CORRECTED - Rechler rides US property market bottom to the top

Fri Dec 17, 2010 11:34am EST

(In Dec. 16 story, corrects second paragraph to clarify that Rechler was chief executive, not co-chief executive, of Reckson Associates Realty when he sold the publicly traded REIT to SL Green in 2007)

* Company raises more than $1 billion

* To purchase three more assets

By Ilaina Jonas

NEW YORK, Dec 16 (Reuters) - Who says you can't time the market? Scott Rechler did.

As chief executive of New York office landlord Reckson Associates Realty Corp, Rechler sold the publicly traded real estate investment trust to rival SL Green Realty Corp (SLG.N) for $6.5 billion in early 2007.

That was the top of the U.S. commercial real estate market, and two weeks before REIT stocks reached an all-time high.

Then the market tumbled, lending dried up and REITs were forced to issue stock and sell bonds to raise capital.

Private owners who could not tap the public markets were -- and continue to be -- in worse shape as lending has not fully recovered and values are 19 percent off their lows, according to Green Street Advisors.

Since the sale of Reckson, U.S. commercial property values nationally fell 38.3 percent by May 2009, according to Green Street. In Manhattan, many were off by half.

"I don't really look for tops and bottoms. But there comes a time where things feel frothy," said Rechler, 43. "It just didn't make economic sense."

Last year, his private company RXR Realty LLC went on a buying spree for distressed real estate debt which other private owners used to buy buildings whose values had tumbled and were often less than their loans.

"I'm not sure that we've been buying all along at the bottom, but things fundamentally feel cheap," he said.

This year, RXR raised more than $1 billion of fund and separate account capital. It became one of the most active buyers of New York area office buildings and debt along with SL Green.

"We're well-capitalized right now so we're not in the market specifically looking for more fundraising," Rechler said in his New York office at 340 Madison Ave, one of the buildings RXR bought this year. "We're also investing a lot."

Using leverage, RXR has spent about half of what it raised to buy about $1.5 billion in real estate property and loans. Most of that was done in the second half of the year.

It has followed a strategy of using capital to buy assets that fit its investors' risk and return appetites. The company focuses on office buildings within 50 miles of Manhattan.

Earlier this year, RXR bought a 49 percent stake in 340 Madison for about $279 million from D.E. Shaw & Co. The hedge fund became the owner after a Lehman Brothers bridge equity syndication failed.

Broadway Properties paid roughly $600 million in 2006 for the building which was 43 percent occupied at the time. It financed the deal with 80 percent of borrowed money. Broadway Partners, which owns a 51 percent stake, plowed $40 million into the building, which now is 92 percent leased.

"We're now deleveraging it, and turning it into core," he said. Core properties are well-leased, stable investments that today can return between 8 percent and 10 percent using 50 percent or less in loans.

"Over this year we probably have bought debt that's secured by over 3 million square feet of office space in the Tri-state area," he said. "A vast majority of that will end up being loan to own."

More recently it agreed to buy 1330 Sixth Ave, a 534,000-square foot boutique building in a canyon of giant skyscrapers more twice the size.

In that deal, RXR went head-to-head with SL Green, as it does often, as both are among the handful of top landlords in the largest U.S. market. Rechler said each deal involves capitalizing on long-standing relationships with brokers, lenders, tenants and investors to track the performance of each property of interest.

RXR expects to close on three more deals within the next several weeks. Rechler declined to disclose details.

"When your fingerprints come on it, that's the sign that we should be grabbing ahold and making a deal," he said. "If your fingerprints aren't on it, and there are instances where they're not on it, don't waste too much time on the deal. Step away." (Reporting by Ilaina Jonas; editing by Robert MacMillan and Matthew Lewis)

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