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By Peter Gross ’21 and Shrey Gupta ’20
The closing session at Columbia Business School’s 12th Annual Real Estate Symposium saw attendees gather to listen to an enlightening fireside chat between Scott Rechler, Chairman and CEO at RXR and David Sherman ’82, Senior Advisor & Co-Founder, Metropolitan Real Estate and Co-Director, Paul Milstein Center for Real Estate, Columbia Business School.
Carrying on from the previous session on virtual kitchens, David Sherman opened the conversation with Scott Rechler, asking for his thoughts on the virtual kitchen model. Rechler started by sharing RXR’s approach to thinking about optimizing spaces for 24/7 revenue generation through addressing tougher spaces to rent. Here, Rechler identified the potential to house 10-20 restaurants in a dark kitchen while having the front end of those restaurants serve as great options to customers. When talking about underwriting such opportunities, he was quick to point out how it requires a combination taking a leap of faith and figuring out finance. Sharing the example of Kitchen United (KU) and their founder, Jim Collins, he spoke to how data analysis helps both RXR and the KU team leverage data to analyze flows from restaurants to customers and optimize logistics.
The conversation then moved to the development of multi-property parks and how RXR thought about them. Rechler shared that the concept “live-work-play” has changed. We are at a generational moment where the onus on landlords is beyond building and collecting rent, but requires a heavy focus on curating programming, especially with the ongoing merger of work and home space. Curating a sense of community with amenities and programming that excites customers through harnessing tech and data for bespoke interactions has gained prominence as landlords are now shifting mindsets to a customer focus from a tenant focus. He then pointed to how RXR has invested in restaurants and experiential retail even though they can be loss leaders for projects. The focus on keeping customers engaged with the asset longer is a key driver, as he gave the example of the Nassau Coliseum and 75 Rock, where underwriting these uses is challenging, but the upside for including them is high.
The conversation shifted to retail’s ongoing battle for survival, and how the lessons learned in retail can apply to other uses. The key, Rechler said, is how digitization allows landlords to gain a deeper understanding of how and when people use spaces. This data can allow landlords to optimize their building operations and provide actionable insights for their clients when designing their spaces. Rechler spoke also about RXR’s unique approach to community engagement in the context of the company’s work as a master developer in New Rochelle, which goes beyond traditional one-time outreach and extends into a continual presence within the community. Such an intensive approach may be more costly in the short run, but the trust it creates between RXR and the community results in greater long-run benefits for all parties.
Speaking on current pricing levels, Rechler thought that it is a difficult time to be a macro-cycle buyer, and with a structural shift in the industry, he was skeptical about the existing metrics. Repricing in 18-24 months is imminent, and so buying well-placed assets and futureproofing them should be a good business model, especially for a firm like RXR that embraces the real estate as a service model. Discussing fund structures, he shared that 15-year funds married with open-ended core plus platforms will gain prominence as LPs look to stay invested in assets for the longer term. Fee structure conversions are complicated in such deals, and the RXR team does identify and agree to fees in advance.
The session closed to a round of applause and a Q&A round between the audience and Scott Rechler.
Shrey Gupta ’20 is a second-year MBA student focused on Real Estate Development. An active member of the Real Estate Association, Shrey also serves as the CFO and Chief of Staff of the CBS Student Government and has been a Teaching Assistant for the Real Estate Entrepreneurship and Development Seminar courses in the MBA program. Shrey worked on the Development team at Related’s Boston office in the summer of 2019 and has previously worked at OYO, a global hospitality and real estate startup and at Bain and Co. He actively tracks the real estate markets in Boston, Washington D.C. and LA and is passionate about the intersection of real estate, technology and policy.
Peter Gross ’21 is a first-year MBA student focused on real estate development. Peter serves as the Real Estate Association’s AVP for Site Tours and Company Visits. Prior to starting at CBS, Peter worked as an Analyst at HR&A Advisors advising public sector agencies, institutional landowners, and development firms on multi-phase, mixed-use development projects. He previously worked as a rotational analyst at the Consumer Financial Protection Bureau, focusing on bureau-wide strategy and mortgage markets. He is a lifelong New Yorker.