After a flurry of investments in Manhattan office towers, RXR realty is now placing a big bet on the suburbs.
Three months ago, after five years as head of the city’s Economic Development Corporation, Seth Pinsky joined RXR as executive vice president and investment manager of the company’s Metropolitan Emerging Market Strategy. Pinsky will direct RXR’s previously announced plan to invest heavily in mixed-use projects in towns such as Hempstead, Long Island, where the company sees much higher growth potential than in the city.
Coming as the Manhattan apartment market reaches historic levels, the move by a company that sold a $6 bilion portfolio ahead of the last market crash because of conditions it considered “too frothy,ˮ is being closely watched by the investment and development communities.
According to Pinsky, the initiative was born both out of belief in the potential of metropolitan towns and out of worry over high prices in Manhattan.“Especially at the high end of the condo market, prices right now are at historic levels. A lot of people are making a lot of money and there clearly is a lot of demand, but demand is not limitless,” said Pinsky. “I don’t want to use the word bubble because it’s a weighted term, but you can be reasonably certain that a run-up like this will be followed by a re-adjustment.”
With prices in Manhattan nearing record levels, RXR had already began to look for alternative markets with interesting growth potential. A year ago, Pinsky reached out to chief executive Scott Rechler with an idea to invest in mixed-use projects along the East River. “Scott’s response was that he’d actually been thinking along similar lines, but he also said I should think more broadly,” Pinsky recalled.
This dialogue culminated in RXR’s new metropolitan strategy. Its basic premise is simple: invest in markets that have high potential for population and business growth. “We are really looking at all of the transit nodes in the tri-state area,” he said. “These were the hearts of communities. In the 60s and 70s, when lifestyles changed and malls grew, they were abandoned in many cases. But the core infrastructure is still around, and trends are coming back.”
Pinsky argues that rising rents and house prices will price out more and more people from Manhattan and Brooklyn. Many baby boomers who want to live in an urban setting but are priced out of Manhattan and Brownstone Brooklyn may find themselves drawn to those parts of the tri-state with good transportation access and an urban infrastructure.
Pinsky wouldn’t disclose how much RXR plans to invest in its metropolitan strategy, but he said the company has “very ambitious goals”.
This spring, RXR formed a joint venture with Renaissance Development to redevelop parts of downtown Hempstead. The venture seeks to create mixed-use developments including 3,500 residential units and 600,000 s/f of retail space.
Pinsky insisted that the Metropolitan Strategy does not mark a shift away from Manhattan, where RXR has recently bought several office towers. Earlier this year, it took over a 99-year lease of 75 Rockefeller Center and announced its intention to buy 237 Park Avenue, following investments in Manhattan office buildings worth billions of dollars between 2010 and 2012.
“We at RXR are real believers in the underlying fundamentals of the New York City market. There have been incredible investments, the quality of life has reached new levels, and the city has really become a magnet for people from all over the world,” he said. “We believe that trend will continue. But one of the symptoms of that success is that there is so much demand that costs have spiked. We continue to believe that dynamic will continue to drive success, but it will also lead to an increasing search for marketplaces outside of that core.”
Published: November 6, 2013
Filed Under: Community Relations
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.