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RXR, Ares Launch $1B Fund To Buy Distressed Manhattan Offices

RXR Realty CEO Scott Rechler

Scott Rechler built the foundation of RXR Realty's $19B portfolio in the aftermath of the Global Financial Crisis, buying up office buildings from owners who had fallen on hard times.

Now he's looking to do it again.

RXR has teamed up with Ares Management Corp. to launch a $1B fund that is seeking to acquire Manhattan office towers that have struggled to stay competitive following the pandemic's reshaping of the workplace, The Financial Times reports.

RXR and Ares, which has $49B in real estate assets under management, have combined to seed the fund with $500M and are looking to raise an additional $500M from other investors. The fund is already in talks to acquire $1B of office loans from banks at a discount, Rechler told the FT.

Rechler told the FT that the aftermath of this downturn for office buildings is likely to be far different than in 2009 and 2010, a period when his firm acquired more than $4B of office buildings. The values of many buildings won't be coming back, he said, but RXR and Ares are targeting properties that still have appeal to companies but might be underwater on their loans.

“Where we’re seeing the best opportunity is to buy the upper quartile of that middle, Class-A part of the market,” Rechler told the FT. “If you’re able to be almost a stockpicker, you can buy real value at these prices.”

Rechler didn't respond to Bisnow's request for comment.

RXR is looking to take advantage of distress in the office market, which is expected to increase this year, with $117B of U.S. office loans coming due, according to the Mortgage Bankers Association. Rechler's firm hasn't been immune to that distress itself.

The firm defaulted on its $240M loan on the 790K SF office tower at 61 Broadway last year. Its lender has been marketing the loan for sale, and RXR has agreed to hand over the keys to whomever buys the building's debt.

More than $32B of U.S. office loans were in distress as of the third quarter, according to data from MSCI. Another $50B of loans were marked as potentially distressed. 

Ares partner Craig Snyder told the FT that there has been a “broad, indiscriminate flight of institutional capital from the office sector,” pressuring owners of buildings with maturing debt that might otherwise be healthy. 

In an era where tenants are carefully evaluating landlords' financial viability, much of the distress is happening quietly, Rechler told the FT.