NYC Landlord Rechler Juggles Double Duty as Cuomo AdviserDavid M. Levitt and Martin Z. Braun
Hurricane Sandy flooded Scott Rechler’s Starrett-Lehigh Building in Manhattan with 20 feet of water spread over a basement almost the size of a city block, leaving Martha Stewart among tenants temporarily without a home.
At the same time, New York Governor Andrew Cuomo was counting on Rechler to be his eyes and ears at the World Trade Center, where 125 million gallons of water had inundated the construction site.
“The days following Sandy were surreal,” Rechler said. “I went from a state of shock to a call to action.”
The storm and the days that followed were the ultimate test for a juggling act that Rechler, 45, has been doing for the past year and a half. His company, RXR Realty LLC, owns or has under contract almost 20 million square feet (1.9 million square meters) of space and has been the second-biggest buyer of Manhattan commercial real estate since the recession. Since September 2011, he’s also been Cuomo’s top appointee to the board of the Port Authority of New York and New Jersey, which owns the Trade Center site and operates the city’s airports, as well as infrastructure including the Lincoln Tunnel and George Washington Bridge.
Rechler’s real estate holdings include the 2.3 million-square-foot Starrett-Lehigh Building -- purchased for $920 million in 2011 in the biggest Manhattan deal of that year --and a 99-year leasehold interest in 75 Rockefeller Plaza. Earlier this month, he entered a joint venture to buy 237 Park Ave. from Lehman Brothers Holdings Inc. While it’s routine for property investors to serve on the Port Authority, he is one of the largest to act as a commissioner, said Jameson Doig, author of “Empire on the Hudson,” a history of the agency.
“Scott Rechler is in a challenging position because as he builds his real estate properties, he has to be concerned that any work he does at the Port Authority, any influence he has there, doesn’t undercut his own personal reputation,” said Doig, research professor in government at Dartmouth College in Hanover, New Hampshire. “And because he has these important ties to the governor, he has to be certain that anything he does doesn’t interfere with the reputation, and, I presume, the presidential aspirations of Governor Cuomo.”
The Port Authority’s 12-member board of commissioners includes two other real estate executives -- Jeffrey Lynford, co-founder and chairman of the Wellsford group of property companies, and David Steiner, chairman of developer Steiner Equities Group LLC. The board’s chairman, David Samson, a partner and founding member of law firm Wolff & Samson PC, was appointed by New Jersey Governor Chris Christie.
Rechler, the third-generation scion of a Long Island real estate family, said he keeps watch over anything that might be construed as a conflict of interest and turns over lists of RXR’s vendors so the authority knows when any of them come before the board.
“The good news is my business interests and the governor’s interests are aligned,” he said. “The better shape New York is in, the better shape my business is in. I live and breathe New York.”
A “very deep bench” of associates, many going back almost 20 years, help Rechler keep things moving while he balances his public and private sides, he said.
A typical day late last year began with a meeting going over plans to renovate one of his Manhattan office buildings, followed by a drive downtown to inspect Trade Center construction. In the afternoon, he huddled with his acquisitions team, reviewing the books on a couple of Midtown towers he had his eye on. Another day involved roaming the cubicles at RXR’s Long Island headquarters in Uniondale, checking in with his marketing and property managers. At any point, the telephone could ring, and it may be the governor or one of his top aides.
Then there are the atypical days, like the aftermath of Sandy, the Oct. 29 superstorm that ravaged coastal neighborhoods and crippled New York’s subway system. Rechler arrived at the Trade Center site to an “incomprehensible” scene -- the in-progress vehicle security center and 9/11 memorial and museum were submerged, he said.
“You had to fight for equipment, gasoline, diesel, oil,” Rechler said. “I called the governor and said, ‘We need gasoline at the Trade Center,’ so he had the National Guard to do a convoy so we’d have fuel, because if we didn’t have fuel, we couldn’t pump it out. I remember writing down the words he said whenever I asked him for something: ‘I hear you, consider it done.’”
At the same time, Rechler had to determine how to get the water cleared from the Starrett-Lehigh Building, a former freight terminal in west Chelsea that’s home to tenants including Martha Stewart Living Omnimedia Inc., Tommy Hilfiger Corp. and Ralph Lauren Corp.
He brought in a pumping team from Pennsylvania, two 600-horsepower steam boilers, built to run factories, from New Jersey, and a generator from Texas. The property was reopened within two weeks.
“Some of the businesses in Starrett aren’t like these big corporations,” Rechler said. “They make their money out of that space. It’s not like they can go relocate uptown.”
Rechler again made Manhattan’s biggest office deal in 2012, buying the leasehold on 450 Lexington Ave., a 910,000-square-foot prewar tower kitty-corner from Grand Central Terminal, for $720 million. That contract was signed while he was mediating a dispute over control of the 9/11 memorial.
“When you’re in those situations, you’re moving at a faster pace, a more intense pace, something you wouldn’t want to sustain long-term,” he said.
Transactions this year include the 75 Rockefeller Plaza leasehold, and the agreement to buy 237 Park Ave., a 21-story tower near Grand Central, in a joint venture with Walton Street Capital LLC for about $800 million. That purchase will give RXR more than 7.5 million square feet of New York office space, according to a company statement.
The company made the deals at a time when office vacancies are rising in the area. The Midtown vacancy rate climbed to 10.3 percent in the fourth quarter from 9.6 percent a year earlier, according to Cushman & Wakefield Inc. RXR plans to renovate 75 Rockefeller Plaza and bring in new tenants, while 237 Park Ave. has leases expiring in the next three years.
RXR was the No. 2 buyer of Manhattan commercial property since 2009, according to research firm Real Capital Analytics Inc. Including the latest deals, the company has either paid or plans to pay $4.3 billion for New York properties. The biggest acquirer was SL Green Realty Corp., New York’s largest office landlord, with $5 billion, Real Capital data show.
Fueling RXR’s buying spree was more than $2.7 billion of equity, mostly from foreign investors, said Rechler, who travels to Europe and Asia in search of funding sources. About 80 percent of RXR’s working capital comes from overseas, he said.
It’s no surprise Rechler has been such an active buyer, said Bruce Mosler, chairman of global brokerage at Cushman & Wakefield and the leader of the team that represented RXR in the 75 Rockefeller deal.
“People forget how prominent he was in the last cycle, and how right, I believe, he was in his timing,” Mosler said.
As real estate prices were peaking in 2007, Rechler sold the company his grandfather started, Reckson Associates Realty Corp., to SL Green for about $6 billion. As part of that deal, SL Green sold most of Reckson’s suburban properties for $2 billion to a private partnership that eventually became RXR.
“Every deal he does has a purpose,” Mosler said. “I’ve very rarely met anybody who knows exactly what he wants, and where he will go to meet the market, and not pass that point. He’s not going to execute a deal just to do a deal.”
Rechler is “a very shrewd businessman,” said Desmond Ryan, executive director of the Association for a Better Long Island, a group of business leaders co-founded by Rechler’s uncle Donald.
“He had an opportunity to see how his father moved politically out here and developed working relationships with elected officials that could have a direct impact on his business future,” Ryan said.
Rechler’s relationship with Cuomo began in 2002, when he backed the gubernatorial hopeful in his first bid for the Democratic nomination. While more typical businessman-politician relationships fade after the candidate loses, theirs evolved into “a true friendship” after Cuomo withdrew from the race that he initially was favored to win, Rechler said.
“We’d have lunch and we would chat,” he said. “It was pretty interesting to watch, because you could see he was doing a lot of reflecting, and came out of that experience with a much better understanding of what it means to be a leader.”
In 2006, Cuomo ran for attorney general and Rechler contributed $29,500 to his campaign. He and his wife, Deborah, and RXR have donated a total of $173,000 to Cuomo since June 2008, according to state Board of Elections data.
Cuomo appointed Rechler to the Port Authority in June 2011. Three months later, he was named vice chairman.
Rechler is “a real asset for the Port Authority, especially considering his years of experience and accomplishment in the private sector,” Matt Wing, a Cuomo spokesman, said by e-mail.
He joined the Port Authority at a time when Cuomo and Christie determined that the agency had become bloated, with expenses out of control. Much of their concern was focused on the World Trade Center rebuilding. The cost of the project grew to $14.8 billion in 2011 from $11 billion in 2008, as the agency rushed to open the National September 11 Memorial in time for the 10th anniversary of the terrorist attacks.
The Port Authority’s share of the cost rose to $7.7 billion from $6 billion, according to a consultant’s report that described the agency as a “dysfunctional” bureaucracy. The report, by Navigant Consulting Inc., found that the agency was unable to produce documents supporting the cost increases, didn’t tie pay to performance, and paid more than $85 million in overtime in 2010.
Rechler was Cuomo’s point man in resolving a yearlong dispute between the Port Authority and the National Sept. 11 Memorial & Museum Foundation, led by New York Mayor Michael Bloomberg. Agency officials said the foundation owed it as much as $300 million and stopped work on a museum at the site. The agreement gave the authority oversight of the memorial’s finances and established a task force to coordinate decision-making. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
For future real estate deals, RXR is targeting office buildings in need of renovations, which can grow in value even if the market stays flat. One area Rechler has an eye on is lower Manhattan, which bore heavy damage from Sandy.
The area is also at an “awkward stage” right now, he said, with two gigantic towers nearing completion at the Trade Center and about 3 million square feet of space on the market at Brookfield Office Properties Inc.’s nearby World Financial Center. The availability of top-quality office space in lower Manhattan reached 19 percent in the first quarter, a 20-year high, according to a report by brokerage Studley Inc.
Rechler sees that as an opportunity to stay ahead of other investors in the market and make purchases at a good price.
“I’m looking at buildings that were impacted by the flood zone,” he said. “If we can buy them right, we’d be comfortable holding them and making the physical adjustments to make them more resistant in the future.”