Great Scott!: Rechler Talks Reckson, RXR and Redevelopment
When he was a kid, Scott Rechler was always the top hat or the race car when he played Monopoly.
That might tell you something about the founder of RXR Realty.
First, there’s the fact that Monopoly was the board game of choice. “[It] was always my favorite game,” Rechler told Commercial Observer. “My brothers and I would play it for hours.”
The top hat suggests a certain debonair quality—a suave, worldly real estate figure. And then there’s the race car, which perhaps implies two things—the guy likes speed, and he’s interested in transportation.
Sound like anyone you know?
Of course, Rechler’s connection to the profession goes much deeper than a board game. His grandfather, William Rechler, built New York City’s first industrial park in 1958 before creating Long Island-focused real estate firm Reckson Associates with Rechler’s father and uncle in the 1960s.
Today, Long Island, N.Y.-based RXR is one of the largest owners, managers and developers in New York City with 74 properties valued at a whopping $15.7 billion in its portfolio.
All the while, Rechler, who turns 50 next month, is busy trying to fix the city’s transit woes (as an Metropolitan Transportation Authority board member) and its traffic congestion issues (recently joining Gov. Andrew Cuomo’s FIX NYC Committee). And this is hot on the heels of his “tour of duty” as vice chair of the Port Authority of New York & New Jersey.
Most recently, RXR, with SL Green Realty Corp., announced it would purchase a 49 percent stake in Worldwide Plaza. Although prohibited from elaborating on the deal, scheduled to close this month along with a $1.2 billion Goldman Sachs-led debt refinancing, “It’s very easy to be bullish about what’s happening in New York right now,” Rechler said when CO met with him at his New York office at 75 Rockefeller Plaza, an RXR building on West 51st Street between Fifth Avenue and Avenue of the Americas.
Rechler grew up in Port Washington, Long Island. Today, he splits his time between Manhattan’s West Village and Old Brookville, Long Island. He lives with his wife Debby and their daughter Gabrielle (23), son Elijah (20) and adopted son, Tyrone (20).
Commercial Observer: How has the transition into the MTA role been since Gov. Cuomo nominated you as a member of the board in June?
Rechler: When I finished the Port Authority role [in 2016], my tour of duty as I call it, my intent wasn’t necessarily to be redeployed as quickly as I was [laughs]. But, the areas that create the greatest risk for the health of New York City are the capacity and affordability of our transit system. If people can’t rely on transit to get to work, to get home to more affordable housing and to see their kids and family then this whole “quality of life” model isn’t going to work. As things start to break, you realize that we were living on borrowed time, and our credit is now due. There’s major heavy lifting to do.
Do you enjoy it?
I enjoy it because I love New York, I care about it. I want to put something forward to get [the city] on the right course.
So, is it your fault my train is always late?
You can’t even imagine how many texts I get from people when they have train problems now, like, “I’ve been stuck underground for 20 minutes!”
Were you always destined for a career in real estate?
There are pictures of me growing up with building blocks in one hand and a phone in the other so I guess that was the thing I was going to go into. That’s when I had hair. I’d always walk the different job sites with my father and talk about different real estate business. It gets in your blood.
I understand you were almost a lawyer.
That’s right. At the last minute, I decided to skip law school and go into the family real estate business at a unique time. It was 1989 and the beginning of a real estate recession, so the way that things had been done historically was about to be transformed. We were in pretty good shape coming out of the downturn, relative to others, so there was a view that if we could access the public markets that would give us a currency to be able to acquire those other generational real estate businesses. So we took my family business [Reckson Associates Realty] public in 1995 and used that platform to grow from a Long Island company to a $300 million New York tri-state area company.
You were the architect behind the IPO. How old were you at the time?
I was 26. I’m more sensitized to the significance of that now that I’m 50. I remember being on the road meeting all of these big institutional investors, and they were looking at me like, “We’re going to support this kid?” But ultimately they did, and we did a lot of transactions. Then, in January 2007, we sold to SL Green, which was a tough decision to make because it was a family business that my grandfather had started.
How did you reach that decision?
It wasn’t easy. Selling a company, even if it’s not a family business, is always tough. Mike Maturo [the president of RXR] came over to my house one Sunday, right before we launched the sale, and he said, “Look before we launch this thing I need you to know that we don’t have to do this. We know this is your family business.” I said, “No, we’ve gone over this. We feel this is the top of the market, and I’d rather sell and start over afresh.” It was nice that he came over to have that conversation with me.
I was at a barbecue that night, and my son [Elijah], who at the time was 10 years old, comes up to me and says, “Dad, I heard you and Mike talking about selling Reckson. But it’s not yours to sell, dad. That’s the family business.” I’m already emotional and I now have tears coming down my eyes into my burger as I’m trying to explain that it’s complicated and a once-in-a-lifetime opportunity. I was saying that we thought it was the right thing to do for our shareholders, for our employees, for everyone. He says, “Dad, this is the biggest mistake you’ll ever make in your entire life,” and then he walks off and leaves me there!
We sold in January 2007 [for $6 billion] and literally the next day formed RXR. I always say that the reason for me getting up in the morning and going to work everyday is to prove [Elijah] wrong and that it wasn’t the biggest mistake of my life.
Not taking some time off after we sold. The whole process is hard enough—selling a company like that. We generated 700 percent returns for our shareholders, but even though we saw with clarity that it was the time to sell, the whole market was so bullish that shareholders thought we were selling too cheap.
How did you know it was the right time to pull the trigger?
When you take that step as a public company you want to know that you’ll be able to get [the deal] over the finish line. Knowing that there were multiple bidders that could write $6-plus billion checks and would have interest in our company gave us the comfort to go forward.
Plus, you already had a relationship with SL Green?
Yes. When I bought Tower Realty Trust [in 1999] I sold all of the Class B assets to SL Green. My first meeting with [SL Green Chairman] Steve Green was Marc Holliday’s first day at the company. We’ve always have a very good relationship.
Did you take advantage of any buying opportunities during the crisis?
In August 2009, we bought debt from a public company at a 30 percent discount to face value because they were trying to deleverage. It was on 1166 Avenue of the Americas, which was leased to J.P. Morgan. We were getting a 15 percent return, $400 a foot. We spent weeks in investment committee deciding whether to buy it in case J.P. Morgan went out of business—which at the time was a perceived real risk. But we did that then we began to buy from hedge funds and private equity firms that were looking to get rid of their real estate exposure. The market ultimately shifted in 2010, and we invested about $1.5 billion in Midtown South with Starrett Lehigh [at 601 West 26th Street between Eleventh and Twelfth Avenues] and 620 Avenue of the Americas [between West 18th and West 19th Streets]. Then we were off to the races, continually focusing on where the customer was going next and trying to be there.
How is your multifamily pipeline shaping up?
We have 5,200 units under development at the moment in five markets [New Rochelle, Yonkers, Glen Cove, Hempstead, [N.Y.,] and Stamford, [Conn.]. It’s going to be extremely valuable as a portfolio five years from now. The areas we’ve targeted are suburban downtowns near public transit where you can create walkability and quality of life, places that have character and diversity, yet are 30 to 40 minutes from Midtown Manhattan by train or ferry (a.k.a. “urban-suburban”). We’ve been doing these public-private partnerships with local governments where we become the master developer and build on vacant land. We build great tax revenue, generate demand in their downtown, help revitalize the area and reverse a cycle that has been going negatively for some time. What’s rewarding is, because it’s so localized and relationship-driven, you feel like you’re making the community better. Our motto is “Do good and do well at the same time.”
Which development will come online first?
Our first [new multifamily] project is coming out this year in Stamford, Conn., and then every year subsequent to that the rest will come on—over the next 24 to 30 months.
Stamford has changed significantly since the boom.
It has. We used to be the largest landlord there, so we have a good feel for the city. There was a period of time in the late 1970s where office buildings were built like fortresses because of the crime there. Now, for urban planning purposes, you want the opposite. They’ve done a great job of opening the city up and making it walkable. The financial services firms never really clicked there—the reality is that talent wants to be in New York, so UBS brought all their people back [to New York City].
Speaking of UBS, how did the 1285 Avenue of the Americas purchase come about?
We have so many disciplines here—we have the financial sophistication, we have the leasing and market understanding, and we’re in the flow of things. When we bought 1285 Avenue of the Americas [for $1.7 billion, last year] it wasn’t that we [had plans to redevelop] the building, it was that UBS was in the market to leave [its 900,000 square feet], and because of that, there weren’t any bidders that were willing to take that risk.
Mike [Maturo] and I were in China meeting with investors and every single one asked about 1285 Avenue of the Americas. They said they were interested, but wouldn’t go near the building because UBS was leaving. So I fly home and call the broker to ask what [bids had come in]. He said, “We have this guy from China, and that guy from China,” and I said, “No, you don’t, because I spoke with them all [and know that to be false]. So here’s [the price] we would be at to buy the building.” I gave him the price and we ended up settling at that. I knew the tenant didn’t really want to leave but they didn’t like the landlord. And, I knew there was no competition. Within five months we negotiated a long-term extension for UBS.
Is revamping Midtown buildings still high on your priority list?
Yes, we view ourselves more as a redeveloper than a developer. Even in the suburban areas, we’re redeveloping the iconic downtowns. In Manhattan we’re redeveloping iconic, irreplaceable office buildings that we’re buying at big discounts then reinventing them for the 21st century. This building [75 Rock] is a great example—we’re respecting the character of Rockefeller Center and using materials that are similar to the limestone of the architecture era of the 1940s and 1950, but we gutted the entire building and everything is brand new. So you have this iconic, landmarked building in an unbelievable location that now has everything modern in it. Same thing with Helmsley Building and 237 Park [Avenue between 45th and 46th Streets]—we’re always looking for situations like that.
Starrett Lehigh was another makeover.
Yes. When we bought it [in August 2011] the rents were $30 a foot, and now we’ve done enough work that we’re getting $65 a foot. We’ve taken a building that had the right bones and added the right amenities and touches but still respected its history and its character. It’s now in high demand.
You’re still bullish on Midtown East?
I think we’re in a state of equilibrium, but our view is it’s still healthy. We’re not underwriting big rent increases right now, but I think as we go out three to five years we’ll be back at a point where it will be a landlord’s market. There’s financial services job growth at the fastest pace it’s been at since the downturn in 2008, so if that continues growing along with media and tech you’ll have more demand that will drive rents back at a faster pace.
How is Pier 57 coming along?
We’re getting ready to deliver it to Google at the end of this year, and they’ll start their buildout. It’s coming along on time and on budget. [Rechler said there are no updates on Anthony Bourdain’s food hall opening at the site.]
You’ve done some huge refinances recently—a $1.4 billion refi of 5 Times Square plus a $850 million refi of 237 Park Avenue. What does that say about the debt markets?
All the debt markets are very strong right now. There’s more demand from lenders than there is supply of properties. So whether it’s CMBS or balance sheet loans, the appetite is there and the rates have come down fairly dramatically. At 237 Park we are at a 3.9 interest rate for 10 years. As an owner you’re less likely to sell if you can refinance at such attractive terms, unless there is a buyer who is willing to pay premium-type pricing, that is.
RXR provided $463 million in mezzanine debt to Extell Development’s Gary Barnett last year for three Manhattan residential properties—what was the appeal there?
A lot of banks were pulling out of the construction marketplace. RXR went into the year with a view that we wanted to meet with all of the major developers that had attractive projects and more on their plate than they thought they’d have in a market where they’d get less loan proceeds than they thought they’d get. Gary and I had lunch and started talking about this opportunity and picked out a few buildings. A year later we finally closed, as often happens [laughs]. It was a good deal for both of us.
Any new trends on the financing side?
I think the fluidity and efficiency of the syndication market is something that is new, in terms of how well J.P. Morgan and Morgan Stanley can take loans down on their balance sheets and de-risk by syndicating out the loans. On the equity side there has been no slowdown in demand, but it requires you to be disciplined. Last year we bid on $40 billion of transactions and we did zero new deals. We closed what we had coming in from 2015 but did no new deals because they didn’t meet our pricing and return expectations.
How did you get involved in the Drum Major Institute (a nonprofit organization focused on equality initiatives, founded by Rev. Dr. Martin Luther King Jr. in 1966)?
I got involved in 2008 through one of my associates Bill Wachtel whose father was counselor to Martin Luther King Jr. The mission is focused on social justice consistent with what Martin Luther King would want, which is also consistent with my values. I’ve been focused historically on voter rights and access to voting. This election is a perfect example; you have all these people marching the day after [Donald] Trump is elected [president] but how many didn’t vote? As a democracy the most important thing to do is to vote. You don’t have to be elected official to exercise your political rights.
Similar to what happened in the U.K. with the Brexit vote.
I had dinner with [David] Cameron [former U.K. prime minister] right after the Brexit vote…We talked about the comparison, and he said there’s no way it’s going to be the same situation. The Brexit vote happened not because there was a person behind it but because it was an issue that people identified with. He was wrong.
How have those events impacted New York?
Brexit is a plus for New york in terms of investment because it puts a mark on London. With the election, immigration is a big [concern]. One of the things that makes New York so special is the diversity of people that live here. The good news is that we as a community are making sure that we embrace people from all different parts of the world, but there are people in our job sites that have been paying taxes and next thing [Immigration and Customs Enforcement] takes them and deports them back to their country—and they have kids here. It’s tough. Of all the issues, that is the one that feels like there is a dispassionate understanding of the values of America, and New York.
What’s on the agenda for the rest of the year?
If I tell you, all my competitors will know [laughs]. We have a few large transactions we’re working on, and we want to deliver Pier 57 to Google. I’d also like to get the trains to run on time.
Would you run for mayor?
No. But thank you.