indicated RFR’s intention to retain ownership of 17 State Street, suggesting they are working towards a resolution to avoid foreclosure.
This stance mirrors RFR’s public statements from earlier this year when the debt associated with 17 State Street was initially transferred to special servicing. At that time, the company communicated plans to refinance the debt in the near future.
On the surface, 17 State Street appears to be a financially stable property. Reports from Morningstar in mid-August indicated a robust occupancy rate in the mid-90s. Furthermore, cash flow figures from the end of the previous year demonstrated a healthy 3.5 times coverage of the debt service.
However, underlying issues have emerged in recent months. The lawsuit alleges that RFR has not been consistently depositing sufficient rental income into a designated account, a requirement stipulated by the loan agreement. For example, in July, despite reportedly collecting $3.4 million in rent, RFR allegedly deposited only $2.3 million into the specified account.
Adding to the complications, RFR is also accused of non-cooperation with a request to conduct an audit of their financial records pertaining to 17 State Street.
The unfolding situation at the 571,000-square-foot 17 State Street building is just one facet of the broader financial pressures facing RFR. Recently, the firm defaulted on a substantial $219 million senior loan linked to 285 Madison Avenue, following a previous default on the mezzanine debt for the same property. RFR has stated they intend to collaborate with the special servicer for this debt as well.
Moreover, RFR is currently involved in a dispute with Cooper Union regarding the Chrysler Building, where they are contesting a lease termination, highlighting a series of financial and legal challenges for the real estate giant.
