- RXR CEO Scott Rechler foresees a “new paradigm” in commercial real estate driven by high interest rates and expected Fed rate cuts.
- Rechler predicts the multifamily sector will require writedowns and equity injections as capital stacks were disrupted by interest rate hikes.
- The restructuring process, particularly for maturing loans, will take multiple years, presenting opportunities to buy into distressed multifamily assets.
- In the office sector, Rechler predicts a recovery by 2026, after a challenging “survive through ’25” period.
Speaking to Bloomberg TV, Scott Rechler, the CEO of RXR, discussed the shifting dynamics of the commercial real estate market, driven by elevated interest rates and an anticipated wave of restructuring.
As reported in CoStar, Rechler emphasized that CRE is entering a “new paradigm” in response to the Federal Reserve’s recent and expected monetary policies, including value adjustments and capital restructuring.
Multifamily Under Pressure
Rechler specifically highlighted the challenges facing the multifamily sector, which has seen a surge in supply over recent years.
However, rising interest rates have significantly impacted capital structures, leaving many properties in need of recapitalization and writedowns.
“There’s going to be waves of loans that mature and need to be recapitalized, restructured,” Rechler said. He warned that this process could take years but added that it would present attractive opportunities for investors.
With rents stagnating and high interest rates dampening new construction, demand could outstrip supply by 2026, giving investors plenty of opportunities to buy discounted distressed multifamily assets.
Interest Rate Intrigue
Looking ahead, Rechler sees the Fed’s eventual rate cuts as part of a larger, ongoing normalization process. He expects this monetary shift to be gradual, requiring real estate owners and investors to recalibrate their valuations and financing models to the new interest rate environment.
Federal Reserve Chair Jerome Powell recently hinted at the possibility of rate cuts by September, noting that while the direction of upcoming monetary policy is clear, exact timing will depend on evolving economic data.
Multiyear Outlook
Rechler has also sounded alarms about the broader CRE market, particularly the office sector. In previous interviews, he called the sector a “slow-moving train wreck,” reflecting on the difficulties of office leasing in the post-pandemic landscape.
He also predicted that the real estate industry’s focus in the near term would be to “survive through ’25,” with meaningful recovery expected to start in 2026.
