Investing billions of dollars in office real estate in Manhattan, now, Scott Rechler – chief executive officer of RXR Real Estate – must prepare to hand over some of his old offices to the bank.
The decision was made after a thorough review of RXR’s characteristics and acknowledging that some properties generate steady, if nothing special, profits.
Only modern buildings survive
In the new era of teleworking and rising interest rates, “I don’t think there’s anything we can do about them, the only solution is to give the keys back to the bank,” that’s how this investor put it. suspending debt payments and relinquishing control of assets while trying to find a solution with the bank.
Nearly three years after the COVID-19 pandemic shut down New York City and fundamentally changed the way people work, RXR’s plans reflect the increasingly clear fact that the world’s largest office market is geared toward to a difficult period.
Old buildings in dull locations become obsolete, unless they can be reused for other uses.
In times of trouble, only the best and most advanced towers, packed with technology, amenities, and located on public transport, attract tenants.
The best example is SL Green Company’s One Vanderbilt building near Grand Central station with record rents, even during the pandemic.
Mr. Rechler is also hoping RXR’s 175 Park building, which will be the tallest building in the Western Hemisphere when completed, will eventually surpass One Vanderbilt.
Next to it is the 5 Times Square area, where EY. RXR and its partners are spending about $300 million on refurbishing the building, adding everything from a new entrance hall and elevator to the spa.
“The genie is out of the jar”!
Also a board member of the New York Federal Reserve, Mr. Rechler is facing a difficult period in the coming months.
He noted that the sharp rise in interest rates from historic lows is threatening all types of businesses that rely on cheap and readily available capital.
Tech companies, one of the few remaining sources of office expansion, are laying off thousands of employees. And their hurt seems to be spreading across Wall Street.
“When companies lay off employees, they often don’t need a lot of work space anymore,” Mr. Rechler said, adding that “the number of real estate projects across the US is coming to a staggering halt.” .
Inheriting a fortune from his grandfather, a Long Island real estate investor, Mr. Rechler convinced family members to take corporate bonds public in 1995. Then led a venture capital push. venture into the Manhattan office market.
He “won” this investment for a while.
The first building he bought was from JPMorgan and leased it for 10 years.
New York’s office market recovered from the great economic crisis of 2008. By 2016, the office market peaked.
But with the pandemic, offices in New York and other cities are posing a major challenge to RXR and other real estate investors.
Mr. Rechler accepted that “the genie was out of the jar”, no more miracles!