RFR Holding, a prominent real estate firm led by Aby Rosen and Michael Fuchs, is facing a new financial challenge as lender Wilmington Trust and special servicer Rialto Capital Advisors initiated foreclosure proceedings on 17 State Street, New York. This lawsuit marks another potential crisis for RFR in 2024, following previous debt concerns surrounding other high-profile properties.
The legal action, reported by Crain’s New York, stems from an alleged default on a $180 million loan that RFR secured for the 42-story office tower located in the heart of the Financial District. According to the lawsuit, RFR reportedly defaulted on this loan during the summer, and the owed amount has now escalated to $183.5 million as of early November, encompassing accrued interest and associated fees. Wilmington Trust and Rialto Capital Advisors are seeking full repayment and, in the event of non-compliance, are requesting the court to permit a foreclosure on the 17 State Street property, enabling them to seize and subsequently sell the asset to recoup their investment.
While RFR has not officially responded to the foreclosure lawsuit itself, a company spokesperson indicated to the publication that they are actively engaging with the special servicer to navigate these “procedural steps.” The spokesperson conveyed RFR’s intention to retain ownership of 17 State Street, suggesting they are seeking a resolution that avoids foreclosure.
This stance echoes the company’s response earlier in the year when concerns arose about $700 million in New York office debt, which was subsequently transferred to special servicing. At that time, RFR representatives stated their plans to refinance the debt in the near future, signaling a proactive approach to managing their financial obligations.
Despite the current legal predicament, 17 State Street appears to be a financially viable property. Data from Morningstar in mid-August indicated a robust occupancy rate in the mid-90s. Furthermore, year-end cash flow figures from the previous year demonstrated a healthy 3.5 times coverage of the debt service, suggesting strong operational performance.
However, discrepancies in rent deposits have emerged as a critical point of contention. The lawsuit alleges that RFR failed to deposit sufficient rental income into a designated account, as stipulated by the loan agreement. Specifically, it is claimed that in July, despite collecting $3.4 million in rent, RFR only deposited $2.3 million into the required account. Adding to the complications, RFR is also accused of obstructing a request to audit the company’s financial records pertaining to 17 State Street, raising further questions about their financial management of the property.
The unfolding situation at 17 State Street, a significant 571,000-square-foot office building in New York, 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 associated with 285 Madison Avenue. This default followed a previous default on the mezzanine debt for the same property, compounding their financial pressures. Similar to the 17 State Street situation, a spokesperson for RFR stated they would collaborate with the special servicer to address the debt issues at 285 Madison Avenue.
Adding another layer of complexity, RFR is currently embroiled in a dispute with Cooper Union concerning the Chrysler Building. Aby Rosen’s firm is contesting a lease termination at the iconic skyscraper, further highlighting the multifaceted challenges RFR is encountering across its extensive New York City real estate portfolio. The foreclosure lawsuit at 17 State Street underscores the mounting financial pressures facing RFR as they navigate a complex economic landscape in the New York commercial real estate market.
