How To Time A Return To Manhattan (The Wall Street Journal)
Before SL Green bought it in 2006, the REIT formerly known
as Reckson Associates had a strong presence in the city. After that
sale, however, the company, now known as RXR Realty, pulled back from
Manhattan and, instead, focused on New Jersey, Westchester and Long
Island. But as executive vice president and managing director Bill
Elder, 45, tells the story, the group has bounced back to Manhattan in a
RXR Realty bowed out of the Manhattan real estate market about two years ago. What prompted the return?
Mr. Elder: As you probably know, the company was sold
in 2006–actually at the beginning of 2007–to SL Green. As part of the
sale, all the city assets were basically integrated into SL Green, and
then many of the suburban assets, Scott Reckler and his partners
retained. SL Green did actually buy some of the suburban portfolio as
well, but Scott retained holdings in New Jersey, Long Island,
Westchester and Connecticut.
And the feeling at the time was that the market had
reached a peak and it was time to hunker down and wait for the cycle to
return, which, looking back on it, was perfect timing for that strategy
to be implemented.
When do you re-emerge in the market?
So RXR came back into the city in a meaningful way in
2009, and the company started buying mostly in the capital stack–junior
and senior mezzanine pieces throughout various buildings in the city.
And then in the middle of 2010, and then late 2010, we executed on two
property transactions: one being 340 Madison Avenue and the other being
1330 Avenue of the Americas.
Speaking of capital stacks, tell me
about 1 Park Avenue. If I understand correctly, earlier this month, RXR
just got paid off for its investment in a mezzanine piece.
That was an investment that we made in the middle of
2009. The thought at the time was, we were going to purchase one of the
senior mezzanine pieces at a substantial discount–which we did–with the
viewpoint that we would own the asset at some point in time.
Again, to my point earlier about New York in recovery
mode, we never thought that anybody would recapitalize the asset–which
Vornado just did, or that we’d be paid off at par value. So that’s one
of those investments that we probably made in excess of a 10 multiple on
our original investment in one year’s time.
What was attractive about 340 Madison Avenue?
With 340, we loved the in-place rent stream. We loved
the asset from a physical standpoint: the facade, the lobby, the
elevators and the physical plan. It was a great asset, and if you recall
at that point, that was kind of the inflection point of the new market,
where buildings were still trading in the $350-to-$400-a-foot range. We
liked that asset for the yield that it had, and the relatively safe,
long-term cash flow and the ability to harvest the little bit of vacancy
that was there at the time.
So we liked it all the way around, from a physical standpoint and the investment profile.
And what attracted you to 1330 Avenue of the Americas?
At 1330 Avenue of the Americas, we viewed that as
just one of the greatest buildings in New York: Central Park views, a
really first-class trophy infrastructure, new lobby, new elevator cabs
and a great tenant roster. And, in fact, it had the beginning of the
building blocks to really take advantage of the improving market.
With 340 Madison Avenue, it sounds like there are plenty of opportunities to add value.
Definitely. Just through the transactions we’ll do in
some of the vacant space. There’s just two floors–the 22nd floor and
part of the 10th floor. Other than that, the building is in very, very
good shape. And the 22nd floor is the top of the building.
Previous to SL Green purchasing the company, how active was RXR in Manhattan?
At the time we were called Reckson Associates, a
publicly traded real estate investment trust. We owned about 24 million
feet throughout the tristate area. In the city we owned just about 5
million feet; so very, very active. We owned several trophy-quality
assets, many of which are in the same neighborhood as 1330. We owned
1350 Sixth Avenue; 810 Seventh Avenue; 1185 Sixth Avenue; 919 Third
So we were very involved in the New York City market
and also the tristate markets. I think we were viewed as one of the top
landlords locally and certainly from a national REIT standpoint.
Now that you’re resurfacing in
Manhattan, what will that mean with regard to your focus on Long Island,
which traditionally has been a large part of your business?
I think it’s actually good news for the Long Island
market. The focus on the city is really driven. … It doesn’t mean we
aren’t focused on the other markets as well. We’re still focused on New
Jersey, Long Island, Westchester and Connecticut. I think we just look
at New York City as a really good place at this point in time to spend a
disproportionate amount of our time and our energy and our focus, just
given the fundamentals of what New York is right now.
I think our view on the New York City market is that
every cycle you go through, the city continues to kind of push past the
prior peaks of the prior market, which I think it’s on the way to doing
right now. I think all the fundamentals are in place for the early
stages of a booming recovery.
What is your forecast for 2011 and 2012 in terms of leasing and investment sales?
I think it’s safe to say that the properties for sale
right now–just from an on-the-market perspective–are pretty anemic
right now. There is deal flow and there is new product coming to the
market, but it’s not as vibrant as what we would hope for. So what that
means is that we spend a large percentage of our time–both mine and
Scott and our investment teams–kind of mining relationships that we have
throughout the city and elsewhere, uncovering hidden opportunities
through partnerships or investment in the capital stacks or outright