RXR in talks to surrender two office buildings to lenders
Firm to “give the keys back to the bank” in narrowed focus: Scott Rechler
UPDATED Feb. 3, 2023, 2:38 p.m.
Scott Rechler’s RXR is confronting the impact of remote work and rising interest rates by parting ways with a slice of its office portfolio.
The developer is preparing to hand some of his office buildings back to lenders, the Financial Times reported. The chairman didn’t specify to the publication which buildings or how many would be turned over, but likened about 10 percent of the firm’s office portfolio to Kodak film, implying they were outdated.
In a follow-up interview with The Real Deal Thursday, however, Rechler specified that he was in talks with lenders over just two properties, out of an overall $20 billion portfolio. Commercial Observer reported Friday that Rechler wrote to his investors that the two buildings were in Brooklyn (the article speculated that it was 47 Hall Street) and Lower Manhattan (61 Broadway, according to Crain’s).
The decision comes after Rechler tasked his team in December to create metrics ranking the firm’s office properties to identify the low-performing assets to which the company would cut off investment.
“In my opinion, we can’t do anything with some of them,” Rechler told the FT. He added that he was ready to “give the keys back to the bank,” meaning the company would stop debt payments and relinquish control of the assets.
The announcement comes as RXR holds steady in its bets on a flight to quality. The firm secured City Council approval for hotel and office space at 175 Park, which is expected to become one of the city’s tallest towers, and scored a $1.3 billion financing package for its renovation of 5 Times Square.
Rechler said he is willing to seek alternatives for the buildings he’s ready to hand over, but expects few if any apartment conversions to come out of them because of extensive logistical difficulties, such as the long and expensive process of clearing out tenants.
The firm is in good company among office landlords coming to grips with the hybrid work era.
Vornado Realty Trust earlier this week wrote down its real estate portfolio by $600 million, including $480 million on office and retail properties in Midtown. The REIT also recently slashed its dividend and was booted from the S&P 500.
— Holden Walter-Warner
This story has been updated with comments from RXR CEO Scott Rechler.
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