By LOIS WEISS
A New York State judge has ordered Aby Rosen's company to stop interfering with the operations of the iconic Art Deco Chrysler Building in a first step towards terminating the 123-years remaining on his company's ground lease.
Cooper Union has been going after Rosen and his RFR Holding partner, Michael Fuchs, to collect over $21 million owed in rent and to terminate the ground lease they bought from Tishman Speyer in 2019 for $75.5 million.
In issuing the Halloween order for the injunction against RFR's entity, the court also said Cooper Union could notify tenants they were to pay rent to the college starting November 1 and must post a $500,000 bond by November 14.
"The Court clearly agreed that we were in our rights to terminate the lease, stating that Mr. Rosen and his partners had presented not one viable defense to the termination of the ground lease," a Cooper Union spokesperson wrote in an email statement. " "....we will take over the building’s operating expenses arising from and after November 1, 2024. We look forward to working with Cushman & Wakefield and our team of advisors to assume management of the property and to develop a long-term plan to improve the tenant experience and maximize the building’s value for the benefit of Cooper Union’s students.”
Savills is advising Cooper Union on next steps but it is likely they will advise that a new operator should be chosen. Should the board agree, Savills would issue an RFP to choose a brokerage that would then market the property to prospective investors and likely create a new operating ground lease.
In the meantime, Cushman & Wakefield will manage and lease the property.
Some real estate experts say that Cooper Union's best course of action would be to not have a ground lease and just hire a management and leasing company, because it is the ground lease payments that are killing the building.
But Cooper Union needs some $50 million a year to support the free tuition it would like to provide to all its students yet has not been able to do so for a decade because income has fallen from its other holdings -- causing a fiscal monitor to be appointed.
If it was to cut out a ground holder and the income from the rent payment, Cooper Union would also have to come up with the hundreds of millions of dollars needed for capital improvements and tenant build outs to attract new tenants but may not have the endowment or means to do so.
The court ruling is a big blow to RFR which bought the operating lease when the ground rent was a mere $7.5 million per year. If not modified, RFR’s current $32.5 million payment is poised to escalate to $41 million in 2028, and it's already unaffordable causing RFR to miss payments that along with the rent included monthly Con Edison electric bills and to other vendors.
Despite RFR saying they already spent $150 million in upgrades to the 1930 Art Deco tower, it is only 60% occupied and could use another $250 million to add those amenities desired by today's trophy tenants.
"Over the years, RFR has shown exceptional dedication to restoring and enhancing this historic property, to ensure it remains a leading address for tenants and a major asset for Cooper Union," a spokesperson for RFR said in a statement.
"This investment was not just about financial commitment; it reflects a broader vision to reestablish the Chrysler Building as a world-class office space, complete with meticulously planned upgrades, including revitalized retail F&B [food and beverage] and lifestyle spaces, modernized office interiors, large scale fitness, health and wellness amenities and the reimagined 61st floor indoor/outdoor Cloud Club, designed to recapture its former grandeur."
Architects working on upgrade plans include David Rockwell, Gensler and Ken Fulk.
Rosen claims in court filings that the single purpose entity that owns the ground lease is losing $1.7 million each month and that they had tried to renegotiate with landowner Cooper Union during the pandemic.
According to court filings, they never signed the deal because the proposed “unwieldy” 500-page document was “more onerous” than the current, 35-page lease - plus after two years, the deal was “stale, unworkable, and no longer `market.’”
Cooper Union says RFR didn’t sign because it couldn’t raise the money for its redevelopment plans from its “now insolvent Austrian real-estate developer Signa Holding GmbH” or other investors and has been slipping up on both rent and vendor payments since late 2023 -- with $13.2 million owed to vendors in May.
While trying to renegotiate and modify the ground lease, the RFR court papers claim Cooper Union “unreasonably demanded…millions of additional dollars” merely to consider modifications and terms that eventually became “draconian” and “unrealistic” due to the economic environment created by the pandemic and were “largely even more onerous than the financially impractical terms of the Amended Ground Lease [signed in 2019].
New York City also waives all real estate taxes but RFR must still make a “Tax Equivalency Payment” of about $18 million per year to the school, which it collects from the tenants and also skipped, Cooper Union claims.
The overdue rent since June prompted Cooper Union to try to terminate RFR’s operating lease for the 1.2 million-square-foot tower in September.
After withholding the ground rent for June and July, Cooper Union sent RFR a 30-day notice to cure, which RFR deemed “defective,” for not complying with the ground lease, not being sent to the correct address, nor having the correct rent, tax equivalency payments or interest. Nevertheless, RFR's attorneys sent an email accepting service.
On Sept. 13th, Cooper Union then sent a ten-day termination notice which RFR claimed was based on the “defective” notice to cure, and therefore, was itself “fatally defective.”
As a gesture of good will, RFR says it offered on Sept. 17th to send Cooper Union a $10 million non-refundable deposit and spend the $250 million in “capital improvements and leasing costs” and even prepay a $45 million mortgage -- but claims Cooper Union rejected the offer without showing it to its own fiscal monitor in violation of a previous consent decree, all of which the school denied.
RFR filed a complaint on Friday, Sept. 27 to stop the termination and within hours Cooper Union sent them what RFR describes as a “disparaging letter” that was also leaked to the press. The school advised its counsel would meet with RFR the following week of Sept. 30th.
Instead, Cushman & Wakefield executives were sent to the building on Sept. 28 to take over operations but RFR’s security kicked them out. Cooper Union also advised tenants to pay rent to the school, prompting the law firm Moses & Singer and another tenant to file their own lawsuit to ensure any new operators would not "disturb" their leases. Other tenants didn't pay rent at all.
RFR claimed Cooper Union failed to alert its fiscal monitor, Kroll, about the ground lease modification discussions and that the default and termination notices were improper, all of which the school denied.
In an amended filing, Rosen and Fuchs later claimed it was the school's fault they couldn't pay rent because the private college never condemned the mob that threatened Jewish students two weeks after Hamas attacked Israel on Oct. 7, 2023.
“Cooper Union’s mob (the `Mob’)” RFR’s court papers charge, “aggressively chased and pursued any students they deemed to be “Jewish”… [and its] utter failure to take any action to prevent, condemn, or otherwise discipline the rioters profoundly disturbed many members of the real estate and investment community…. that inextricably associate the Chrysler Building with Cooper Union.”
As a result, RFR's complaint continued to say that tenants “have been so outraged, appalled, and disgusted that they…sought to cancel or terminate their lease…refused to extend their leases,” or terminated negotiations to lease new space.
RFR was asking for $100 million in damages, along with another $10 million for interfering in its building operations and causing tenants to withhold their own rent.
But in a Monday Oct. 22 filing, however, Cooper Union called those allegations “scandalous, and prejudicial…asserted… unnecessarily to impugn Cooper Union’s integrity and reputation.”
Cooper Union asked for over $17.4 million in past due rent plus interest and other payments along with the rent owed since it tried to kick RFR out at the end of September.
The school also says if RFR was serious, they would have asked the court for a so-called "Yellowstone" injunction that would have required them to put up funds or shut up.
In issuing the October 31 order and injunction ordering RFR not to interfere with building operations, the judge also did not buy RFR's reasoning.
The large ground rent sums are designed to cover student tuitions and comply with a 2015 consent decree after the college, founded by Peter Cooper in 1859, mismanaged its affairs and a fiscal monitor was appointed.
The land was donated to Cooper Union by Cooper's relatives in 1902. It was then leased to the auto company for the iconic headquarters that opened in May 1930 as the tallest building in the world. Since then, the lease that was originally to end in 2028 has been sold, amended and extended and has already caused others to lose money on the tower.
When Woody Heller was marketing the ground lease in 1999, Donald Trump told me and I reported in Real Estate Weekly that it was a loser. "No one gets rich on the Chrysler Building," Trump said.
Donald Trump in 1999 on top of Trump World Tower with Twin towers, Empire State Building and Chrysler Building in background. That year, Trump said, "No one gets rich on the Chrysler Building."
Tishman Speyer and Travelers took on a new lease in 1999 when the rent was $5.5 million per year but had adjustments based on income from the building. In 2006, Cooper Union agreed to amend the rent to a higher but straight number. Two years later, the Abu Dhabi Investment Council bought a 90% stake, thus recapitalizing the building at a value of $800 million.
Based on the overzealous market values in 2008, that group obtained a $720 million mortgage. By 2012, however, the partners were only able to get a $300 million mortgage from an Abu Dhabi bank.
Donald Trump with Aby Rosen in 2012, seven years before Rosen paid $75.5 million for the operating ground lease.
When CBRE began marketing the ground lease in 2019, due to the once again rising markets, the tower had been expected to fetch $500 million or even reach $800 million. But it was not to be because the property needed too much work to bring it to trophy Class A standards and the rent leaped from $7.5 million in 2018 to $32.5 million in 2019. It is scheduled to rise to $41 million in 2028 and $55 million in 2038 to 2048 after which the parties will have to go by a fair market formula every ten years.
When RFR first purchased the icon that’s capped by its lighted and distinctive silver crown, Rosen said he had plans for an observatory and new restaurants and was going to explore a luxury hotel as tenant leases ended.
A lease with a cool Amazon store was also floated back then but never materialized.
In the court documents filed in hopes of keeping their ground lease, RFR laid out a litany of issues.
The court papers claimed there were “significantly more capital expenditures and improvements” needed than Cooper Union and/or others had led them to believe when they bought the ground lease.
But as a sophisticated and long time city investor in historical properties, -- including Lever House, which they lost in a ground lease dispute, and the Seagram Building -- real estate sources say Rosen and Fuchs should have done more in depth due diligence, or that they knew but were heady with the idea of operating the Chrysler Building and figured they could make it work with a luxury hotel and other changes.
Despite the pandemic upending commercial real estate, RFR “infused” $150 million into the building that included funding the shortfalls from the office tenants.
The skyscraper itself was developed in the crazy run up to the Great Depression when builders in the city were in a race to the top – and to build the tallest building in the world. In 1928, Chrysler’s developer and architect, William Van Alen was hired to build a 40-story building for Chrysler’s headquarters. But by 1928, it was 68-stories and 808 feet. But banker George Ohrstrom hired architect H. Craig Severance who was a former partner of Van Alen to build a 60-story project at 40 Wall St.
With the acrimony between the two architects fueled by their patron’s willingness to fund their follies, the buildings began what newspapers called “The Race to the Sky,” and each week, one of the buildings would rise more than the other, while the city watched with wonder and the media wrote endlessly about it.
Finally, at 925-feet, in April 1930, 40 Wall declared it was done and was the tallest in the world – but not for long.
It was at that point that Van Acken surprised the world by pulling out the stunning spire that had been constructed in secrecy and hidden inside the Chrysler Building becoming a crowning achievement when it opened on May 27, 1930 a full 120-feet taller.
On May 1, 1931, however, the Empire State Building took over that crown.
RFR's spokesperson stated, "The Chrysler Building stands as a testament to architectural innovation, and RFR’s work has sought to honor and enhance that legacy. Losing RFR’s leadership on this project risks not only the building’s financial stability but also its place in the heart of New York’s heritage and urban identity, marking a significant setback for those who cherish the city’s historic fabric. For the sake of all New Yorkers, we hope that the Attorney General and independent financial monitor, who are already involved with Cooper Union due to historical financial mismanagement, step in to make sure the Chrysler Building doesn’t fall into irreparable disrepair.”
RFR would not yet say if they will appeal the Supreme Court order but without putting up the millions of dollars they owe Cooper Union, RFR is unlikely to prevail on any appeal.
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