The Promote: Rechler's Endgame & Sutton's Fifth Element

“The new normal.” “Project Kodak.” “Crossing the chasm.” If you heard a nifty catchphrase associated with the Great Office Reckoning, chances are Scott Rechler was behind it. The RXR boss, who controls a 20M sf portfolio in New York, has become the poster boy for the city’s office crisis since Covid, and even more so since the troubles came to his own doorstep: Last winter, he revealed to the FT that he was ready to hand over some of the buildings (61 Broadway and 47 Hall for starters) that didn’t pencil back to the bank. He conjured up an evocative metaphor, comparing obsolete buildings to Kodak film 🎞️ . In a follow-up interview with me at TRD, he brought up “crossing the chasm,” the necessary pain – i.e. defaults, workouts, foreclosures, fire sales – he and his peers would have to push through – in the coming months and years. Then, for a cover story (headline: “Worth Less” with a backdrop of the world’s most famous skyline), Rechler opened the kimono to New York Magazine. And to reach the geezers, he did a Sorkinesque walk-and-talk with 60 Minutes last month, once again on message.

It’d be fair to ask what the endgame is here. Why be so public about your troubles, when the standard big-landlord playbook is to ostrich or deflect? Especially when it doesn’t seem like a blip – Columbia finance prof Stijn Van Nieuwerburgh estimates a 40% 💇 in long-term values. So why be the poster child of the house on fire?

Because for someone as big and as connected as Scott Rechler, there’s money to be made. Yesterday, he told the FT that he’s raising a $1 billion fund to scoop up New York offices on the cheap. His partner in this caper: Ares, the $49 billion money manager.

The partners have seeded the fund with $500M (wonder how much of that is Rechler’s), and Rechler said they’re already shopping for $1B in office loans. The target is what he calls the “upper quartile of that middle, class-A part of the market,” (translation: not the premier, One Vandy type of stuff, but the pretty good stuff in solid locations). This comes not six months after RXR handed keys back to its lender through a deed-in-lieu. It’s possible that Rechler, flush with cash, could go after some of his own buildings that his lenders haven’t been able to dispose of. But the big prize is in the fees: 2 and 20 is a beautiful thing, and so is the basket of other assorted operator fees (acquisition, development, construction management, space planning, leasing etc.) RXR stands to make. A tipster shared a snapshot of what this might look like, using RXR’s own fee schedule from a Manhattan tower.

To quote Rechler quoting JFK: “In a crisis, be aware of the danger--but recognize the opportunity.”

Snap to size

Boston Properties was staring down a 160K sf void 🕳️ in Santa Monica. But it surprised everyone and signed Snap to a 400K sf renewal/expansion, one of the LA area’s biggest leases since the pandemic.

El Jeffe

Summer ‘22: Jeff Sutton is staring down foreclosure at one of his prime high street retail properties, 717 Fifth. His lender, New York Life, alleges he owes $300M+ on the property. Sutton fires back, accusing the lender of killing a refinancing (c/o 🇬🇧 billionaire Reuben Bros.) by tacking on a $10M late fee. In December, a judge allows New York Life to go forward with the foreclosure.

But this is Sutton, puller of rabbits out of felt Gucci hats. He goes and convinces Kering, parent of Gucci and Balenciaga, to purchase the property from him for nearly $1 billion, or a staggering $8,000+/foot. It’s been quite a month for him - he turned around and sold two nearby locations (720 and 724 Fifth) to Prada last month for a combined $835M. Which means that he’s scored close to $1.8B for his high-street retail, convincing the world’s top retailers that owning > renting. Just 🐐 things.

(This is, of course, the same man who convinced the UFC’s Conor McGregor that without ownership, he was just another dentist 🦷 . h/t GQ)

Get Shorty - Viceroy persists w Arbor play

After issuing their “Slumlord Millionaires” short report in November, Viceroy is back w an update, claiming that delinquent deals make up nearly $2B of ~$7.6B CLOs (In the initial report they said underlying DSCR on the portfolio was 0.63x)

CoStar: An analyst explores

New deep dive from Mostly Borrowed Ideas- tweet below has highlights and a link to the full (paywalled) report

Meanwhile, elsewhere: Private art sales, decoded

The FT peeks into the secretive world of private art sales via a legal battle between auction house Sotheby’s and oligarch Dmitry Rybolovlev - also known to NYC RE fanatics as the record-breaking buyer of the $88M penthouse at the Zeckendorfs’ 15 Central Park West 🫡 

UNQUOTABLE QUOTES