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Category ArchiveStarrett-Lehigh

Packing a Punch: Mike Maturo Talks RXR’s New JV and Worldwide Plaza

Deal-making is bloodsport.

Thankfully, Mike Maturo, the president and CFO of RXR Realty, has come prepared.

“On Saturdays, I box,” Maturo, 56, told Commercial Observer from his office at 75 Rockefeller Plaza. “I train with a professional mixed martial arts fighter, and once a week I go into the ring, which is fun as long as I don’t go too far down in the age group. Because when I fight the younger guys, it gets a little rough.”

That’s on top of the Pilates he does three times per week. Oh, and the basketball he plays on Sundays before church. (Maturo has a license to marry people. He already has one ceremony under his belt and another in the pipeline.) Finally, a Peloton bike is his latest personal acquisition, and he’s gearing up to compete against Scott Rechler, RXR’s founder and CEO, in online classes.

And that’s just what he does in his free time.

By day, it’s a different kind of competition, as he makes sure to dot all the i’s and cross all the t’s as the finance head of a multibillion dollar real estate empire.

Right now, RXR has what Maturo describes as, “big things in our pockets.” One of those big things is a new joint venture with a Canadian pension fund (Maturo wasn’t at liberty to name it quite yet), adding even more capital power to the real estate powerhouse that is RXR.

Commercial Observer: What can you tell us about this new joint venture?

Mike Maturo: We’ve been actively lending, but I think you’ll see us penetrate the market far more deeply in that respect soon. We have partnered with a Canadian pension fund and formed a joint venture, which will seek opportunities for structured finance investments in the New York metro region. It’s starting with $300 million of equity—with the ability to expand over time—and will invest in a cross section of real estate including office, residential, industrial and retail.

Where in the capital stack will you play?

The joint venture will generally make mezzanine debt and preferred equity investments. Most will involve complex capital structures where we can use our business and real estate skillsets to mitigate risk.

Why is now the right time to increase your lending activities?

The investment market still has this bid-ask gap so we see it as a good opportunity to participate in the lending market. There are good developers and sponsors out there who are smaller players but have a good history in their respective markets and have difficulty accessing both equity and debt capital. We can play into their situations.

We can also write large checks; our size goes from $50 [million] to $500 million. Our deal with [Extell Development Company’s] Gary Barnett [for One Manhattan Square in 2016] was $465 million, and so we don’t shy away from that [size of loan]. We have a big appetite not only in this venture that I’m referring to but from our broad base of investors to do co-investment in these types of transactions. So I think that’s another competitive advantage for us.

If the investment activity on the acquisition side starts to heat up you’ll see us actively playing here. That could also be in combination with banks and other players. It’s going to be active and diverse and on the lending side you’ll see us play across multiple products.

More so than previously?

When we were a public company [prior to 2007] we were very pigeonholed in one sector and that never made sense to us because we’re so deep in this region. We have over 1,500 tenants so think about how many companies we’re touching on a daily basis. We all live here, we raise our kids here, we participate in the community here. We’re really ingrained in these markets. We see a lot across multiple sectors so it makes sense for us to participate. We understand what tenants and customers want, so it’s easy for us to underwrite the market and the economics.

How would you describe your lending appetite?

We have a pretty wide view and we don’t restrict ourselves. Would we do hotels? Probably not. But if we found something we really liked—because we have underwritten hotels in the past—we wouldn’t shy away. But, I think you’ll see us lend more on residential, office, mixed-use and industrial properties.

And you’ll continue to target the New York metro area?

Yes, but we’ll be casting a wider net. We’re looking at a lot of opportunities in the boroughs. We have one deal in Westchester, [N.Y.] where we’re providing construction financing to a developer who is building a St. Regis-flagged gated super luxury condominium community. The project is very similar to our very successful Ritz Carlton Residences project on Long Island. We are lending  both the senior loan and the mezzanine loan. The developer selected RXR because of our experience developing the Ritz Carlton project and determined RXR could be value-add to the development. We are also providing recapitalization financing in the form of preferred equity to a three-property portfolio located in Manhattan and Long Island City.

How busy a year was 2017 for you?

We had over $5 billion in new financings last year so we were very active on that side of the business. On the investment side we weren’t so busy in terms of actual transaction closings, but we bought Worldwide Plaza with SL Green [The duo purchased a 48.7 percent stake in the trophy asset with an agreed-upon property value of $1.73 billion], which is obviously a very big transaction. We underwrote probably $30 billion in transactions but in the market there’s a reasonable bid-ask gap that’s been there for the past 18 months or so. So while we were active looking at deals, we only transacted on buying One Worldwide Plaza.

We’ve been very active on the development and redevelopment side, including this building at 75 Rock. We continue to work on Pier 57, which is a redevelopment of the site for Google and in Brooklyn we have a big redevelopment in the Navy Yard. That will be a primary focus this year, in terms of getting the redevelopment up and running. We also have a residential portfolio that was very active last year. We finished one project in downtown Stamford, [Conn.], that we’ve started to lease, and we have major projects in [other parts of New York including] Westchester, Downtown New Rochelle, Downtown Yonkers and Glen Cove in Long Island. Plus we’re developing the second phase of our North Hills Ritz Carlton Residences project. The first phase sold out last year. So, we’ve been very active across the board.

How did the Worldwide Plaza acquisition come about last October? And why was it the right time for the deal?

It’s a long story and somewhat complex, but we actually had the contract on that building when it originally sold to NYRT [New York REIT] and through a whole confluence of events it didn’t go our way. But we had significant interest in the building for a long time. When NYRT got into its issues [its gradual winding down via a liquidation plan] I think their plan was more geared toward a liquidation than having an ongoing business. We were a natural player to step in and work through the acquisition with them because we had a very good understanding of the asset. We had actually looked to work with SL Green on a potentially broader purchase of assets in the NYRT portfolio beyond just Worldwide Plaza, and that’s how the relationship with SL Green with respect to the property came about.

What was the property’s biggest selling point?

It’s a great asset and one that would be very difficult to build again—the bones of the building are very strong. The West Side of Manhattan continues to flourish—it’s not part of Hudson Yards, but it’s coordinated into that West Side area that’s getting more popular and more populated on both the residential and office sides. We think as a long-term asset there’s potential there with some of the tenant base that may want to extend and renew, and there’s also potential with the retail. So there’s opportunity to create value, and honestly we’re buying at a good price per foot. We bought it in the upper $800s per square foot, and when you look at pricing in New York and the replacement value for a building of that nature, it feels like a solid deal. It was attractive in terms of what our investors are looking for: a good current yield with potential for upside in an iconic building. So, we checked a lot of boxes.

Was there a lot of competition for the $1.2 billion refinance of Worldwide Plaza?  

We went out to a small crowd because in the [commercial mortgage-backed securities] world the pricing isn’t that different, everyone prices off the same model. So we went to our relationships—a handful of CMBS players we knew could execute quickly. Everyone had a strong relationship with Goldman Sachs, so it came together pretty fast, as opposed to 1330 Avenue of the Americas where we went out and had a distribution through a brokerage process. It wasn’t that complex a deal, the building is fully leased long-term and NYRT had some timing requirements that we needed to meet so I think we were done within 60 days—in today’s world that’s quick.

Why was CMBS the best execution?

At that particular time, the bid in the CMBS market was very strong and it’s a very large loan. So, in order to execute that size of loan, the CMBS market tends to be more favorable for that. That being said, we’ve done billion-dollar loans in the bank market, too. But it just seemed right. And remember we had three parties—RXR, SL Green and NYRT—everyone had to agree on CMBS as the best execution.

Are you eyeing any other key acquisitions?

We have our fingers in the mix of a bunch of things but we look for opportunity. Scott [Rechler] and my other partners are always out in the market speaking to people. I don’t want to name any specific buildings [laughs], but we keep a good chart of what’s going on out there and where there could be potential for trading.

Are sellers becoming more realistic in terms of the prices they’ll sell at?

It’s interesting. If you look at it, we’ve already had a five to 10 percent reduction in valuations in New York City. But what you saw last year was a lot of refinancings. On 237 Park [Avenue] we surveyed the market and once we put New York Presbyterian Hospital in there we did the [$850 million June 2017] refinancing because we didn’t really like what we saw in terms of the market for investment sales. But if you look through to the valuations that underlie the refinancings, you can see that valuations that were done for these refinancings reflect that decrease in value. If I had to guess, I’d say that sellers will move more toward those values than the buyers moving up to the higher values. But, we’ll see what happens.

You refinanced 1330 Avenue of the Americas earlier this year with a $285 million loan from DekaBank. What was Deka’s competitive edge?

We saw a very strong bid for that deal; it’s a very strong asset that places well on Sixth Avenue, and it’s the type of asset that—in today’s market—lenders are attracted to. They see upside in terms of the [net operating income], and it’s a solid building that always performs well. Deka came in a little ahead of the pack. It’s interesting, in deals like this there’s always someone who has a feel for the building. Deka is actually in the building, and I think that makes a difference because they see how the building is operating on a day-to-day basis. So, they were pretty aggressive on the deal.

Did the competition for that financing include many foreign capital sources?

Yes, it was really across the board. Even alternative, private equity lenders are bidding into assets of that nature. We had foreign banks, we had foreign lenders, and we had the big U.S. banks. I think—particularly in today’s market—it’s desirable for a lender to get an asset like that in their portfolio. It was an easy deal to get done from an attraction standpoint.

And the Starrett-Lehigh Building’s debt refinance will be coming up soon, right?

The loan is due in June, and we’re in the early stages of the process. We will be looking at both floating-rate and fixed-rate options. We’ll be exploring floating-rate CMBS as well as a bank deal and we’ll likely look for five to seven years of term. That will be a very large loan, probably $1 billion-plus.

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Mike Maturo. Photo: Sasha Maslov/ For Commercial Observer

Google is reportedly in talks to lease a substantial amount of space at Starrett-Lehigh. How are those talks going?

They’re going. It’s very exciting. If you look at what Google is doing, it makes sense. They’re building up their presence, and that building has a great personality for them.

It’s a pretty good time to be a borrower, right?

Yes, and I think one thing that’s interesting is the presence of the alternative lenders that are in the market right now. That continues to be an expansive group, and we have used them. We borrowed $5 billion last year, and that’s probably split $3 billion to $4 billion in refinancings and $500 [million] to $600 million in construction financings and transition financings. You’re seeing those transitional lenders be really active in those markets because they understand the real estate markets and mechanics of development properties a lot better than more traditional lenders. The market has gotten very competitive, and spreads have come in with those alternative lenders who historically looked to value add-type construction of redevelopment projects.

The construction side is a little more difficult. Big banks and alternative lenders and insurance companies are looking to make those type of investments but more with sponsors that have a track record of execution and that they have relationships with. We’re fortunate enough to be in that group and we have terrific access to ground-up construction financing.

Has your construction financing primarily come from traditional or nontraditional lenders?

We were very active on the construction borrowing side and used a combination of both traditional and alternative lenders for our New Rochelle, Yonkers and [Garvies Point Long Island] projects as well as the second phase of our Ritz Carlton Residences North Hills project [in Long Island]. I think alternative lenders are still credit-metric focused and maintain that discipline, but they understand the complexities and can focus more on the real estate side of the project.

Additionally, foreign capital is much more willing [to invest] than it previously was and finds lending more attractive from the standpoint of risk benefit metrics. The alternative lenders are benefiting from foreign capital looking to get into lending and investments.

In addition to your New York City presence, RXR is betting on the suburbs.

Our business is New York City-centric but regional in scope, so we look to the suburbs strategically. On the residential side there is an affordability issue in Manhattan, and the notion of trying to solve that in New York City is difficult—foolhardy, even—because there’s just not enough space and it’s not efficient enough to create housing that people can afford. So we think the solution is regional. The suburbs are going through a period of transition and the suburban market of the 1980s and 1990s is slowly becoming a relic in terms of office parks and malls. There’s a re-urbanization not only in New York but across the entire country, and the suburbs really need to wake up and understand that. Unless they change their complexion in terms of their real estate and in terms of office, retail and residential they will continue to lose out to the cities, which has been happening over the last 10 years.

So, you have an interesting combination of the cities—which can’t solve their issues with the housing they can produce—with the suburbs that now need to recreate the housing produced. It’s no longer white picket fences; more densification is needed in downtown developments.

So, we’ve combined those two. We’ve put a lot of effort into working with municipalities and helping them create revitalization programs. What’s interesting is if you go back to the 1960s and 1970s, these downtowns were bustling commercial centers. So the streetscapes and the architecture are already there; they just were abandoned and need to be refigured and revamped.

How’s your Long Island University Brooklyn campus project coming along?

We’re helping LIU with their future plans to redevelop their campus, and that will include some housing options. That will be market housing, but we’re also thinking through some plans to have creative-type shared houses in there. We’ve finished our development agreement and are now in our planning stages.

Are you on the hunt for construction financing yet?

Not yet, but we will be. It’s a pretty major project. I’ve been out whispering about it but—particularly where there is some complexity to it—you want to go through your predevelopment process and have your budgets done so you know what things will cost before you go out and talk construction financing.

So, is it just nonstop action at RXR?

We’re 24/7 here. I say that half-joking, but all weekend long we’re all connected—whether through email or texts—there’s constant collaboration and a flow of ideas. We’re a tight group of people. We worked hard to get to this point, but people come to us for solutions, and they see how we can take a property and recreate it. It’s a good place to be.

Source: commercial

The Mothership: There Is Only One Starrett-Lehigh

In the pursuit to perfect the work-play formula needed to drive the velocity and pricing for commercial properties, few real estate owners have experienced the same level of success found in RXR Realty’s Starrett-Lehigh Building. The West Chelsea icon has given the likes of Tishman Speyer the aspiration of converting the office tower of the Downtown Brooklyn Macy’s to the “Starrett-Lehigh Building of Brooklyn,” as quoted in The Real Deal.

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Views from Starett-Lehigh

Starrett-Lehigh is desirable to today’s tenants who see the opportunity that comes with a historic manufacturing building: expansive floor plates, generous floor loads, column spacing conducive to a multitude buildouts and ceiling heights rumored to have hosted a giraffe for a photo shoot. Pair these features with natural light and unobstructed views of the water and downtown and midtown skylines, you have an asset that demands attention. Georgina Chapman and Keren Craig of Marchesa admit they “were drawn to Starrett for the breathtaking views of the entire city – from the Empire State Building to the Hudson River—and the most beautiful sunsets year round.”

Recognizing the innate appeal of the structure to the increasingly powerful TAMI audience, RXR Realty committed to making the building a “destination icon” when they purchased it for $920 million in 2011. RXR’s efforts and long-term vision were noticed by tenants, such as Surface Media’s CEO Marc Lotenberg, who when they were searching for a permanent home noted, “It isn’t about today; it’s about tomorrow. Just as our company is evolving and innovating, so is this neighborhood, and we are confident that with all the development unfolding on the Manhattan’s west side, from the Meatpacking District to Hudson Yards, RXR’s Starrett-Lehigh will be perfectly positioned to become the city’s nucleus of culture and commerce.”

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Rooftop Whiskey Tasting

The building did not come without challenges, from the lack of proximity to major transportation to elevator wait times that historically had people arriving 30 minutes early for meetings just to be punctual. Not to mention its status as a landmark, which can protract upgrades and the renovation process. However, the hands-on RXR has equipped Starrett-Lehigh with the tools benefiting a modern workplace and evolving workforce, which included modernizing the building’s infrastructure, augmenting elevator count, upgrading the lobby and common areas with food amenities and repurposing unique spaces like loading areas into dynamic communal space. RXR Realty streamlined the loading and delivery process along 26th Street to improve walkability for the significant visitor foot traffic and created a unique 24-hour food truck and freight elevator service available to all floors. The company also implemented a tenant shuttle service connecting tenants readily to major transportation hubs.

The company has also executed a nationally recognized sustainability program that went beyond simple “box checking” for accreditation but integrated community gardens, farm-to-table programming, reducing the building’s carbon footprint by 80 percent and serving as an anchoring force in the outside community through the creation of the West Chelsea Energy Alliance. The building won two BOMA awards: the 2016 Operating Building of the Year and the 2017 Earth award.

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Starrett-Lehigh Event (Photo by Andrew H. Walker/Getty Images for Battersea Power Station)

RXR Realty took Starrett-Lehigh one step further with the introduction of the Centre for Social Innovation, or CSI, as the answer to the shift in population of Starrett-Lehigh’s tenants, who are more socially conscious and culturally focused than the presumed typical Class A office building. CSI produces a variety of events and activations on global concerns. They have partnered with other Starrett-Lehigh tenants like Johnson & Johnson to boost workplace community. As Gabe Marans, corporate managing director of Savills Studley, puts it, “Starrett-Lehigh is the rare building that offers a true tenant community. The building is increasingly becoming the destination for employees seeking a creative, yet serious environment.”

RXR manages a robust engagement program into their work-play balance formula. “Redefining the ‘play’ in live-work-play, they are creating a highly curated combination of relevant food markets, pop-up retail, wellness and events to tap into the highly evolved cultural landscape of the surrounding marketplace,” said Peter Fine, senior managing director at Newmark Knight Frank. Much of Starrett’s program touches on wellness, culinary interests and social issues, such as wine tastings, panel discussions on fashion design and gay rights, and rooftop fitness classes ranging from high intensity to holistic yoga practices. In addition, Starrett-Lehigh launched a fully equipped fitness facility, SL Fitness. Since its launch in 2016, membership has doubled and continues to grow.

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Fitness Event

It would be remiss to not consider the impact of the High Line, designed by Diller Scofidio + Renfro, another Starrett-Lehigh tenant. This project transformed West Chelsea into a district synonymous with the city’s most innovative architecture, engaging recreational areas and a world class contemporary art scene. Naturally, these features appeal to Starrett tenants, such as Haynes Roberts, Amy Lau, Jes Gordon and influential designer Vanessa DeLeon. In the spirit of authenticity, DeLeon is currently working with RXR to roll out a new prebuilt program for loft spaces and to transform original truck bays into high-quality communal spaces.

The building meets the needs of a continuously diversifying culture within all industries from fashion labels such as Ralph Lauren, Club Monaco and Canada Goose, technology companies like littleBits and Verizon, publications like Surface Media and The Players’ Tribune to hedge funds and law firms. This diversity and demand for the building also drive pricing.

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Speaker Event

Unique tenants like Security Industry Specialists, who secure some of the world’s largest clients and individuals, fell in love with Starrett-Lehigh. Its founder and CEO, John Spesak, states, “As a unique entity in the otherwise traditional security industry, it was important that we find a commercial partner and environment where we could showcase our brand, while embracing our strong company culture. We have created a one-of-a-kind workplace experience and forged an incredible relationship with the tenants and the RXR management team. Each continues to evolve and innovate while representing the very best the NYC commercial space has to offer. My only regret is not finding Starrett years prior.”

While the summer has been busy for the leasing team on expansions and new deals, Starrett-Lehigh is always looking to provide a better experience for its tenants. Currently, this includes reactivating 40,000 square feet on the ground floor for the first time in a century. “In the ever-evolving retail, dining, and event landscape, we feel like the Starrett Lehigh building offers the perfect palette to deliver something truly unique and authentic to the New York City market,” reflects Mitchell Friedel, executive vice president at Newmark Knight Frank. Sources close to RXR did not elaborate on whom they are in talks with, but they have hinted that the 11th avenue frontage will transform into a destination in and of itself.

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Vanessa Deleon, A Starrett Tenant

David Hollander, executive vice president at CBRE, comments, “The building embodies every aesthetic that creative tenants desire and RXR has upgraded the infrastructure to support today’s tenants’ needs.” However, the landlord also goes beyond the physical space to create a social community for its tenants. Reaching across active social media, digital spotlights with tenants at every company level and thoughtful work with artists, like The Selby (who collaborates with the likes of Nike, Fendi, Iris Apfel and Tom Wolf), Starrett-Lehigh speaks directly to the end user—the tenants that fill the building.

Aram Rappaport, founder of creative agency The Boathouse, admits, “We never thought we’d be able to afford a prestigious address catering to amazing brands like Martha Stewart, not to mention, find the perfect space to fit our unique agency and studio hybrid model.” Rappaport found that Starrett-Lehigh was the solution, further commenting, “after months of searching Manhattan, coming up short with buildings that felt too ‘old’ or weren’t equipped with space conducive for creatives,” Rappaport “pulled the trigger on Starrett the same day” he saw it and has “no plans of leaving ever!”

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Starrett-Lehigh Prebuilt Sample

David Seabrooke, founder of Canoe Studios, perhaps sums it up best: “The building is a landmark and its location represents New York at its finest. The staff and leadership team understand my needs and do everything they can to help me and my company to realize our dreams in this space.”

At the end of the day, one may try to create a place that brings tenants of all stripes together, builds an internal mechanism for innovation and social impact, and fuels collaboration across top tier talent; but there is only one place to find this all under one roof. Owners can build the Starrett-Lehigh of Brooklyn, Queens, or anywhere for that matter, but there’s only one original.

 

 


Source: commercial