Rechler: When we sold in January 2007, about 70% of our asset value was in New York City. We were planning as re-constituting ourselves as RXR and getting active again on the investing front, we were targeting New York City because we’ve seen historically when New York City go through a down cycle, how much more effectively it recovers on rents as well as on valuations. We started in the summer of 2009 investing in debt secured by New York City Midtown office buildings, and I’d say, to date, over 90% of our invested capital has been in New York City. That’s going to be the continued plan, but we’ll invest in the suburbs when something comes across that’s unique or at a discounted price that makes sense to do.

GlobeSt.com: The Starrett-Lehigh acquisition was big. Has it paid off for you? Why or why not?

Elder: It has. It is still early in the game, and there are a couple of interesting to point out. We have a $50 million capital improvement program that we are starting to lay the plans out for, we’ve actually started to realize some of the pricing uptick from inside the building, and from outside the building, new tenants coming in. It is attributable to us as an owner and the hands on management that we provide. So we’ll see what happens once we actually put the capital improvements in place, which will be in the next 12 months. We’ve actually achieved $60 a foot for rent and that’s kind of been a higher watermark, but most of the deals are upper $40s to low $50s at this point. And when you take out the storage average, it is really upper 90% occupied.

Rechler: Our challenge is to get back some of the spaces that have some of the lower rents in it and the market rents that we are getting today as we put the capital in.

GlobeSt.com: What other neighborhoods are you eyeing in the city for new investment? Do you still like Midtown South?

Elder: We do. Obviously there’s just been an explosion of creative class tenants that are expanding and want to be in that area for a whole host of reasons is interesting to us. We also like traditional Midtown, buildings like 1330 Ave. of the Americas. We just did a major transaction with Knoll on the second and third floor.

Rechler: Other than Google, we have been one of the biggest investors in Midtown South over the last year, between Starrett-Lehigh and 620 Ave. of the Americas. We bought 55% of 620 and now we are buying the other 45% this upcoming month. We were early in targeting Midtown South and we took two of the larger buildings in that marketplace.

Elder: And unlike prior cycles, we are actually seeing tenants with credit, so we like that component as well. They are taking big increments of space and they have a balance sheet that doesn’t really concern us.

GlobeSt.com: Does the current slowdown in leasing activity concern you, both in NYC and the suburbs?

Elder: We are cognizant of it. The good news is that the market is not moving backward. It is clearly holding, and we’d obviously love to see it busier. But in Midtown South we are very active and very busy. In Midtown, I wouldn’t say that we are slow, but the higher end is definitely not as robust as a year ago at this time.

Rechler: The reality is, this is such a big market, so when you look at market statistics and activity in general, they tell one story, but when you break down those numbers and look at which buildings are performing well, there’s a difference there. If you look at high quality floors in the Plaza District, you are still talking about a 4% to 5% vacancy rate. If you look at Midtown South, it is a 6% vacancy rate, the lowest in the country right now. You look at blocks of space over 100,000 square feet right now -- maybe there’s seven to 10 of them -- and then you break that down to where’s the good quality. If you could focus on buildings that are targeting sectors that are growing today like idea-based type industries, whether that’s creative, technology, media, or frankly, boutique financial-type players. If you have assets that appeal to those types of users, it is a very robust marketplace. It is more of the underbelly of New York that is driven by financial service firms and some of the supporting cast members that relate to that or the commodity space that you’ve seen a real slowdown in the marketplace.

GlobeSt.com: So what do you think the second half of the year will bring?

Rechler: My personal view? I think it will be more of the same.

Elder: I was about to say the same thing. I don’t see change until first quarter 2013. At least you’ll have a vision of what’s to come. The political landscape will be defined, obviously.

Rechler: What’s interesting though: in the start of 2011, there was a significant rent spike. While we continue to monitor that spike, it’s held and it hasn’t gone down, so you are sort of in a market of equilibrium. There’s been a lack of supply and it’s not going to take that much incremental demand or competence to resume that point where there’s a scarcity of space, and then there’s a sense of urgency by tenants and landlords have been much more disciplined. People who have good quality space aren’t lowering prices. They are holding their spaces on and waiting for the market to come back because it is eventually going to get there for the higher quality space.

Elder: And the market hasn’t moved backward, and statistically, there is more employment now in the history of New York. For us to grow beyond that, there’s no new construction or relatively little construction, and I think the vacancy rate ticks down very quickly.

Rechler: For Midtown and Midtown South, that is. Lower Manhattan, you probably will have a period of some indigestion while digesting that space coming on in the World Trade Center and World Financial Center.

Elder: We’ve seen that happen too. Midtown South fills up and then it’s a big boon for Downtown.

GlobeSt.com: Overall, what’s the biggest bright spot for the real estate industry right now in Manhattan?

Rechler: I think the Midtown South market or the momentum that we are having in the New York marketplace from this class of tenants. And it builds on itself. Google comes here, it does well, Facebook comes here, Twitter comes here – it becomes an ecosystem that becomes self-reinforcing. We are over that initial phase where it is now becoming self-reinforcing, so more companies want to be here in that nature. If we told you two years ago that the financial service firms were either going to be paralyzed or contracting, no one would imagine that the New York real estate market would be a lot worse and job growth would be negative, not positive. And yet we have that and we have record job growth in a strong real estate market, and that’s because of these other industries that are growing, so that’s the bright spot. Eventually financial service firms always find a way to come back and reinvent themselves and they’ll do it again, and when they do, then I think you will see that level of spike in this marketplace.