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Scott Rechler’s RXR is preparing to hand some of his office buildings back to lenders. The chairman didn’t specify to the publication which buildings or how many would be turned over, but likened about 10 percent of the firm’s office portfolio to Kodak film, implying they were outdated. Rechler specified that he was in talks with lenders over just two properties, out of an overall $20 billion portfolio. The decision comes after Rechler tasked his team in December to create metrics ranking the firm’s office properties to identify the low-performing assets to which the company would cut off investment. The announcement comes as RXR holds steady in its bets on a flight to quality.
The firm secured City Council approval for hotel and office space at 175 Park, which is expected to become one of the city’s tallest towers, and scored a $1.3 billion financing package for its renovation of 5 Times Square. Rechler said he is willing to seek alternatives for the buildings he’s ready to hand over, but expects few if any apartment conversions to come out of them because of extensive logistical difficulties, such as the long and expensive process of clearing out tenants. The firm is in good company among office landlords coming to grips with the hybrid work era.
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The DuMont Building was in default, but has now secured a 2 year extension on their loan. A special servicer has negotiated with building owner GFP for the extension. With the office market still struggling to bounce back, the Dumont Building is the latest to feel the crunch. At the end of 2022, the building at 515 Madison Avenue had a nearly 84 percent occupancy rate, which is expected to drop to 75 percent when tenant Memorial Sloan Kettering leaves at the end of its lease, the outlet reported. Its biggest tenant is Jay Suites, which occupies 14 percent of the total space, followed by Memorial Sloan Kettering at 7 percent and Sheldon A. Sinett with nearly 3 percent. The era of hybrid work has taken its toll on office markets throughout the country.
Meanwhile, Vornado Realty Trust last week wrote down $600 million of its portfolio as it reckons with the changing market. The seven buildings involved in the writedown were valued at $5.6 billion four years ago. Today, they are worth $4 billion, representing a 30 percent drop. It’s another piece of bad news for Vornado, which also cut its dividend by nearly 30 percent as a result of the economic downturn and rising interest rates. While a cut was expected, the size of it surprised some analysts. The company’s stock was also removed from the S&P 500, as its shares became “more representative of the midcap market space.”
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Paladino, a Republican whose District 19 covers Bayside, Queens, announced plans Thursday to introduce legislation in the New York City Council that aims to delay the law — which will fine business owners who fail to reduce greenhouse gas emissions — by seven years. From her district in the proverbial outer rim of New York City, Paladino’s office has collected feedback on the bill from constituents and said the holdup was needed to help small landlords as well as co-op and condo owners.“The fines dictated by Local Law 97 are excessive and arbitrary and [have] the potential to bury the buildings [in debt] and force them into bankruptcy and possible foreclosure,” Paladino said during a Wednesday press conference in her district.
Passed in May 2019, Local Law 97 requires owners of buildings 25,000 square feet or larger to reduce emissions 40 percent by 2030 and 80 percent by 2050 through more efficient use of building systems or total refits. Landlords who don’t comply will face fines. Local Law 97 is set to take effect next year, and if the buildings that fall under its purview make no changes, they could pay a collective $213 million in fines. And even with the law’s start date fast approaching, the final rules aren’t set and some landlords don’t even know about it. Aside from the delayed start, Paladino wants the City Council to amend the law, including extending the J-51 tax abatement to help property owners make capital improvements to comply. The last iteration of that tax break expired in June 2022.
“What is even more disheartening are the exemptions. Among those exempt from implementing Local Law 97 regulations are government buildings, hospitals and public housing,” the statement from Paladino continued. “This fact lends credence to concerns that this law is yet another blatant attack on the middle class, and part of a concerted effort to price small property owners out of their homes.” Brooklyn Councilman Ari Kagan — who raised the ire of Democrats in December when he switched his party affiliation to Republican — backed Paladino’s legislation, but it is unclear how the bill will fare in a City Council dominated by Democratic elected officials.