RXR, a major property developer led by CEO Scott Rechler, has announced the launch of a $1 billion fund specifically designed to invest in New York City’s distressed office buildings, marking a potential new chapter in the ongoing commercial real estate crisis.
What Happened: As part of the launch, RXR is collaborating with Ares Management (NYSE: ARES), a renowned alternative investment manager with a substantial portfolio in real estate assets.
Rechler and Ares are seizing an opportunity created by the recent thaw in the office market, which had been previously hindered by uncertainties surrounding interest rates and the rise of remote working, reported The Financial Times.
“We have clarity as to where rates are, we have clarity about the future of offices, and which buildings are going to be competitive, and we have a capitulation, I think, to a recognition that values aren’t just bouncing back like they did in ‘08,” Rechler told the publication.
The partnership between RXR and Ares is targeting a specific segment within the office building market. They are focusing on properties that, while still attractive, may require additional investment or debt restructuring to remain competitive.
Also Read: Downsizing Homeowners Hit The Jackpot Amid Skyrocketing Property Values
“Where we’re seeing the best opportunity is to buy the upper quartile of that middle, class-A part of the market,” Rechler explained, identifying a niche in the market that has been largely overlooked by lenders and investors.
This investment strategy is influenced by the broader economic landscape, particularly the significant amount of commercial mortgages due for maturity this year.
The combination of remote working’s impact on office space demand and the recent spike in interest rates has created a unique investment opportunity for RXR and Ares.
Craig Snyder, a partner at Ares, highlighted the potential in high-quality properties currently undervalued, telling The Financial Times, “the broad, indiscriminate flight of institutional capital from the office sector has resulted in many high-quality properties trading down to historic lows.”
With an initial investment of $500 million from RXR and Ares, and plans to raise an additional $500 million, the partnership is well-equipped to make significant inroads in…
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