- RFR Holding, which holds the lease for the Chrysler Building, has missed $21M in ground-rent payments to Cooper Union, the landowner.
- RFR has filed a lawsuit to prevent Cooper Union’s takeover, and the lease is expected to terminate tonight.
- High interest rates and reduced office demand compound defaults and financial difficulties, adding to RFR’s struggles.
According to WSJ, the owner of the Chrysler Building (a partnership led by RFR Holding) is poised to lose control of the iconic Manhattan skyscraper.
Dicey Default
The company, which leases the land from Cooper Union, defaulted on $21M in rent payments. Cooper Union, the landowner, has announced its intention to reclaim the property, marking a significant shift in control of one of New York’s most famous buildings.
Cooper Union has declared that the building’s ground lease will terminate, and it has already hired Cushman & Wakefield to manage the property.
RFR, however, is fighting the takeover and has filed a lawsuit to block the move, claiming it would prefer a resolution through negotiations but is also prepared to engage in court proceedings if necessary.
Post-Acquisition Struggles
The art deco Chrysler Building, once the tallest in the world when completed in 1930, was purchased by RFR and an Austrian partner in 2019 for approximately $150M—a steep drop from its former valuation of $800M under its previous owner, the Abu Dhabi Investment Council.
Despite the seemingly discounted acquisition price, RFR faced the challenge of escalating ground lease costs, which shot up from $32.5M annually to a projected $41M by 2028.
Office Decline
The COVID-19 pandemic further complicated RFR’s position, undermining demand for office space in New York City and putting pressure on their efforts to attract higher-paying tenants.
RFR claims to have invested $150M in property improvements and covering rent shortfalls. However, a plan to convert part of the building into a hotel was ultimately abandoned.
Broader Troubles
RFR’s challenges aren’t isolated to the Chrysler Building. Last year, the Austrian investment partner Signa Holding began defaulting on debts, which led to a court order to sell its stake.
Meanwhile, RFR itself has faced foreclosure issues, including a recent lawsuit tied to a separate office building in Manhattan.
Uncertain Future
Cooper Union, which owns the land beneath the Chrysler Building, has not disclosed long-term plans for the property. Founded over 120 years ago, Cooper Union received the land as a donation and historically offered free tuition to students.
Despite the financial turmoil around the building, the school has stated that unpaid rent will not affect its plans to return to offering free tuition in the future.
Why It Matters
The potential loss of the Chrysler Building is indicative of a broader trend in the CRE market. The pandemic, combined with rising interest rates, has led to a significant increase in office property defaults.
The total value of foreclosed and distressed commercial properties hit $20.5B in Q2, marking the highest level since 2015. Iconic buildings like the Chrysler Building are increasingly becoming casualties.
While the Chrysler Building’s future remains in limbo, its fate serves as a cautionary tale for the commercial property market. High costs and falling office demand continue to squeeze property owners, especially for historic buildings that require significant maintenance and struggle to compete with modern developments.
The upcoming months will determine whether RFR can retain control or if Cooper Union will fully reclaim one of NYC’s architectural gems.
