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Reckson Associates Realty Corp. is the largest commercial landlord on Long Island and owns, develops, acquires, constructs, manages, and leases office and industrial properties throughout the tri-state metropolitan area of New York City. A real estate investment trust (REIT), it owns a number of suburban office parks, but its holdings also include a few Manhattan office buildings and a large selection of industrial properties.
The Private Company: 1968-95
William Rechler, his brother Morton, and their brother-in-law Jack Wexler established an aluminum furniture business in 1946 and developed the collapsible aluminum beach chair. In 1956 they sold the business and bought 32 acres of property, including docks, along Newtown Creek, a four-mile-long tidal inlet of the East River that separates western Brooklyn from western Queens. The location was not only on the water but was close to the Williamsburg Bridge, linking Brooklyn to Manhattan; to a tunnel connecting Queens with midtown Manhattan; and to the still-uncompleted Long Island Expressway. By the end of 1958 they had established a $12 million industrial park with at least nine tenants engaged in manufacturing or distribution and warehousing. Morton Rechler and Wexler subsequently started their own development business, while William Rechler, in partnership with Walter Gross, bought 400 acres of property in Hauppauge, Long Island. By 1964 their Vanderbilt Industrial Park in Hauppauge was the second largest in the United States.
In 1968 William Rechler and his sons Donald and Roger founded Reckson Associates. This company completed the Airport International Plaza, an industrial park in Bohemia, Long Island, in 1971. When Metropolitan Life Insurance Co. leased a site for office space, Reckson Associates began to enter this field. It purchased and retrofitted a 100,000-square-foot manufacturing site in Syosset, Long Island, formerly occupied by Grumman Corp., converting it into the 200,000-square-foot North Shore Atrium, a remodeled split-level office complex, in 1978, and enabling the company to charge tenants about five times per square foot what it cost them to buy. "It was unheard of at the time," Donald Rechler later told Alan J. Wax of Newsday. "It was the first recycling of an old industrial building ... That was where we learned high-yield value creation." Thereafter Reckson focused its acquisition strategy on finding industrial space that when converted--generally to office buildings--could be leased at much higher rents.
The following year the company purchased land for the construction of the million-square-foot Huntington Melville Corporate Center. In 1981 they purchased the land for the million-square-foot Nassau West Corporate Center at Mitchel Field. This project was completed in 1985. The Omni, a 575,000-square-foot luxury office building in this center, was completed in 1990. These developments were further examples of the company's modus operandi--recycling poorly performing properties into profitable office sites.
The enterprise, officially the Reckson Group, went public in 1995 as Reckson Associates Realty Corp. a real estate investment trust (REIT). Falling property values during the recessionary early 1990s had raised Reckson Group's debt level to 80 percent of its market capitalization. "When values shrank, we couldn't grow anymore," Donald Rechler, the chief executive officer, explained to Glenn Jochum of LI Business News. "In order to go public, we took a 20 to 25% discount on our real estate. We took less money than it was worth to get it into the public arena, because of the advantage it gave us to be on the NY Stock Exchange. ... The day we went public we had a $150-M [credit] line at our disposal with no strings attached. ... Our options were to cut back and be landlords or make the move and grow the company."
Reckson Associates netted $162 million in its initial offering of stock, and its debt level of $122.9 million immediately fell to 26 percent of market capitalization. Following this conversion, Reckson Associates Realty Corp. became the sole general partner of Reckson Operating Partnership L.P., contributing substantially all of the net proceeds of the stock offering in exchange for about 73 percent of the operating partnership. All properties acquired by the company were held by or through the operating partnership. Reckson's portfolio at this time consisted of 72 properties--all on Long Island--containing 4.5 million square feet of space, 92 percent leased, with a yield of more than 8 percent a year.
Headlong Suburban Expansion: 1996-98
Within six months Reckson Associates had used the infusion of funds to acquire two million square feet of office and industrial space. This included its entry into Westchester County, New York, by means of its $83 million purchase of the 935,000-square-foot portfolio of Halpern Enterprises, including six of the seven office buildings in the Tarrytown Office Center. Reckson then signed on Halpern's executives in order to gain in-house expertise in local management, leasing, and construction. Jon Halpern was put in charge of the new Westchester division. Later in 1996, the company entered Connecticut by acquiring Landmark Square, a six-building office complex in Stamford, Connecticut, for about $77 million from the F.D. Rich organization. It then hired F.D. Rich III as managing director of its new southern Connecticut division. Reckson Associates ended the year with 110 properties encompassing about 8.8 million square feet of space. During the year the company raised $146 million from two additional stock offerings. (The company raised another $811 million from the public sale of stock between 1997 and 1999.) Its revenues rose from $61.27 million in 1995 to $96.14 million in 1996 and its net income from $3.45 million to $17.53 million.
Reckson Associates reached across to the other end of Fairfield County, Connecticut, in 1997, when it purchased a 452,000-square-foot office and warehouse complex in Shelton from the F.D. Rich organization for $26.95 million. Then it entered New Jersey with the purchase of five office buildings from Sy Heller for $56 million. By May 1997 it held 138 properties with a total of 12.3 million square feet of office and industrial space and also owned or controlled 170 acres within the tri-state New York City metropolitan area. It also acquired ten buildings in Vanderbilt Industrial Park and purchased the Melville building that became its headquarters. In Fortune, a mutual fund manager described Reckson to David Whitford as, in his estimation, "the best run REIT in the country. ... They buy an empty building or a dirty building, fix it up, and then get an increase in revenue because of the improvements." Despite its free spending, the company was maintaining one of the lowest debt-to-market-capitalization ratios in the industry (11 percent, according to a company executive). By the end of the year Reckson had purchased, for $80 million, Royal Executive Park, a six-building complex in Rye Brook, New York, near the Connecticut border and at the other end of Westchester County from Tarrytown.
During 1997 Reckson Associates also formed a joint venture with Morris Cos. to develop big-box industrial space: buildings of at least 150,000 square feet with ceiling heights of 30 feet or more. The company invested more than $200 million in this operation before selling its share of the partnership in 1999 for $300 million in cash, stock, and assumed debt to American Real Estate Investment Corp. The sale included 28 industrial buildings with some 6.1 million square feet of space, 111 acres of land, and options for an additional 259 acres. Also in 1997, the company spun off Reckson Service Industries, Inc., which became FrontLine Capital Group and Reckson Strategic Venture Partners, LLC (RSVP). Its equity held indirectly by FrontLine, RSVP was a real estate venture-capital fund investing primarily in real estate and real estate operating companies outside Reckson's core office and industrial focus. FrontLine developed a portfolio of Internet-based business services for small and medium-sized companies.
Into Manhattan: 1999-2001
Reckson Associates ended 1997 with 155 properties encompassing 13.6 million square feet of space and net income of $34.64 million on revenues of $153.4 million. Its portfolio grew to 189 properties with 21.4 million square feet of space in 1998, when it earned $37.9 million in net income on revenues of $266.37 million. During the year the company, through its newly formed Metropolitan Partners, LLC, moved to enter Manhattan for the first time with a bid of $734 million for Tower Realty Trust Inc., a rival REIT. The deal took six months to finalize and did not close until 1999, when Reckson paid for Tower with a combination of stock, cash, and the assumption of debt for 4.6 million square feet of property. The newer office buildings included 100 Wall Street, 810 Seventh Avenue, and 120 West 45th Street. The older buildings at 90 Broad Street and 286, 290, and 292 Madison Avenue were sold to S.L. Green Realty Corp., a Manhattan-based REIT specializing in such properties. Additional Tower office developments in Arizona and the Orlando, Florida, area were also sold, for about $231 million. The architect of the deal, Scott Rechler-Roger's son--now became co-chief executive officer of the company at the age of only 31. He shared the title with his uncle Donald, who remained chairman of the firm, while Scott remained president, the position he had assumed in 1997. Five other Rechlers were also working for the company.
Later in the year the company agreed to purchase 919 Third Avenue and reached an agreement to acquire another Manhattan office building, 1350 Avenue of the Americas, for $126.5 million. Both deals were laborious. Negotiations for the latter building included some 50 members of the Minskoff family. Purchase of the 1.4-million-square-foot Third Avenue building
Reckson Associates reached maximum size of 189 properties and 21.4 million square feet in 1999, when its revenues rose to $403.15 million and its net income to $60.27 million. Its portfolio size remained almost unchanged in 2000, when it earned $86.03 million on revenues of $509.94 million. Heavy borrowing for acquisitions brought the company's interest expenses to a record $96.3 million in 2000. During the year the company formed a joint venture with Teachers Insurance and Annuity Association, contributing eight suburban office properties for a 51 percent majority-ownership interest. Its partner contributed about $136 million for its interest. As a result, Reckson realized a gain of about $15.2 million.
Clouding Reckson Associates' fortunes in 2001-02 was the collapse of FrontLine Capital Group, to which Reckson had earmarked $163 million in loans. Once a high flier on the NASDAQ stock exchange, FrontLine foundered when the technology boom ended in 2000. HQ Global Workplaces, Inc., a majority-owned subsidiary that FrontLine turned to as its fallback when the Internet boom faded, became the world's largest office-suites rental business but plunged into the red when the U.S. economy fell into recession. Because of FrontLine's problems, Reckson lost $166.1 million in valuation reserves during 2001 and as a result sustained a net loss of $57.87 million despite record revenues of $540.47 million. Its market capitalization reached a new high of $3.3 billion, but its indebtedness came to about $1.3 billion (including long-term debt of $884 million) for a debt-to-market capitalization ratio of 41 percent. During the year the company sold five office properties for $82.1 million and its interest in a property trust for $35.7 million, with much of the net proceeds used to repay loans. While Scott Rechler struggled to restructure FrontLine, Reckson's own stock price was suffering because investors disapproved of the amount of time he was spending to attend to FrontLine's problems.
As of the end of 2001, Reckson Associates owned 182 properties (including 11 joint-venture properties) encompassing about 20.6 million square feet of rentable space, all of which was being managed by the company. These holdings included 42 top-grade suburban office properties located within the company's ten office parks. Another 17 office properties were in New York City (five), Stamford, Connecticut (eight), and White Plains, New York (four). In addition, the company held 103 industrial properties, of which 72 were within its three industrial parks, and an office building in Orlando, Florida, plus a partnership in the Omni. Reckson also owned about 254 acres of land in 12 separate parcels earmarked for future development and was under contract to purchase, in 2002, parcels in Valhalla and Rye Brook, New York. Since its initial public offering of stock, the company had developed or redeveloped 14 properties encompassing about 2.1 million square feet of office and industrial space.
Principal Subsidiaries: Metropolitan Partners, LLC; Omni Partners, L.P.; RANY Management Group, Inc.; Reckson Construction Group, Inc.; Reckson FS Limited Partnership; Reckson Management Group, Inc.; Reckson Operating Partnership, L.P.
Principal Competitors: Equity Office Property Trust; Mack-Cali Realty Corp.