We're thrilled to kick off BisnowTV's series of one-on-one interviews with “the smartest guy in the real estate boom,” RXR Realty CEO and chairman Scott Rechler. Conducted at Scott's 75 Rockefeller Plaza, Scott chats with EisnerAmper Real Estate Services Group Chair Kenneth Weissenberg about the future of downtown Manhattan, New York's appeal to office tenants and even the logistics of transforming a building in New York's most famous part of town.
As background, in the months before the 2008 financial crisis Scott sold his company, Reckson Associates Realty, to SL Green for $4B, making a 700% profit for his investors before the market—which Scott thought was too frothy—crashed. It’s no wonder, then, that people were quite attentive when Scott founded RXR Realty in 2009. In record time, Scott was able to get $340M in investment from NorthStar Realty Finance.
As the Tri-State Area's premier vertically integrated real estate owner/operator and investment manager, RXR Realty now employs more than 380 people, all with significant expertise and experience in value-add execution. The company manages 88 commercial real estate properties in New York City and the Tri-State Area, as well as 23M SF of investments worth $12.2B. In addition, RXR has a residential development pipeline of approximately 3,000 residential and for-sale units throughout the NY metro area. The company has even attracted the likes of Blackstone, which agreed to buy a 50% stake in six RXR properties throughout New York State and New Jersey.
Kenneth: Scott, we’re on top of 75 Rockefeller Plaza, one of your latest projects. Can you tell us a little about some of the iconic projects that you’re involved with right now?
Scott: You know, our view is around New York City, around Manhattan. There’s more demand for office space—for 21st century office space—than there is supply. And today we have the same amount of office space as we had 20 years ago. The average age of office space is 80 years old, and if you can find gems—like a 75 Rock, a 230 Park, a 237 Park, a Starret-Lehigh, Pier 57—that are these great buildings and repurpose them, and respect their past and accentuate their past, but at the same time bring them to the point where they work for the 21st century. That, I think, is something that will be an extraordinary addition for the market, for the tenants and for the community in terms of what NY is all about, the essence of NY.
The most important ingredient is talent, and New York City is a magnet of talent from people around the world. And the numbers prove that out. If you look, our work stats are at record levels, population growth...record levels, tourism growth...record levels. And so, as people come in, that attracts companies that want to take advantage of that talent. We’ve seen that with the Googles, we’ve seen that with the YouTubes, with the Facebooks, but we’ve also seen that with the Cadillacs and the Johnson & Johnsons—the more traditional companies. They want to capture that talent to help build their businesses, capture their innovation, build their brand to sell their products throughout the world.
We purchased Starrett-Lehigh in 2012 for just under a billion dollars. Tenants in it, like Martha Stewart, Tommy Hillfinger, Hugo Boss, still came to that building even though it didn’t have good public transportation and even though, frankly, it was treated like a Class-B office building. Our premise was to re-energize the creativity that was taking place behind the doors of those tenants and bring it into the common area and make that building a magnet for more creative tenants that would want to go to that area.
Kenneth: What do you think the future of downtown is?
Scott: When you have companies like Conde Nast and Group M downtown, there’s just this whole creative class of vibrancy and energy that’s downtown. And over the next 12 to 24 months—as the World Trade Center site continues to finish its redevelopment and the transportation hub opens and the parks open and more of the construction fences come down—it’s going to become more of a reality for everyone.
This building was formerly leased by Time Warner, and Time Warner moved out in July of 2013. And with our 99-year lease, the lease didn’t begin until Time Warner moved out. So we actually had the advantage of being able to go through all of our design work and order all of our equipment and supplies to be in a position that we could move as quickly as possible. So this year, we did a full gutting of the building and we’re now in the process of putting the finishing in place, and by spring of 2016, we’ll be open. And the building is going to be extraordinary and it’s going to be a true 21st century, modern interior and this iconic landmark building.
One of the things that was a big challenge for us was going to Landmarks [Preservation Commission] because this has so many historic elements to it. And for the changes we wanted to make to create better retail space, to create this dramatic lobby that works its way through from Rock Center and 51st Street through to 52nd Street, where you have the 21 Club and a series of outdoor spaces—terraces—so that people can actually not only get the benefit of being in the building but really feel the Rockefeller Center presence and energy outside looking over the plaza or on 52nd Street looking over the 21 Club.
Kenneth: The Wall Street Journal analyzed the numbers on the property and they thought that, based on their analysis, you would $80/SF minimum rent in order to make the numbers work.
Scott: Look, I don’t know where the Wall Street Journal does their analysis, but from our standpoint, we’re very confident we are going to get it. Our first discussions were to have proposals start at the low end of $80/SF and, as we work our way up to the top of the building, we would be in the $100-plus per SF with those sweeping views looking downtown looking at Rock Center.
Kenneth: What makes New York such an attractive place for foreign investors and your company, in particular, such an attractive place for foreign investors?
Scott: While we operate locally, we’ve capitalized ourselves globally. So, of the $5B that was raised, probably 99% of that capital is non-US investors. And they’re investors who are very sophisticated, investors that would typically invest themselves into real estate, but when they look at New York—at the competitive nature of this market—and the scale of the projects and buildings within this city, they recognize that it’s a challenge to do. And so these investors have invested alongside us as their local partners to be able to go and source the types of transactions that we source and to bring our expertise to create value in those assets. It’s proven, from an investor standpoint, that if you’re a long-term investor and you want to invest and have a safe haven, but also outsized-type returns through cycles, New York is the place that should be at the top of your list.