RFR Faces $224M Pre-Foreclosure Amid $134M in Loan Defaults

Key Takeaway

• RFR Holding faces a $224 million pre-foreclosure on 522 Fifth Avenue due to multiple defaults, including missed payments and financial statement failures.
• The firm has defaulted on several other loans this year, totaling over $134 million, highlighting significant financial distress.
• Amid these challenges, RFR sold 980 Madison Avenue for $560 million and is attempting to sell another property at 281 Park Avenue South.

Aby Rosen's RFR Faces Foreclosure

Aby Rosen’s RFR Holding is facing a significant financial challenge as Column Financial, a Credit Suisse affiliate, has filed to foreclose on the firm's 522 Fifth Avenue property. The foreclosure filing comes after RFR failed to pay off a $224 million mortgage at maturity. This development adds to a series of financial troubles for RFR, which has been grappling with multiple defaults and unpaid bills. The 23-story building, once Morgan Stanley’s wealth management headquarters, was acquired by RFR in 2020 for $350 million with a floating-rate loan from Column Financial. The recent surge in interest rates, which have increased by 525 basis points since March 2022, likely contributed to the default.

The Financial Strain on RFR

RFR's financial woes are multifaceted. According to the foreclosure complaint, RFR defaulted on several fronts, including failing to make a "true-up payment" for property taxes, resulting in a $1.7 million shortfall covered by the loan servicer. Additionally, RFR stopped making payments into an account for interest rate caps, defaulting on about $1.8 million. The firm also failed to provide financial statements for the property, further triggering default conditions. These issues culminated in RFR's inability to pay off the $224 million mortgage by its maturity date in March, leading to the foreclosure filing.

Broader Market Implications

The foreclosure on 522 Fifth Avenue is not an isolated incident but part of a broader trend of increasing foreclosures in the commercial real estate market. According to data from [MULTI-SOURCES], foreclosure filings in Chicago surged in March and April, with Cook County recording 1,030 and 909 foreclosure lawsuits, respectively. This spike in foreclosures reflects the financial strain on property owners due to rising interest rates and economic uncertainties. Nationwide, foreclosure filings have seen a slight decline, but specific markets like Chicago continue to experience high foreclosure rates.

RFR's Struggles and Market Dynamics

RFR's financial difficulties extend beyond the 522 Fifth Avenue property. The firm has defaulted on several other loans, including an $80 million mortgage for a Gowanus development site and a $105 million loan for a Union Square office building. Additionally, RFR has faced legal challenges, including a lawsuit from a former executive seeking $20 million. Despite these challenges, RFR managed to sell 980 Madison Avenue for $560 million, a move that may provide some financial relief. However, the firm's ongoing efforts to sell other properties, such as the Gramercy Park office building, indicate continued financial pressure.