RXR CEO: Office Conversions Not Solution for Affordable Housing

RXR CEO Scott Rechler got a lot of attention last week when he disclosed in a Financial Times interview that RXR is preparing to suspend debt payments on several older Manhattan office properties and “give the keys back to the bank.”

Rechler told FT that RXR conducted an “exhaustive” review of its office portfolio and determined that up to 10% of its older office assets were becoming “competitively obsolete” as vacancies persist and office tenants continue to migrate to newer Class A buildings.

The RXR chief, who has confirmed the company is evaluating two buildings—one in Brooklyn and another in Manhattan—as potential office-to-apartment conversions projects, did not disclose how many properties RXR is prepared to surrender to lenders.

On Friday, Rechler sent a letter to RXR investors declaring that FT’s headline, which referenced his “give the keys back to the bank” statement, was “sensationalistic.”

Rechler then sat for a wide-ranging interview with TheRealDeal—in which he didn’t retract anything he told FT—reiterating his warning comparing older office buildings to the film produced by Eastman Kodak at the time when digital cameras arrived and wiped out the film business.

However, the RXR boss made headlines of a different sort when he appeared to push back on NYC Mayor Eric Adams’ emphasis on office-to-apartment conversions as a primary tool to create affordable housing in Adams’ “Moonshot” program to build 500,000 new homes in NYC in the next 10 years.

Rechler said the housing shortage and what he called “the affordability problem” are separate issues that need to be solved separately.

“We have a housing shortage and we have buildings that are going to be competitively obsolete that are great alternatives to convert to housing. To make that work, they have to likely be market-rate housing,” Rechler told TRD.

“Now, we also have an affordability problem, but that’s a separate problem, let’s solve it separately,” the RXR CEO continued. “Because if you try to solve [the housing shortage] problem and say, ‘okay, but X percent of it has to be low-income, you have to use union labor,’ we’re never going to get it done.”

Last month, Mayor Adams proposed to rezone a wide swath of Manhattan—an area from W. 23^rd to W. 41^st streets—to erase zoning restrictions that limit uses to offices or manufacturing, allowing dozens of aging office buildings to be converted into apartments.

A city-led task force recommended the Midtown rezoning. Most of the area between W. 23^rd and West 41^st street is zoned for manufacturing and currently prohibits ground-up residential development and conversions of office space to residential use.

The task force said the city should provide a tax incentive to generate affordable housing units in converted buildings, adding that “analysis indicates that while office conversion entirely to affordable housing is generally infeasible, conversion to mixed-income housing could be achievable through a property tax-based incentive.”

Gov. Kathy Hochul proposed in her 2023 state budget this month to enact one of the task force’s key recommendations, revising New York State’s Multiple Dwelling Law.