RXR’s Scott Rechler Plots Comeback in Ladies’ Mile

Long Island developer Scott Rechler has reached a deal to buy control of a prominent Ladies’ Mile office and retail building, the latest acquisition for one of the most active Manhattan buyers in the economic recovery.

A venture led by Mr. Rechler’s RXR Realty last week agreed to buy control of 620 Sixth Ave. in a deal that values the 114-year-old Beaux Arts building at 19th Street at about $500 million, according to Mr. Rechler. Taken with a number of other sales in the past year, the deal shows how investors are betting on the future of the Chelsea neighborhood and the smaller Ladies’ Mile district along Sixth Avenue, in part as a potential home for creative and technology-related firms.

But the deal also comes at a time that the economy’s direction has become cloudy given broader uncertainty in Europe and growing fears of a double-dip recession. Mr. Rechler says he initially envisioned buying a full stake in the building. But amid turmoil in the markets, he said he sat out of the final round and didn’t submit a bid, expecting that others would offer prices too high.

Ladies’ Mile, the location of some of New York’s most famous department stores between the Civil War and World War I, continues to be popular with retailers. The 700,000-square-foot building at 620 Sixth Ave. is home to a large Bed Bath & Beyond and a TJ Maxx.

Mr. Rechler, RXR’s chief executive, said 620 Sixth Ave. was attractive—particularly in a time of broader economic uncertainty—given that it is in an area that appeals to the growing tech sector.

The building is about 80% leased and is slated to generate enough income to cover its debt payments at the start of next year, according to Mr. Rechler.

“We said, you know what, there’s not a lot of downside here; it’s an absolutely unique piece of real estate,” Mr. Rechler said in an interview Friday.

The building was sold by a group led by Charles Dayan’s Bonjour Capital, which paid $290 million for the seven-story building in late 2005. The existing owners struggled with the building during the downturn. In 2010, the group reached a deal with lenders to rework debt, putting off some payments, according to Trepp LLC, a real-estate research firm.

The sale marks the latest move by Mr. Rechler, who has had a strong appetite for New York City real estate lately and has been involved in many of the largest purchases in Manhattan over the past two years. He’s outmaneuvered many investors who have been competing to amass Manhattan buildings during the recovery by strategically buying distressed debt and bidding aggressively at auctions.

Last year, Mr. Rechler took control of office buildings at 340 Madison Ave. and 1330 Sixth Ave., and earlier this year, he took an interest in 1166 Sixth Ave. This year, he also led a team that bought the Starrett Lehigh Building at 601 W. 26th St. for about $900 million.

“We think it’s a good entry point in the cycle,” Mr. Rechler said.

The scion of a prominent real-estate family, Mr. Rechler, 43 years old, has had good timing on some of his deals. He helped build a giant real-estate company with his brothers and cousins that was sold to SL Green Realty Corp. in early 2007. That deal valued the company at $4.1 billion, excluding debt, and he bought back many suburban properties at the same time.

After laying low for a few years, Mr. Rechler and partners began buying pieces of debt in attempts to gain ownership of multiple distressed properties around Manhattan that struggled in the downturn.

The building at 620 Sixth Ave. was put on the market in the spring, being marketed by Douglas Harmon, a senior managing director at Eastdil Secured. Its sale is the latest in a series of high-profile Chelsea deals including Google’s purchase of 111 Eighth Ave. for $1.8 billion.

The price Mr. Rechler is paying for 620 Sixth Ave. and other properties reflects his bullishness on Manhattan values and rents. He’s betting that the building’s empty space can be filled, boosting income. Further down the line, the building could be expanded, given additional air rights.

Under the deal, which hasn’t yet closed, the sellers will keep a minority stake. Mr. Rechler would have an option to buy that stake at a later date, he said.

Published: December 12, 2011
Filed Under: Acquisition

The RXR operating platform manages 73 commercial real estate properties and investments with an aggregate gross asset value of approximately $17.9 billion, comprising approximately 23.4 million square feet of commercial operating properties and control of development rights for approximately 6,300 multi-family and for sale units in the New York Metropolitan area. Gross asset value compiled by RXR Realty in accordance with company fair value measurement policy and is comprised of capital invested by RXR and its partners, as well as leverage.