The moment of truth is finally here…probably. After months of shots back and forth In a lawsuit between billionaire design center owner Charles Cohen and his lender Fortress Investment Group, a critical date is approaching. Barring a last-minute settlement, a parcel of assets owned by Cohen, including the Design Center of the Americas, will be put up for auction to the highest bidder this Friday.

If this happens, we won’t know the results of the auction until the end of the week at the earliest. But for now, it’s worth taking a moment to examine how we got here and what’s at stake.

Who is Charles Cohen?
Charles Cohen is the billionaire scion of a Manhattan real estate family. After taking over as president of his father and uncles’ company in the 1980s, Cohen expanded his portfolio to encompass 12 million square feet of commercial real estate. Today, his empire includes four design centers: the Decoration & Design Building in New York, the Decorative Center Houston, the Pacific Design Center in Los Angeles, and the Design Center of the Americas in Dania Beach, Florida. Cohen Brothers Realty is one of the largest landlords in the design industry.

How did we get here?
In September 2022, Cohen borrowed $533 million from Fortress, an investment management company, largely to refinance previous loans. As part of the deal, he put up a parcel of properties, including DCOTA, as collateral and personally guaranteed $187 million in debt. In February of this year, Cohen’s company missed payments to Fortress and the lender quickly filed a lawsuit.

Cohen’s team insists that he was negotiating in good faith with Fortress over repayment terms and that the foreclosure decision was rushed. Fortress disagrees, and a judge has allowed the company’s proposed foreclosure auction.

What is this auction and will it take place?
Fortress is preparing to auction off its collateral, a portfolio of real estate assets that includes DCOTA. Auctions are conducted under what is known as the Uniform Commercial Code, or UCC, a set of rules that govern commercial transactions. Simply put, a UCC auction allows Fortress to sell the warranty faster than a “normal” auction. If it comes to fruition, it would be the largest UCC auction in U.S. history.

The auction is technically scheduled for Friday, November 8. However, serious doubts remain as to whether it will come true or not. The sale has already been delayed onceand in prior communication with Home Businessa representative for Cohen Brothers Realty said he “did not expect a foreclosure sale to take place.” Rumors about DCOTA’s tenants are rife, with speculation that Cohen – a billionaire – will provide the funds to delay the project at the last minute.

However, in the run-up to the auction, Fortress filed a slew of documents suggesting otherwise. According to his legal team, Cohen has transferred ownership of various assets over the past year, including a $20 million home in Connecticut and yachts totaling about $50 million, in a way that could protect those assets. properties of a possible seizure. All of these moves suggest the possibility that Cohen is preparing for the worst-case scenario: the auction goes ahead, the sale proceeds don’t cover his debt, and Fortress will personally sue him for the $187 million he guaranteed.

The trial documents also paint a dire picture of Cohen’s business operations. A December 2022 audit showed that his business empire was operating at a loss, with negative equity of $500 million, and that there were “substantial doubts about the company’s ability to continue as a going concern.”

What would happen at the auction?
Fortress would sell ownership of the collateral properties, which include DCOTA as well as a movie theater chain and a hotel and golf club in Florida. The money would be used to pay off the loan balance of nearly $600 million (it grew from the original $533 million as interest accrued).

In many auctions of this nature, the creditor (in this case, Fortress) ends up winning the assets through what is called a credit bid, a mechanism that allows the creditor to bid at the auction using the money owed to him. In this scenario, Fortress would end up owning DCOTA. However, it is possible that another bidder will come and snap up the Florida design center at auction.

What happens after the auction?
There are many possibilities. However, it is likely that, if the auction goes ahead, DCOTA will change hands at least once. In this case, the new owner will have to seriously consider whether to operate the building as a design center, sell it or move to another business model. Court documents have shown that DCOTA is currently losing money – given that it will have a clear incentive to change. something.

There’s also no guarantee that the UCC auction will generate enough money to cover the $600 million debt Cohen owes Fortress (most observers say it won’t). If not, the lender will be legally entitled to recover $187 million in Cohen’s personal assets, plus whatever it can extract from Cohen Brothers Realty. In short, this auction probably does not mark the end of this story.

What does all this mean for the design industry?
The implications of this lawsuit and potential auctions are broad and unpredictable. If Cohen loses DCOTA and he and his company are still responsible for hundreds of millions in debt to Fortress, it is possible that Cohen Brothers Realty will be pushed to take cost-cutting measures. Read: Don’t expect any big renovations to D&D or PDC anytime soon.

It is also possible that Cohen will be forced or coerced into selling other design centers to cover his debts. If this happens, it will represent a profound change in the cities where these centers operate. The new owners might be inclined to revitalize and reinvigorate these buildings for the next generation of designers. Or they might be just as inclined to reuse them for an entirely different purpose.

Cohen continues to fight in court and it’s possible the auction could be postponed or canceled. Other legal twists and turns are likely. But for now, all eyes are on Friday.