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Luck And Guts Might Not Be Enough To Ride This Real Estate Cycle

When Monday Properties paid $740M for the Helmsley Building in 2010, the company’s CEO, Anthony Westreich, was expecting a win, but he didn’t realize just how good his timing was.

Five years later, the company sold the office tower at 230 Park Ave. for $1.2B.

“When you have success like that, it's a lot of luck,” he said. “The combination of increasing the occupancy, increasing the cash flow and cap rates compressing made us look smart on that one, but we made mistakes elsewhere.”


Within a year of that sale, Manhattan-based Monday Properties had sold all 6M SF of its New York holdings, opting to chase office and multifamily deals in Northern Virginia. Westreich said the firm looked at some New York deals in the years since but didn't pull the trigger, and that is now a source of great relief. 

“We were lucky because anything bought in '18, '19 or '20 would just be worth less today,” he said. “I'm not suggesting it'll be that way forever, but it is at a moment in time. … You'll see a lot of smart, smart landlords divesting of office.”

The company is now back on the prowl, Westreich said, underwriting potential deals in the market to see if it can snap up a bargain — and potentially repeat its Helmsley Building success.

“New York's a great market,” Westreich said. "It just depends what cycle you're in and where you see opportunities."

As commercial real estate values drop in New York, loans come due and uncertainty hangs over the market, a new crop of real estate winners and losers is set to sprout from the turmoil. The last time there was such widespread distress was the Global Financial Crisis, and many of the big winners of that are still reaping the benefits of their good timing, good luck and foresight.

But real estate players who made winning bets in 2009, 2010 and 2011 said this moment is unlike any other. While some parallels to the recession might provide some guideposts for investors, accurately predicting this cycle is turning out to be far more difficult.

“In 2010, you could have bought anything and looked smart. Here, you have to be very selective,” said Marx Realty CEO Craig Deitelzweig, who was heading up Rockrose Development's office division at the time. “There was less of this existential threat on the office front. Today you really do have to convince people that this is smart to do. I think back then, people knew [buying] was smart to do, but they might not have had the financial wherewithal to do it."

Those who took the biggest bites out of New York City real estate in the immediate aftermath of the GFC range from private firms like Monday Properties and RXR Realty to REITs like Equity Residential and UDR and institutions like TIAA and the Canada Pension Plan, according to Ariel Property Advisors data on NYC commercial real estate sales in 2010 and 2011 provided exclusively to Bisnow.

Those big purchases cemented many firms’ dominance in the fabric of today's real estate market. Google spent the most over the two-year span when it dropped $1.8B on 111 Eighth Ave., kicking off 12 years of mammoth acquisitions leading up to its $2.1B purchase of the St. John’s Terminal redevelopment, the biggest property sale of 2022.

RXR Realty was the second-biggest spender, according to Ariel data, making some of its best-known purchases like 620 Sixth Ave., the Starrett-Lehigh Building and 340 Madison. Equity Residential came in third on Ariel's list, spending $1.1B on 12 properties combined in 2010 and 2011.

Some significant moves happened in the midmarket too. SL Green in 2010 took full ownership of the Lipstick Building at 885 Third Ave., paying about $39.3M to Gramercy Capital Corp. for a 45% stake. Last year, the firm sold a large office condominium in the property to Memorial Sloan Kettering for $300M.

“In retrospect, we wish we backed up the truck and did more,” RXR CEO Scott Rechler said in an interview last week. "In hindsight, you forget there is that moment of uncertainty." 

RXR Realty Chairman and CEO Scott Rechler

That uncertainty is back, and deal-makers say it is both worse today and in a different form. The key to beating the market, however, remains to move swiftly and have faith in a vision. 

“If you wait until it’s de-risked, then everyone else is in the market and you've missed the opportunity,” said Adler & Stachenfeld Managing Partner Terri Adler, who represented Angelo, Gordon & Co. in its 2010 partnership with Extell Development to buy the Helmsley Carlton House at 680 Madison Ave. from the estate of Leona Helmsley.

The pair paid $170M for the property, which had reportedly attracted scores of potential buyers. It was one of the few deals trading at the time, Adler said, attracting anyone who had any access to capital.

“You had people dipping their toe back into the markets [in 2010] and seeing the opportunities that were presenting themselves and having the sort of intellectual and gut rigor and willingness to take a risk," Adler said. "Other people were sitting on the sidelines.”

Deciphering the risk today is a bigger challenge, Adler said. In 2010, office, hospitality and retail were safe havens — a certainty that can't be relied upon in the aftermath of the pandemic.

“The way people are interacting with real estate on a day-to-day basis is so shifted,” she said.

Plus, while the economic meltdown of 2008 brought markets to a halt, today presents a complex mix of deep liquidity constrained by higher interest rates, higher inflation, supply chain snares and labor shortages.

“How do you buy something and underwrite it if you don't know what your costs are?" she said. "How does the lender make a loan if they can't anticipate where their coverages are going to be?”

111 Eighth Ave.

Long-held beliefs around location, too, have been upended by remote work options, the housing crisis and demographic swings.

Equity Residential doubled down in New York in 2010 and 2011. The Sam Zell-founded REIT’s purchases included a three-building portfolio from Harry Macklowe, who was facing extensive portfolio distress at the time. The $475M deal was for RiverTower at 420 East 54th St., the Longacre House at 305 West 50th St. and 777 Sixth Ave.

EQR and AvalonBay Communities also bought some 21,000 units across the country when they took over Lehman Bros.' troubled apartment developer in 2013.

“They are one of the best negotiators. They're very savvy, they're strategic,” said Piper Sandler Managing Director Alexander Goldfarb, an analyst who covers Equity Residential. “It showed with the Macklowe trade and then subsequently Archstone.”

But the buyers of apartments in gateway markets of yesteryear are now taking a different approach. EQR's strategy now is to reduce its exposure to gateway cities like New York, Goldfarb said.

"For EQR, it's going back to the Sun Belt and going back to Denver,” he said. “For Avalon, it's expanding their traditional bicoastal footprint. … Companies are taking these steps, and you gotta give them credit for that.”

While many large investors are looking at other cities, capital is still flowing to New York, Ariel Property Advisors founder and President Shimon Shkury said. But there has clearly been a swing of asset class preference.

Over the last decade, an average of 35% of total sales volume in commercial real estate in Manhattan south of 96th Street had gone into multifamily assets, Shkury said. But last year, 52% of the investment dollars changing hands in that area were in multifamily assets — and that is including Google's mammoth West Side purchase. 

Institutional giants like Blackstone, which bought rental tower 8 Spruce St. for $930M, and Carlyle Group, which snapped up smaller buildings in large quantities, were particularly active in multifamily last year as interest in office nosedived.

Shkury said that shows that savvy investors are still investing in New York City's attractiveness; they are just deploying funds differently than in 2010 and 2011.

“There’s a tremendous amount of institutional capital that's going to free-market [rentals] than office compared to the past,” he said. “It really shows the resiliency of New York City. If you're an institution and you're sitting there and you say, ‘I gotta allocate some money to New York City,' with all the hard parts of office and the hard parts about regulations, there's something great that's happening here.” 

RXR's Starrett-Lehigh Building in Chelsea, which it bought at the depths of the Great Recession.

Rechler said the “fog of uncertainty” is similar to 2008, but the fundamentals are completely different.

“I think this is more like the early '90s, which in some ways is worse, in some ways maybe better,” he said. “We’re going through a similar circumstance now in the interest rate environment where there's a regime change. … The values are going to be permanently lower, at least in this period of structural change.”

Rechler’s firm made some big bets straight after 2008, including purchasing the Starrett-Lehigh Building on West 26th Street for nearly $1B. The only lender that would finance the deal was New York Community Bank, he said, and his peers were calling him and asking what he was thinking.

“Today, that building is worth over $2B in the post-pandemic world,” he said. “A big piece of this is leaning into the market, hearing what's happening with our customers, understanding the demand trends and not waiting to see the historical reports that are being published, because, by that point, it's already happened.”

RXR owns 30M SF across 91 buildings, and while it is looking to pare back its portfolio, it is also looking to raise $3B to go on another downturn buying spree, Bloomberg reports

The big opportunity for RXR will now be lending and buying existing loans, Rechler told Bisnow. Last year, he joined with Macquarie Capital Principal Finance and the Qatar Investment Authority to provide a $261M preferred equity investment on Black Spruce Management and Orbach Affordable Housing Solutions’ $825M purchase of One and Two Sutton Place and One East River Place from the estate of the late Sheldon Solow — another large multifamily trade.

“We're getting equity-like returns on that vehicle because of the scarcity of capital in the market right now,” he said. “I think [my advice is] survive to 2025, and then there's an opportunity to thrive.”

But thriving in '25 starts with work this year, said Marx’s Deitelzweig, who said he is actively bidding on office deals in the city, even though accessing debt is a huge challenge.

“I do think this is a time where we are starting to see really attractive bases,” he said. “The consensus seems to be the second half of the year [the deals will come up]. But we're starting to see some properties right now.”

Monday Properties CEO Anthony Westreich in 2017.

Westreich also said there are opportunities in the city, but the stars need to align. When asked if he would buy an older office building in Manhattan for the right price right now, he said, "Absolutely."

“We're believers in New York long-term,” he said. “You’ve got to be really selective as to what asset you're buying, what street corner, what your business plan is, and you need to be well-capitalized. So it's going to be bumpy for a while.”

While Rechler is prepared to pounce, his portfolio is far from immune to the bumps in the road. RXR is running a review dubbed “Project Kodak” to assess each building in the portfolio to mark them as either digital or film.

Two buildings, 61 Broadway in the Financial District and 47 Hall St. in Brooklyn, have been earmarked for possible conversion to residential use. If those conversions don’t work, Rechler has said he “won’t throw good money after bad.”

RXR is reportedly shopping 1330 Sixth Ave., hoping to bring in more than $350M with the sale. It paid $400M for it in 2010, Commercial Observer reported. Blackstone, which last year handed back the keys on an office building it owned at 1740 Broadway, bought a 50% stake in 1330 Sixth, along with five other RXR office buildings, in 2015.

And RXR was the firm that paid Monday Properties $1.2B for the Helmsley Building. It has a $620M mortgage on the landmarked Park Avenue tower maturing in December.

"Scott has been right more than he’s been wrong,” Westreich told Reuters in 2015 after the Helmsley Building deal. "Only time will prove one of us right or wrong."