Residential Conversion or Bust for Two Office Buildings: RXR’s Scott Rechler
By Mark Hallum February 2, 2023 3:07 pmreprints
Scott Rechler could be handing over the keys to at least some of his kingdom to the bank.
That is, if they can’t work out a deal with lenders to help the firm convert two of its New York City office buildings to mixed-use residential, Rechler told Commercial Observer.
If Rechler’s RXR cannot reach a suitable agreement to redevelop the undisclosed buildings, it plans to relinquish control to the institutions that lent RXR the money in an effort to free itself from debt as the leasing market continues to stagger out of the pandemic.
“We need [the banks] to cooperate to enable us to do that in a way that makes sense,” Rechler said. “Some buildings aren’t going to come back to be competitive as office buildings, so you need to think of what the alternative is. Those two are in that camp
“We’re looking at converting to residential and mixed use,” Rechler added. “We’re having conversations with the lenders, we’re prepared to invest that capital to do it if we’re able to bring that to fruition.”
The Financial Times first reported that Rechler was in talks with banks to “give the keys back” to some of its “obsolete” office buildings. Recher didn’t share with FT how many properties he was looking at — only saying that 10 percent of its office portfolio fell under that category — but told CO it’s only in talks to fund conversions of two buildings at this stage.
Rechler declined to name those two buildings and the firm currently owns well over 60 properties in the New York City metropolitan area across 25 million square feet.
They definitely don’t include RXR’s under-construction 175 Park Avenue, one of several major developments in a section of Midtown East that has been targeted by developers for ultra-luxury office buildings designed to lure tenants — and their employees — back to offices.
RXR has set 175 Park within the trend of SL Green Realty’s One Vanderbilt, which topped out in February 2020 and is almost fully leased with asking rents well above $300 per square foot.
Class A properties parked next to Grand Central Terminal — with its newly opened Long Island Rail Road concourse known as Grand Central Madison or East Side Access — have been hot commodities. But it’s a totally different story for other office space around the city.
In an attempt to reinvigorate the real estate market in the rest of Midtown, Mayor Eric Adams has targeted areas where he hopes to implement a wave of office-to-residential conversions and create 20,000 new units of housing through rezoning, Commercial Observer previously reported.
After all, the 2017 rezoning of Midtown East may have worked in bringing new development to the area surrounding Grand Central.
RXR isn’t the only NYC landlord to pull back on office. Empire State Realty Trust (ESRT) — owner of the iconic Empire State Building — has been pushing to buy multifamily properties around the city as it deals with high office vacancies in its portfolio, Crain’s New York Business first reported.
In December, ESRT bought a NoHo apartment building for $114.9 million to help with those efforts.
Mark Hallum can be reached at email@example.com.