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Scott Rechler’s Australian REIT Preparing To Exit NYC Suburban Office Markets

Tough Suburban Leasing, Investment and Financing Conditions Forcing REIT’s Hand
February 29, 2016
Scott Rechler’s Reckson New York Property Trust (RNY) has decided to begin the process of selling down its suburban New York City office and flex assets in an “orderly and strategic manner” over the next 12 to 24 months.

The Sydney, Australia-based REIT's portfolio is comprised of 25 buildings totaling about 3 million square feet in Westchester County (New York), Fairfield County (Connecticut), Long Island (New York) and Northern New Jersey.

"We continue to evaluate the best means to monetize value in the portfolio,” the REIT noted in its financial results for 2015 released last Friday. “We have managed through significant headwinds and challenges in the suburban markets in terms of leasing, lack of rental rate growth, absorption and limited liquidity.”

Reckson New York Property Trust, formed by Scott Rechler, was the first Australian-listed property trust with the strategy of investing in office properties in the New York Tri State area in the United States. It is affiliated with Rechler’s RXR Realty LLC.

The REIT noted that the historical trends of recovery have not materialized in its submarkets this cycle and cited what it called an "unprecedented structural shift" in suburban leasing markets with demographic migration towards urban areas and a flight to quality from Class B to Class A buildings. Also, the firm noted that the majority of office-using jobs have been created elsewhere, with little new demand emerging in the suburban office markets.

After the REIT hired Cushman & Wakefield to perform valuations on its office properties for its year-end report, it found the average per square foot value for the portfolio had decreased from $139 per square foot at year-end 2014 to $118 per square foot a year later.

The REIT said it believes the reduced property values more accurately reflects the current investment environment and would give it greater flexibility to sell assets.

RNY reported a net loss after tax of about $47.24 million for the year ended Dec. 31, 2015. Year-over-year same property NOI decreased 13.2%.

It reported leasing activity of 281,800 square feet on 61 transactions (9.53% of the total square feet in the portfolio). Occupancy at year-end stood at 74.6%, a decrease from six months and one year ago.

In January of this year, the REIT obtained $81.7 million in financing from ACORE Capital repay a maturing debt. But it added that refinancing of its assets has been extremely challenging in the current financing environment, “as there weren’t many lenders interested in suburban office.”

RNY said its asset sales plan was to “meet the market” on pricing to attract investor interest. It has immediately begun to market several of its buildings for-sale, including: 710 Bridgeport Ave. in Shelton, CT; 300 Motor Parkway in Hauppauge, NY; and 200 Broadhollow Road in Melville, NY.

It plans to package other properties together by geography or office park (for example, Tarrytown, NY; Elmsford, NY; Syosset, NY; and West Orange, NJ) where it makes sense, the REIT said.

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