RFR Holdings has been struggling to hang on to the Chrysler Building after Cooper Union, which owns the land beneath the Art Deco skyscraper, moved last week to take control of the tower, citing overdue ground lease payments. RFR fought back, arguing in legal filings that Cooper Union hadn’t properly filed the paperwork, which also contained errors — not the most explosive rebuttal, but at the very least an effective volley. Now RFR is claiming that the school’s handling of campus protests last year drove away tenants, compromising RFR’s ability to make rent payments, Crain’s reports.
“Certain tenants” — whom RFR declined to name — were, per the new legal filing, so upset by how Cooper Union handled campus protests over Israel and Palestine that they canceled, terminated, or refused lease extensions at the Chrysler Building. But while some alumni threatened to cut donations to the school after a pro-Palestinian protest resulted in a group of frightened Jewish students seeking refuge in the library, there was no public discussion of a more complicated divestment campaign from Cooper Union’s real-estate holdings.
Still, RFR maintains that the school’s handling of the protest “profoundly disturbed” members of the real-estate community who “inextricably associate” Cooper Union with the Chrysler Building, and who have vacated “tens of thousands” of square feet in the tower, Crain’s reported.
There are reasons to suspect the claim may be a bit wobbly, at least when it comes to overall occupancy numbers: The Chrysler Building has a higher occupancy rate this year than last, as CoStar reported: 85.7 percent, as opposed to 82.8 percent last year. And the building has less vacancy than the Grand Central market in general: 14.3 percent as opposed to 16.4 percent, suggesting that even if some tenants were turned off by Cooper Union, it hasn’t seriously hampered leasing at the building.
The more serious problem seems to be the cost of the ground lease and the blow dealt by the pandemic. When RFR and its Austrian investment partner, Signa Holdings, bought the building for $150 million in 2019, the annual lease payments were set to increase from $32.5 million to $41 million by 2028. Even before the pandemic, the Chrysler’s rundown office space was snubbed by blue-chip firms seeking sleeker towers and column-free space. While the vacancy rate hovered around 5 percent in 2014, it was at 29 percent right before the pandemic, and in 2022, it shot up to 38 percent.
Though the number has since dropped, RFR also spent $150 million on capital improvements to lure new tenants. And the work is far from complete: The New York Times reported earlier this year that tenants in the building have complained of cracked ceilings, brown water bubbling from the water fountains, and rodent infestations that resulted in employees being banned from eating at their desks. Last year, Signa was ordered by an Austrian court to sell its Chrysler Building stake after it defaulted on other debts. The largest tenant in the building is Spaces, a co-working company, according to CoStar, followed by law firm Moses Singer and Creative Artists Agency.
Cooper Union, which historically provided free education to all students (but in recent years, facing severe financial difficulties, began charging tuition; its leaders say the institution hopes to go back to full scholarships by the end of the decade) says that RFR has missed $21 million in ground-rent payments since May. RFR claims that Cooper Union didn’t engage in good faith when it tried to renegotiate the ground lease in light of the changed circumstances following the pandemic. Cooper Union, meanwhile, says that RFR ignored its good-faith attempts to work things out and, in a letter to RFR obtained by The Real Deal, accuses RFR of repeatedly misrepresenting the situation by assuring Cooper Union that it had “things under control.”