The fight over the Chrysler Building escalates.
Credit: Reuters Photo
New York: The uncertainty over the Chrysler Building, already in a questionable financial and physical state, grows as legal battles intensify.
In 2019, RFR, a New York-based development firm, and Signa, an Austrian real estate company, purchased the Chrysler Building -- but not the land it sits on -- for around $150 million. They entered into a ground lease agreement with Cooper Union, which owns the land below the building. As part of the terms, RFR and Signa must pay millions of dollars in rent to the private college each year. But last year, Signa filed for insolvency, and RFR has not paid rent since May, Cooper Union has argued in court.
On Oct. 31, RFR was removed from the Chrysler Building; a judge ordered that Cooper Union could start collecting rent directly from office tenants in the building and that RFR could no longer interfere with Cooper Union's management and control of the building. Earlier in October, Cooper Union had asked the New York Supreme Court to order a sheriff or city marshal to remove RFR from the Chrysler Building.
"The simple fact is that RFR and its partners have not paid their rent -- to the tune of more than $21 million and counting -- and must therefore vacate the building," said John Ruth, Cooper Union's vice president of finance and administration, in an emailed statement to The New York Times. For 2024, annual rent is $32.5 million, increasing to $41 million in 2028.
Cooper Union issued a lease termination notice in September, and RFR also filed suit against Cooper Union, claiming that the college sought "to commence an improper and fatally defective eviction proceeding."
RFR co-founder Aby Rosen told the Times in an emailed statement that the ground lease is "not sustainable or economically feasible." Rosen emphasized the difficulties brought on by the work-from-home culture, and said that his company invested $170 million into building upgrades and future plans.
While there's been a lot of attention on the battle over the Chrysler Building because of its landmark status, the situation isn't particularly surprising, said Ruth Colp-Haber, CEO of Wharton Property Advisors, a real estate brokerage.
In some ways, the Chrysler Building's current misfortune is part of the pandemic-fueled commercial real estate crisis that the rest of the city has been facing. "These landlords are just caught in this witches' brew of problems," Colp-Haber said. "You've got the occupancy rate, which has gone down. Fewer tenants are coming in, but all your expenses have gone up because the cost of construction has gone up and these older office buildings keep deteriorating."
For the subtenants in the Chrysler Building -- the businesses and individuals who have offices in the skyscraper -- confusion and worry over the future of the building are looming.
An Icon Loses Its Luster
When it took over the skyscraper, RFR, which also owns the Seagram Building on Park Avenue and the Paramount Hotel in Times Square, developed extensive plans of revitalizing its retail space and bringing back its storied Cloud Club.
Then, the pandemic hit. "Almost immediately, the ground rent at the Chrysler Building became unaffordable: The revenue generated by rent failed to exceed operating expenses including ground rent," Rosen said. He added that the building's occupancy rate "has dropped precipitously" and that the office space is currently "nearly half vacant."
For months before the current legal spat, the building was already in a lackluster state.
In July, the Times published a story on the building's deterioration. Office tenants complained of rodent infestations, murky water coming out of taps and poor cell service. The building's retail arcade was void of any tenants, the lobby's ceiling cracks were covered in duct tape and the revolving doors frequently jammed.
Over the past five years, RFR has made several attempts at renegotiating the ground lease with Cooper Union, but the college rejected all offers, Rosen said. In a court filing, Cooper Union said it negotiated with RFR in good faith and that they even reached a deal in 2023, but RFR chose not to move forward.
In a legal complaint filed by RFR in New York Supreme Court, the company also claimed that Cooper Union's handling of student protests repelled office tenants. "Certain tenants at the Chrysler Building have been so outraged, appalled, and disgusted that they" sought to terminate their leases or refused to extend them, the document stated. When asked, RFR did not specify which tenants had departed. In its response, Cooper Union called these allegations "irrelevant, scandalous, and prejudicial."
For the college, the current problem with RFR and the Chrysler Building is simple: Rent was due, and it remained unpaid.
Caught in the Middle
In a public statement released in September, Malcolm King, Cooper Union's interim president, said the college was engaging property management firm Cushman & Wakefield "to ensure a smooth transition for the building and our tenants, who will pay their rent directly to Cooper Union." But RFR followed up with a notice stating that office tenants should still pay rent to RFR, according to a source close to the college, and some tenants, caught in the middle of the fallout, are stressed and confused.
The office tenants in the Chrysler Building include some large companies such as the Creative Artists Agency, but also several smaller businesses, such as tech startups, medical offices and interior design shops.
Mo Elyas, founder of a framing business called Big Apple Art Gallery and Framing, said he was feeling worried about the future of his one-room office in the building. "I just signed a long-term lease. I'm not sure how it's going to work out," he said. "Now I'm concerned. My blood pressure is going up."
While there may be confusion in the current moment, nothing will likely change long term for the tenants, said Colp-Haber. "This happens all the time -- buildings are sold, and typically the leases just move with the building."
But what will be affected, she added, is the landmark's reputation. The public perception surrounding the Chrysler Building "affects the future leasing and the future revenue of the building," Colp-Haber said. As a commercial real estate broker, "I'm just thinking, do I really want to put one of my valued clients in that building?"