landing and expansion. Kodak project. Cross the chasm.
Naming the challenges facing commercial real estate, Scott Rechler has found a solution—with a catchy catchphrase.
RXR CEO on regional banking crisis real dealOn Thursday afternoon, he said he disagreed with JPMorgan Chief Executive Jamie Dimon, who entered the first phase of the credit crisis when he announced this week that his firm was buying First Republic Bank.
“I think it’s dangerous to say it’s the end of a phase because we’re talking about confidence,” Rechler said. “Jamie Dimon is someone we all trusted, and the fact that it turned out to be wrong further erodes confidence.”
“If he doesn’t know, how do we know about it?” Reckler added. “He’s very comfortable with that stuff.”
Debt in commercial real estate has been shrinking since March 9, when Silicon Valley Bank’s stock plunged 60%, Rechler said. In New York, borrowers still rely heavily on the big banks, but in other markets like Phoenix or Denver, regional banks are often the only players in town.
So the sprawl of regional banks could be a big problem because $1.5 Trillion Commercial Real Estate Due Wall click.
The solution RXR chiefs have been advocating is twofold: Land: Create a soft landing by allowing lenders to restructure prime loans, and avoid dumping troubled loans in fire sales that force other banks to write down the value of their loans.
Then, broaden the scope: deregulation to allow lenders to re-originate loans, to refinance these maturing bonds. That could be done if regulators put more scrutiny on both legacy and new loans on banks’ books, Rechler said.
“The new loan you originate today will be the best loan you’ve ever made,” he said.
RXR has stepped into the void and become more active as a lender. The firm set aside $2 billion for high-yield loans and changed its fund structure to give it more flexibility in deploying capital.
Rechler said he is working to fund struggling residential and office projects. The company even works with homebuilders to buy single-family rental homes in the Sunbelt.
“Kodak Project” is RXR’s assessment of its own product portfolio – deciding which attributes are similar to film and therefore need to be repurposed, and which are similar to digital images and can survive and thrive in the future.
Rechler says he’s looking at infrastructure (rather than capital structure), and he’s considering repurposing several “movie” buildings. But he said some “digital” buildings could also make good mixed-use conversions.
“So I’d say we have six large buildings that we’re looking at converting to mixed use — converting the towers of some of those buildings into residences or hotels,” he said.
When it comes to AI’s impact on office work and real estate, Rechler said he calls this period “crossing the chasm.”
“We’re moving across the chasm from this abnormal period of Covid into a new normal,” he said. “It’s been a lot more turbulent than any of us expected, and it’s still going to be a lot more turbulent until we get to the other side.”
Rechler acknowledged that AI may eliminate some jobs, but said he sees wider benefits from these innovations.
“So this will give us the opportunity to elevate to a whole new industry and national level,” he said. “Yes, there’s a transition, but I’d sacrifice the transition for something on the other side.”