As tales of multifamily distress rattle investors, one corner of the market has been largely unscathed: market-rate buildings in New York City. Rents are near record highs, lease signings are up and the vacancy rate is at a 56-year low.
And yet, the debt on a mostly free-market portfolio owned by Abe Cohen went to special servicing last month after he fell 60 days behind on payments, according to Trepp.
Two of the properties, 566 Seventh Street and 350 Fifth Street are in prime Park Slope; the other, 372 Baltic, is on a tree-lined street in nearby Boerum Hill. All are freshly renovated and some units in 2023 rented for 80 percent more than two years earlier.
What gives?
Cohen, who heads Conway Capital, did not comment. His attorneys, Terrence Oved, and Darren Oved. noted the properties are “only a minor fraction” of Cohen’s 50-building portfolio, which spans Manhattan, Brooklyn and Philadelphia.
The “challenges,” the attorneys said, stem from interest rates and market volatility.
Rising rates have been a problem for floating-rate loans. But Cohen borrowed at a fixed rate.
Nor has occupancy been an issue. The three buildings with the troubled debt were full as of September.
It does appear, however, that Cohen was overleveraged.
Conway bought the portfolio in 2022. He financed the $6.8 million purchase of 566 Seventh Street with a $5.9 million loan from Derby Copeland Capital. The landlord tapped Seth Weissman’s Urban Standard Capital, one of his regular lenders, for $4.5 million in debt to pick up the Fifth and Baltic Street rentals for $6.9 million.
Less than a year later, Cohen refinanced the properties with about $12 million in CMBS debt spread across two loans with fixed rates of 6.85 and 7 percent. Cohen knew what he was getting, unlike the floating-rate borrowers blindsided by rapid rate hikes.
Still, the size of the loans, relative to the buildings’ revenue, elevated his risk.
The debt service coverage ratios on the deals averaged 1.25 at issuance, according to Morningstar. A DSCR of 1 means a property is just enough cash flow to cover loan payments; 1.25 is often the minimum required on multifamily deals. The lower the ratio, the higher the risk of default.
A report by S&P Global shows Cohen had even less wiggle room. Cash flow barely covered debt payments at 350 Fifth and 372 Baltic when the loans were issued; at 566 Seventh Street the DSCR was 1.17. S&P also noted Cohen had reported higher net cash flow — 14 percent and 11 percent, respectively, for the two deals — than what the ratings agency had found soon after, when the CMBS bonds were sold.
Both deals were highly leveraged. A loan-to-value ratio of 70 percent is average for multifamily; Cohen’s properties averaged 93 percent, according to S&P’s evaluation.
By November, Cohen was delinquent on both loans, according to Morningstar. Last month they were flagged for monetary default, Trepp reported.
Cohen’s attorneys said Conway Capital is talking with its servicers and “is confident these isolated delinquencies will be resolved soon.”
It’s possible Cohen stopped making payments to secure a loan modification. Struggling borrowers sometimes become delinquent to force a workout, even if special servicers, who work on behalf of CMBS bondholders, don’t like to be strong-armed. In other instances, investors will stop making payments if they expect to sell the properties.
Cohen may have needed money to handle an earlier default. A few months before buying the Park Slope and Boerum Hill properties, he fell delinquent on a $15.5 million CMBS loan backed by three recently renovated mixed-use buildings: 155 and 162 Montague Street in Brooklyn Heights and 6 Stone Street in FiDi.
Cohen had borrowed from Argentic, agreeing to terms that allowed the lender to go after his personal assets in an event of default. In August 2023, Cohen faced foreclosure on the property. The suit is ongoing, but his attorneys said the loan has been in good standing since August.
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