Charles Cohen, a prominent billionaire and the force behind Cohen Brothers Realty based in New York, is facing financial challenges with the Pacific Design Center in West Hollywood. The center is encountering difficulties as profits decline, highlighted by a $245 million loan for two of its buildings being flagged for concerns over its debt service coverage ratio (DSCR), as reported by the ratings agencies Morningstar and Trepp. Attempts to reach Cohen Brothers Realty for comment went unanswered.
The DSCR metric is crucial in evaluating a property’s financial health, measuring the income generated against the debt obligations. A DSCR below 1 indicates that the property is not generating sufficient income to cover its debt payments. In November, the DSCR for Cohen’s loan was reported at 1.16, below the preferred minimum of 1.4. This shortfall is attributed to a combination of low income and high operational costs, as noted by loan servicers and cited by Morningstar.
Adding to Cohen’s financial woes is an additional $600 million in overdue debt associated with properties in New York City, compounded by a missed debt payment in January, according to information from Trepp.
This financial strain surfaces shortly after Cohen secured a $265 million refinancing deal for the two buildings at 8687 Melrose Avenue, encompassing 1 million square feet. The refinancing, initially facilitated by Goldman Sachs before being converted into commercial mortgage-backed securities (CMBS) deals, is subject to a fixed interest rate of 5.94 percent. The implication is that any deterioration in the DSCR is primarily due to a decrease in net income rather than changes in interest rates.
Occupancy rates for the two buildings were reported at 77 percent towards the end of September, as per the loan servicer’s notes. The Pacific Design Center, recognizable for its three distinctively colored glass buildings – blue, green, and red – with the largest dubbed the “blue whale,” serves as a hub for over 70 showrooms. These spaces are dedicated to a variety of design disciplines including home decor, art, theater design, and books, making it a central figure in the West Hollywood design community.
In November, Cohen’s loan was reported with a DSCR of 1.16, which is concerning as it falls short of the preferred minimum of 1.4. This shortfall is largely due to a combination of low income and elevated operational costs, as highlighted by loan servicers and reported by Morningstar. Such a situation can lead to increased scrutiny from lenders and potential challenges in securing future financing.
Turn the Red Building into a very high end condo building.
I call dibs on whole top floor with the dramatic window on the east and the balcony on west.
BTW – anyone see my lottery ticket floating around?
As someone who uses the PDC on a regular basis, I am unaware of the property’s debt. However, for years, the owners and stakeholders have been trying to diversify the inhabitants to include media, medicine, and design professions.
It might really help if a valid University offered classes or even a few Degree programs in the PDC like Cal State Downtown does in an LA skyscraper. Serious training in CAD & Simulation and, Architecture & Design would give the PDC along with West Hollywood resident students some serious credibility. It could attract some world class Architects & Designers to locate here. I’ve learned quite a bit from Epidemiology classes and, even designed an ad for my program. Hope they let me post it❗
The reality is most designers in the US and overseas rarely go into these buildings. They can go on a variety of websites to all on line stores to purchase everything an interior designer needs and seriously the field itself has shrunk according to men and women I know how are well known and once highly paid for their work. But one need only go to the internet and find what a client wants and look at pictures and make the purchase and then mark it up but what was once a mark up of 20 to 30 percent over… Read more »
What’s sort of amazing is that they have financial issues after all these years of ownership or haven’t ever thought of a plan to reinvent the two older buildings.
A 77% occupancy rate is pretty good given the type of buildings they are. The high loan amounts really reflect the unrealistic value put on the building by the owners and appraisers. The banks also looked the other way. The debt will trimmed and refinanced as in most all of these situations coast to coast. The Cohens will be just fine.
I know nothing about the debt on the property, but as someone that uses the PDC regularly, owners and stakeholders have been attempting to diversify occupants to include media, medicine and still maintain design professionals for years now. The blue whale has nearly no foot traffic any longer. That doesn’t mean the design companies aren’t doing well, it just means the large expensive showrooms are obsolete now days. The PDC was conceived at the height of America’s fascination with “going to the mall”. Times have changed and so have the design community’s buying and sampling habits. And don’t forget, the… Read more »
talk to Andy Solly and convert to homeless housing!
Offer still stands to meet in person anytime Peter!