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He said he would, and he did.
RXR Chairman and CEO Scott Rechler walked away from the 33-story office tower at 61 Broadway in the Financial District after defaulting on a $240 million loan that matured May 1. The decision to hand back the keys came only three months after Rechler told Commercial Observer that RXR “won’t throw good money after bad” when assessing the firm’s office portfolio.
The loan, originated by a syndicate led by Aareal Bank (ARL), is now being marketed for sale. The news was first reported by The Real Deal.
Rechler had previously stated his intention to relinquish control of some office properties in RXR’s 91-building portfolio in the event RXR could not work out a deal with lenders to convert some older offices into mixed-use residential buildings. He noted in a letter to investors in February that an “existential change” is underway in the office sector and highlighted two buildings under RXR ownership that would become obsolete without a conversion.
“We need [the banks] to cooperate to enable us to do that in a way that makes sense,” Rechler told CO in February. “Some buildings aren’t going to come back to be competitive as office buildings, so you need to think of what the alternative is. Those two are in that camp.”
Known as the Adams Express Building, 61 Broadway was built in 1914, well before an era of amenities or even modern elevators. RXR purchased the property from Broad Street Development in 2014 for $330 million and quickly moved to create larger floor plates and fill the building with tenants from media, technology and financial services.
Rechler and RXR sold a 49 percent ownership stake in the property to China Orient Asset Management in 2019 at a valuation of $440 million. RXR and China Orient financed the deal through $320 million in debt and a $240 million syndicate loan led by Aareal Bank, a German lender with more than $40 billion assets under management.
The building was 91 percent occupied following its 2014 purchase, according to RXR. Its current occupancy rate is unclear, but it lost a major tenant in 2021 when Knotel — who had occupied four floors and 60,300 square feet of space — filed for bankruptcy in January of that year.
Rechler previously said that he already made back his equity on the property in 2016.
RXR is cooperating with the lenders, according to a source close to the deal.
The lenders of 61 Broadway will begin taking bids for the distressed loan next month, according to TRD. Some market watchers believe that the trade price for the note could set the market for future sales of distressed New York City Class B Office loans, whose price point is still uncertain amid an ever-changing market.
The Manhattan office market has experienced a period of unprecedented distress since the onset of COVID-19 in 2020 changed work and commute habits. Manhattan’s office availability rate reached 17 percent earlier this year, according to Collier’s data, almost double its level of three years ago and significantly higher than the 12 percent rate in January 2009, the peak of the Global Financial Crisis.
Neither RXR nor Aareal Bank responded to requests for comment.
Brian Pascus can be reached at bpascus@commercialobserver.com.
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