RXR Realty, Led by Scott Rechler, Returns to Manhattan with Its First Direct Property Investment Since Its Formation in 2007
RXR Realty LLC ("RXR"), a leading real estate operating company in the New York Tri-State region, announced today that it is under contract to purchase an interest in 340 Madison Avenue from the D. E. Shaw group. RXR will acquire the interest based on a $570 million property valuation, which equates to $687 per square foot on the office component of the property. Broadway Partners ("Broadway") will retain a 51 percent interest in the property. It is anticipated that RXR will assume the day-to-day management of the property in the near future and Broadway and RXR will serve as co-asset managers.
Occupying the full block front of Madison Avenue between 43rd and 44th streets, 340 Madison Avenue is located one block from Grand Central Terminal. The property's complete redevelopment in 2006 distinguishes it from its competitors as one of the few modern assets among the predominantly older array of office buildings in the Grand Central market. Broadway implemented a $40 million repositioning and successfully leased more than 415,000 square feet since purchasing the property in 2006. This repositioning increased occupancy from 43 percent to 92 percent with high quality credit tenants including McDermott Will & Emery, Mass Mutual, PNC, SunGard and The Office of the Comptroller of Currency. The property's strong cash flow generated by these tenants is a major driver of its value.
RXR will utilize capacity from its balance sheet and recently raised real estate opportunity fund to acquire the interest. RXR will lead the recapitalization on behalf of the RXR/Broadway venture and the refinancing of the existing first mortgage debt.
RXR is led by Scott Rechler and several key members of the former management team of Reckson Associates Realty Corp. which was sold to SL Green in January 2007. This is RXR's first direct property investment in Manhattan since its formation in 2007, although it has been purchasing debt secured by Manhattan assets.
"340 Madison Avenue is one of only a handful of modernized Class A office buildings in the marquee Grand Central market," said Scott Rechler, Chairman and CEO of RXR. "As we have seen in past cycles, the New York City real estate market is leading the upturn. We believe this is the opportune time to be investing in Manhattan as the leasing markets have bottomed and are primed for a near-term recovery."
Rechler added, "By structuring this transaction in a creative manner it allowed us to underwrite more attractive returns than could otherwise be expected from an outright purchase of the property."
Broadway CEO Scott Lawlor commented, "Midtown Manhattan's commercial office values appear to have stabilized and we see considerable upside potential ahead. We look forward to benefiting from that market rebound by retaining our investment in this outstanding property, and by working closely with Scott Rechler and his team to maximize future value gains."
The $570 million valuation is a 6 percent cap rate on in-place net operating income (NOI) and represents a 35 percent discount to replacement cost. The property's rent roll is stable, with less than 4 percent of the rentable square feet expiring over the next three years and less than 15 percent over the next eight years.
Darcy Stacom and William Shanahan from CB Richard Ellis represented Broadway and the D. E. Shaw group in the transaction.
About RXR
RXR Realty LLC ("RXR") is a vertically integrated private real estate company with expertise in investment management, property management, development, design, construction, leasing, financing and asset management.
RXR's growth strategy is focused on New York City and the surrounding markets. RXR is one of the largest owners, managers, and developers in the New York Tri-State Area with interests in approximately $2.5 billion in assets, comprised of 102 operating properties containing approximately 12.9 million square feet.
About Broadway Partners
Broadway Partners is a private national real estate investment and management firm headquartered in New York. The firm invests in high quality real estate in select markets nationwide, and is a vertically integrated owner/operator with professionals from a wide spectrum of disciplines, including acquisitions and dispositions, capital markets, property and asset management, investor relations, leasing and law. The firm's equity partners represent a cross section of both domestic and international institutional and private investors.
Contacts:
For RXR Realty:
Dan Klores Communications
Ed Tagliaferri,
212-981-5182 / 917-439-2219