Greetings, and welcome to the Empire State Realty Trust Fourth Quarter and Full Year 2020 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tom Keltner, Executive Vice President and General Counsel.
Thank you. You may begin.
Good afternoon. Thank you for joining us today for Empire State Realty Trust's Q1 2021 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at empirestaterealtytrust.com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements as defined in applicable securities laws, including those relating to market conditions, property operations, capital expenditures, income and expense. As a reminder, forward looking statements represent management's current estimates.
They are subject to risks and uncertainties, including ongoing developments regarding the COVID-nineteen pandemic which may cause actual results to differ from those discussed today. Empire State Realty Trust assumes no obligation to update any forward looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward looking statements in the company's filings with the SEC. Certain of our disclosures today are added specifically in response to the SEC's direction on special additional disclosure due to the changes in our business prompted by the COVID-nineteen pandemic and are unique to this instruction. We do not expect to maintain the same level of disclosure when we resume normal business operations.
Finally, during today's call, we will discuss certain non GAAP financial measures such as FFO, modified and core FFO, NOI, cash NOI and EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website. Now, I will turn the call over to Tony Malkin, our Chairman, President and Chief Executive Officer.
Thanks, Tom, and good afternoon to everyone. We remain confident in the recovery of New York City, realistic with regard to where we are and through what we will have to go to get to that recovery and well positioned with a balance sheet that gives us a long runway and the ability to take advantage of growth opportunities. The U. S. Vaccination rollout, stimulus spending and reduction in New York State pandemic linked restrictions all speak to a much better spring than any period we have had since lockdown in March of 2020.
Daily, there are new announcements from arts, cultural, hotel, hospitality and entertainment venues, which all served the remarkable and growing demand from New Yorkers to get out and enjoy their city. Rental apartment occupancy is up and apartment sales have increased. Schools are back in session. Airlines have announced rehirings and increased domestic flights. Even if the much discussed 100 percent of 2019 domestic schedules by summer does not occur, directionally this is good news.
Our number one international tourist source for the Empire State Building Observatory, the United Kingdom is well advanced in their inoculation program. As dark as people would like to paint the picture, the near term future is brighter than it has been for more than a year. As I've said for several quarters, I still believe that it will be the end of Q1 2022 before we see predominantly positive overall news stories on New York City office utilization, retail sales, tourist visits and quality of life issues. We are well positioned to bring back employees and tenants with confidence to our buildings, operate efficiently and encourage Empire State Building Observatory visits. New York State has just announced the return in May of up to 75% of office capacity.
Our tenant presence has grown slightly since last quarter and our building utilization stands now at approximately 13% in our New York City portfolio and 32% in our Greater New York portfolio. Many tenants plan their return to the office around the widespread rollout of vaccinations with major tenants' announcements of return to office beginning around July 4 Labor Day. Importantly, even the incredibly negatively biased reporting around the death of the office has now shifted to an acknowledgment of the challenges, inequities and worries about divided workplaces between home and office work and the impossibilities posed by the thought of onboarding new employees and the future of businesses without an office. The awareness of the selective discriminatory impacts on minorities, women, youth and the service jobs of COVID, lockdown, school and childcare shutdowns and the absence from the office paint the roadmap to solutions driven by the reopening of our great city. All of this is good news to ESRT.
We are well positioned with our flexible balance sheet, our collection levels have been stable for several months, and we have shifted our focus from successfully implemented cost reduction measures to a rethink of our processes and practices around new ways to reduce our costs permanently. All this works to our advantage as we look to utilize our balance sheet flexibility and seek ways to deploy our capital through external growth opportunities. We have done more work on that external growth in the last quarter than our entire prior period as a public company. Visitors to the Empire State Building Observatory continue to grow off a very low base with no discounts offered and fantastic visitor feedback from our largely local visitorship to our attraction that features top of the line indoor environmental quality, including MERV 13 filters, ventilation and active bipolar ionization. Driven in parts by our timed reservation ticketing, local and regional visits and limited utilization by our visitors of past programs and online travel agents, our per cap revenues have never been higher.
People are prepared to pay for quality and welcome the opportunity to enjoy 2019 comparable attendance, a gradual improvement from 2020 levels and consistent with our hypothetical admissions forecast. Visitation is primarily domestic, retail and website driven, which bolsters revenue per cap. Visitors remain very pleased with our focus on health and safety, an area where we excel with more than half a decade old focus on healthy buildings and indoor environmental quality. We have no change to our hypothetical Observatory admissions shown on Page 13 of the investor presentation. We have said in preceding quarters that we expect a higher local visitor mix followed by a ramp up of regionally then nationally sourced travel and then followed by a restoration of our typical visitor mix that is approximately 2 thirds international that will not be achieved until a broad resumption of international air travel that we anticipate will occur sometime in 2022.
Again, our number one international tourist source for the Empire State Building Observatory, the United Kingdom is well advanced in their inoculation program compared to any other international nation. Our hypothetical suggests that we can reach 60% of 20 19 attendance levels by the end of 2021 and return to 100% by the end of 2022. Please remember these points for your modeling. We believe we can essentially maintain our current Observatory operating cost structure and achieve up to 60% of our 2019 attendance. With more distant and international inbound tourists, we will see growth from lower margin passes and online travel agent tourists in the future as inbound tourism mixes with our current local and regional customers and that will lower our per caps.
Our ESG leadership continues. I encourage all stakeholders to read our first ever annual sustainability report that highlights our leadership, accomplishments and certifications in this area. And that also can give you a clear understanding that we are well positioned for where the puck will be in the future on issues of energy efficiency, healthy buildings and indoor environmental quality. Our sustainability report can be found at empirestaterealtytrust.com. Again, the full 1st annual sustainability report can be found at empirestaterealtytrust dotcom.
In January, we announced that our portfolio is now 100% powered by renewable wind energy. This action builds on our earlier success with the Empire State Building, which has been 100% renewable powered for a decade. In April, we were awarded the Energy Star Partner of the Year designation in recognition of our contributions and leadership in the fight against climate change. And I am pleased to say that we are currently 76% ENERGY STAR certified by the number of square feet in our portfolio. That said, our 1st annual sustainability report covers many more issues, many more certifications and many more facts, and I hope that you will view it online.
New developments as of just last week, we joined New York State and the New York State Energy Research Development Authority in a commitment to the Empire Building Challenge, a $50,000,000 state initiative to accelerate progress towards a reduction of 85% of greenhouse gas emissions statewide by 2,050. Our prior work at the Empire State Building, which we have extended throughout our entire portfolio over the past decade, provided us with a knowledge of what is possible and a skill set on how to execute. We believe these commitments to a carbon free future will offer us a competitive edge in a tenant driven marketplace that increasingly focuses on ESG and how their occupied spaces can help them achieve their corporate goals. As I have said, I am confident and I am a realist. We are still in a time of uncertainty and I have said and still believe we will not hit the bottom of the market until the end of the Q1 of 2022.
Through the noise, we hear the sound of real companies that now approach real space needs with clarity and vision of how they want to use offices for their teams to work and grow together. We will have uncertainty in the press about return to the workplace, large amounts of sublease space on the market and challenges with leasing and the reestablishment of New York City as the great world capital it is. I believe ESRT is well positioned in 2021 with our well priced and competitive product, operational prowess, flexible balance sheet, focus on prudent capital allocation and leadership in ESG. I believe that ESRT is well positioned to thrive and deliver long term shareholder value. And now folks, Tom Durels.
Thanks, Tony, and good afternoon, everyone. In the Q1, we signed 26 new and renewal leases totaling approximately 100 and 72,000 square feet that included approximately 143,000 square feet in our Manhattan office properties, 28,000 Square Feet in our Greater New York Metropolitan Office Properties and 1,000 Square Feet in our retail portfolio. Significant leases signed in the quarter were a 33,100 Square Foot expansion office lease with Burlington Stores at 1400 Broadway, where it will now occupy approximately 68,300 Square Feet. A 31,400 Square Foot New Office lease with ZENTALIS Pharmaceuticals at 1359 Broadway that will occupy space to be vacated by Lee and Fung later this year and a 30,600 Square Foot new office lease with a law firm at One Grand Central Place. Our mark to market results are always driven by the escalated rents of leases that have expired.
And in today's market, we will focus on retention of tenants and that may result in reduction of rents on a mark to market basis on renewals. That said, during the Q1, rental rates on new leases signed at our Manhattan office properties increased by a healthy 14.7% on a cash basis compared to the prior escalated rents. Spreads on renewal leases at our Manhattan office properties were down 11.6% on 32,000 square feet and 10 deals. New and renewal office leases across our entire portfolio were up 6.8%. We estimate net effective rents in our portfolio today versus pre COVID levels have declined 10% to 15% on a comparable space basis.
Net effective rent is a combination of face rent, free rent, length of lease term and tenant work, all of which vary by deal and depends on the space condition, location, tenant credit and other factors. Our total portfolio leased percentage is 88.7%, unchanged from last quarter. Occupancy of 85% was down 90 basis points from the prior quarter due to anticipated tenant move outs. And for the balance of 2021, we anticipate tenant move outs of 300,000 square feet, which will be offset by signed leases that we anticipate will commence before year end of 305,000 square feet. Please refer to the tables on Pages 6 and 10 in our supplemental.
We have seen a noticeable increase in tour volume during the past 6 weeks in our Manhattan office portfolio to about 2 thirds of pre COVID levels. While the recent increase is a positive sign that some tenants are beginning to reengage, the lease transactions that come from these tours will likely appear in the second half of the year. Healthy buildings and indoor environmental quality remains front of mind for nearly all tenants and is the most asked about topic before and during space tours. We reduced property operating expenses by $11,000,000 in the Q1 of 2021 compared to the prior year period and a cumulative total of $50,000,000 since the pandemic onset. We achieved these cost savings without reduction of services to our tenants and after the cost of implementing new health and safety protocols.
As previously mentioned, most of the cost reductions were primarily driven by low building utilization. However, we continue to focus on ways in which we can change our processes and reduce expense beyond savings driven by lower occupancy. Keep in mind that a portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries from existing leases. And looking ahead to the second half of twenty twenty one, with a greater increase in vaccination distribution and a return to the office, we expect a gradual increase in operating expense levels. In summary, we had a good leasing quarter that included expansions of existing tenants and the addition of new tenants to the portfolio.
Our industry leadership and experience in indoor environmental quality and sustainability enhances our ability to attract and retain quality tenants. And we continue to manage property operating expenses tightly with a cumulative reduction of $50,000,000 since the pandemic onset. Now I'll turn the call over to Kristina. Kristina?
Thanks, Tom. For the Q1, we reported core FFO of $41,000,000 or $0.15 per diluted share. Same store property operations, if you exclude one time lease termination fees and Observatory results from the respective periods, yielded a 3% cash NOI increase from the Q1 of 2020. This increase was primarily driven by lower property operating expenses, partially offset by lower revenue as compared to the prior year period driven by receivable write offs and increased vacancy. Our rent collections remain stable at 94% of Q1 2021 total billings with 96% for office tenants and 86% for retail tenants.
The company recorded a non cash reduction of straight line balances of 600,000 dollars and wrote off $500,000 of tenant receivables assessed as uncollectible during the Q1 of 2021. Switching to Observatory results. Observatory revenue for the Q1 of 2021 was $2,600,000 and that included $100,000 of deferred revenue from unused tickets and earned income from our tour and travel partners. Observatory expenses were $4,600,000 in the Q1 of 2021, which is our seasonally lightest quarter and we continue to expect run rate expenses to be approximately $6,000,000 to $7,000,000 per quarter for the balance of 2021 depending upon the pace of visitor ramp up. Turning to our balance sheet.
As of March 31, 2021, the company had $1,400,000,000 of liquidity, which is comprised of $567,000,000 of cash $850,000,000 of undrawn capacity on our new revolving credit facility entered into at the end of the quarter. The credit facility has an initial maturity of March 2025 and has 2 6 month extension options and a sustainability linked green pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved each year. The company had total debt outstanding of approximately $2,200,000,000 on a growth basis and $1,600,000,000 on a net basis at March 31, 2021. The company's total debt has a weighted average interest rate of 3.9% and a weighted average term to maturity of 7.9 years. We have a well laddered maturity schedule with no outstanding percent and net debt to adjusted EBITDA was 6.5x.
Year to date through April 27, 2021, the company repurchased $3,500,000 of common stock at an average price of $9.22 per share. This brings the cumulative total since the stock repurchase program began on March 5, 2020 through April 27, 2021 to $147,200,000 at an average price of $8.34 per share. Our balance sheet flexibility provides us with an operating runway to engage selectively in share buybacks and evaluate opportunities to deploy capital for external growth. Our investment team continues to underwrite office, retail and multifamily opportunities actively. As we have emphasized, we will prudently deploy capital when an opportunity presents itself.
Looking ahead, there are a few items to touch upon for your modeling consideration. We reduced property operating expenses by roughly $11,000,000 in the first quarter of 2021 on a year over year basis, driven primarily by reduced building utilization. The company expects property operating expenses in the Q2 of 2021 will approximate our current levels based on continued low building utilization relative to 2019 levels. Also, the company expects annual G and A to be approximately $58,000,000 And now we will turn it over to the operator for Q and A.
Thank you. At this time, we would like to take any questions you may have. The first question comes from Steve Sakwa at Evercore ISI.
Thanks. Good afternoon. I was hoping that maybe Tom could speak a little bit more about the demand. And I guess specifically just sort of thinking about how tenants are looking at density as they're looking for new space and for the deals that you said you got an increase in activity, are those for just kind of relos? Are they new deals?
Are they expansions, downsizing? Just a little color would be helpful.
To about 2 thirds of our pre COVID pace for space tours. Of course, any of these showings that lead to proposals will likely occur in the second half of the year, but it's a really good sign that tenants have reengaged in the market. IEQ, indoor environmental quality and healthy buildings remains the primary focus by most tenants and it's often a gating issue before tours are scheduled. And it's certainly the most frequently asked about topic during tours. And of course, we encourage everybody to look at our inaugural sustainability report on our website.
I'd say about half the proposals on new activity that we see right now are represent tenants that are growing and the other half are lateral moves. But if you look at the this quarter, we're pleased with the expansion lease we do with Burlington and the new leases with Zintolis and Belkin. These represent growth by tenants who committed to long term leases in the middle of the pandemic. On spaces, we haven't really seen any change or significant change in what tenants are designing. There's an awful lot of discussion on the topic, but I'd say we've seen some slightly less dense furniture layouts, although pre COVID, many of our tenants were focused on employee productivity and really rarely occupied space to their maximum density.
We've seen some increase in phone rooms, breakout rooms, some additional offices being added, but that does not mean that there's a conversion to in all built offices. So overall, we had a really good quarter, 172,000 square feet of leases done. And I think that we're seeing a mix of tenants in legal, tech, financial services, government, media. So it's a good mix of tenants that we're seeing.
Okay, thanks. I guess second question, I guess, Tony, in your comments as well as in the press release, you sort of talked about a real step up in your activity levels looking at transactions. And I also noticed the share buyback volume was rather de minimis this quarter. I don't know if those 2 are tied together. But could you maybe speak a little bit more about the types of deals that you're seeing, if it's more distressed or just the fact that the markets are getting better and the debt markets are open that more product is coming to market?
Sure. Thanks, Steve. Our team is busy. That means our new team and our seasoned players like Tom Durels and his variety of situations. Our focus remains New York City office retail and multifamily.
We're in conversation with families, many of whom were not so interested in talking about transactions 4 or 5 years ago, who are more interested now. We've seen widely marketed transactions. We've seen off market transactions, M and A. We spend time on it all. At the same time, I want to make sure that we're not distracted by this bright shiny penny topic, if you will.
When we have something, we will let you know and we'll give our rationale. As far as the source and motivation of the transactions that we see, I would say quite similar to the leasing. Things just have begun to move. There's a little bit less of, shall we say, the squirrel that's hunkered down in the middle of the road not knowing to which way to go. We're actually in a process in which people have begun to make moves, come out of their shelves, recognize things they have to do, recognize things they would like to do.
So I think it's all kinds of different motivations. And I think we will begin over the next few months to see price discovery come out on different assets as more deals are announced. And we'll see more folks come to grips with are they in a good position with a good runway or do they need help.
And maybe just as one follow-up there, Tony, does the potential for cap gains tax or the elimination of 1031s kind of accelerate some of that activity or you don't think either of those have a kind of a big driving factor in transaction volume?
Look, I think it's highly conjectural at this point. We don't see anything that really evidence there. I think the only thing about which we feel reasonably confident with regard to the tax situation is that the Biden administration, the like taxes to go higher, that there is a dialectic in Congress and that the Democratic majority in the House is not large and therefore in order to get any package passed, there is a contingent, a growing contingent of members of the House of Representatives who have said they will not approve anything without a removal of the cap on state and local tax deduction. And while we think it's hard to predict the outcome of any potential decision, any decision that lessens the burden on high income earners in our region is very positive.
Great. Thanks. That's it for me.
Thank you. Our next questions come from the line of Manny Korchman with Citi. Please proceed with your questions.
Hey, Tony, you've spoken about this 1Q 2022 date a couple of times now. You call it the bottom, but I guess what does the path to the bottom look like? Is that going to be an increase in vacancy or sublease space? Is that going to be rents dipping? Is that going to be tenants leaving the market?
Others have maybe been sort of more on the path of we're seeing the bottom because activity is up or leasing activity is up or tours are up. But you're saying that we have to wait a year to see sort of when the bottom hits. So what does the path to that look like?
I think that what we see right now, Manny, and thank you for the question, are some uneven starting points of data. I wouldn't say that it lays the foundation at this point for a this is where we are. What we've seen in prior periods is far more space gets put on the sublet market than is ever sublet. Far more space is discussed to be shed than is ever shed. We also see at a time like this where things are not necessarily restarted entirely.
A lot of folks will try to generate business with big incentives, big breaks in rent. Brokers will go out with initial proposals, which are radically low. And I think that we don't in the intervening period upcoming expect to see a lot of what really sets the base. We'll see some halting commencement. We'll get price discovery.
We'll get real demand discovery. So I think a lot of people don't know what's going on until they come back to the office. I would say that a big component, I'm sorry if this goes off of your question, but I think it's something which needs to be addressed for everybody. With regard to this whole future of work is that the conversation has really turned. The conversation has turned about the return to office on the basis that the world has started to reopen.
I think companies now recognize the difficulties with regard to culture team competition posed not just by work from home, but from the proposed hybrid or to discuss hybrid future. It's in the New York Times, Wall Street Journal Economist, New York Post, the problems caused by this theoretical hybrid future. So I think that we understand there are a lot of motivations, exhaustion, disconnection, fear to take a day off, youth want to be in the office. There are a lot of things which are occurring, which build back into clarity on what people's uses will be. And I think, Manny, that will build on that base the foundation as we move forward.
So I think that's where the puck will be and I really don't think we have a clear vision of that where we don't get any more bad news until the end of Q1 of 2022. Directionally, things have greatly improved and I think we'll continue to see them improved. I think that a lot of reporters will have to learn how to write something which isn't negative.
Great. Thanks, Tony. Maybe you sort of touched on this a little bit in Steve's in response to Steve's question. But when you say your team is the busiest it's ever been over the last 3 months compared to the entire history of the company, Is that just looking under more rocks? Is that you've had more inbounds or more receptivity to inquiries or offers you've made?
Is that the net is now just wider? So what are the levers you pull to bring in so much more activity or volume or work?
I would say it's 3 things. The first answer is E, all of the above. So in every avenue and I there are multiple families who have come back to us to discuss issues that they've got that need resolution. They won't all lead to transactions, but people are assessing their situation more actively. People assess their situation more actively.
Number 2, I do believe that we have spent a fair amount of very productive time working with our Board and our Finance Committee, so that we get a good process in place. And the final piece is we got a full team now and we're underwriting and analyzing a lot of different situations, looking at all the different structures we can put together to make us competitive. And we weigh it against our allocation of capital and how we use it. So hopefully that's helpful to you, but it's really coming from all angles. And it's the fact that we're getting back into an expansion mode where candidly we haven't been as a public company.
We're quite pleased with that.
Thanks, Tony.
Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great, thanks. Good afternoon. Just a follow-up on that, Tony, and I know you don't want to focus too much on transactions until you get something done. But you and Christina both mentioned that you're looking at office retail and multifamily opportunities. Number 1, are there more opportunities in any one property type than another?
And then number 2, I guess you guys have experience as a company in office and retail, but multifamily would be a different product. I guess, how do you think about your ability to compete in that space? How do your skills at office and retail translate to acquiring and operating multifamily? Is it just more of a matter of some of the product you're looking at has a multifamily component or are you actually looking at true multifamily?
So I think I'm going to just focus on I'll focus on the last part of your question because the first part I think is pretty much straightforward in my prior response. On the multifamily piece, we've done a lot of multifamily historically and outside of the REIT, my family still owns thousands of apartment properties, not in the New York area. That's part 1. They weren't included in the REIT because they weren't New York in the Tri State region, number 1. Number 2, we've developed multifamily for sale in New York City before the Corinthian, the Alexandria.
We have turned around assets before. Anyone who remembers what was known as the Grand Palais and became the Mondrian, we are the team that made that redo of that failed condo. So we've done New York City multifamily before. And so members of our team who were involved in that and underwriting on that, the property side, the FP and A side, they're still here. So we believe we've got good experience in that area.
And we find it interesting as potential additional wheel on our tricycle.
Okay, that's helpful. And then just shifting to kind of the balance sheet, you guys obviously have an enviable liquidity position, but leverage has been creeping up a little bit over the past several quarters. Christina, can you just talk a little bit about where you guys comfortable on a debt to EBITDA basis? I think you're at 6.5 times now on a net basis. Are you running into any constraints on the share repurchase or potential investment side or not quite yet?
Yes. No, not feeling constrained. We're happy with our liquidity position, right? That's over $550,000,000 of cash and $850,000,000 on our new line, which has been now has a maturity in 2025. So we feel good about that.
In addition, we have no debt due until 2024 in November. So we feel very good about the flexibility that we have. In terms of net debt to EBITDA, I think I've answered this question before, which is we don't really look at the exact max level. It's really about how you're able to access further liquidity. So the company has always had a relatively conservative stance on the balance sheet.
We will continue to manage that responsibly. But the increase in net debt to EBITDA is largely driven by Observatory revenues coming down. And in this quarter, we're now capturing the full impact of COVID, right, between 2Q, 3Q and 4Q of 20 20. And we are seeing a ramp up. We're managing expenses really well.
So we feel very comfortable at these levels, not constrained, but we will continue to manage the balance sheet prudently.
And I'd just like to add to Christina's comment, comment we've made before people may forget. I know you folks on this call had a lot of different calls of which to keep track over this over today and over the quarters. But we are prepared to take our leverage up. And we're also prepared at the right time to issue more equity. We're also prepared to recognize that there is a virtuous cycle in which we may find ourselves when we commence growth.
And we're also cognizant of the fact that we have bought a lot of stock back at a price, which is below where we currently trade. And at some point, we could reissue that stock at a higher price and both make a gain on behalf of our investors and increase our liquidity. So we really feel that we have all of the arrows in the quiver that we might like to have. We feel in a very good spot, very well positioned at this point. If there were one thought that I think we would want to communicate here, we feel very well positioned right now.
We feel comfortable. We are working very, very hard. It's not the place where we would like to be. We feel very well positioned for the future.
Very helpful. Thank you all.
Thank you. Our next question has come from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.
Thanks everyone. Maybe circling back to Tom and your commentary on the leasing front. Obviously, the pickup in tours is a good kind of future indicator here. But I'm just kind of curious, you guys, your portfolio has always kind of served as a little bit of a value relative to traditional Midtown or newer Midtown office buildings. And typically in these situations, you see a little bit of a trade up of space among tenants.
I'm just kind of curious, number 1, has your the kind of the demo of the tenants kind of shifted at all versus what you've seen in the past? And do you think because we're hearing from everyone that tours are increasing, how much of a overlap do you think you guys are having relative to other portfolios where maybe the net pool of tenants isn't necessarily increasing, it's just you're seeing everyone's seeing the same ones over and over again?
Sure. So I would point to the fact that Zintalus and Burlington were growth, right, and committed to long term leases. And so we are seeing growth in the market, probably half of our proposals that are active right now represent tenants that are growing. Both Zentalis and Belkin, the law firm that moved to One Grand Central Place, those were trade ups, I mean, they moved up to our property from what I'd call inferior property. And so what did they seek?
They saw what we offer, which is well located property next to mass transit in fully redeveloped modernized buildings with our tenant spaces that will be built in compliance with our state of the art industry leading standards for healthy buildings, IEQ and energy efficiency, including active bipolarization MERV 13 and ASHRAE 62.1 standards. So the that was an example those are examples of tenants trading up in the market to come to our properties. And so we believe we still offer a great value proposition for the reasons I just stated. We're at an affordable price point. We're well located near mass transit and we're offering we offer fully modernized buildings and newly built tenant spaces.
And of course, 95% of our portfolio has been redeveloped. And we have some 270,000 square feet of pre built space that's built and ready to go. And what's interesting, we've seen a healthy pickup in activity and interest both proposals and tours for our pre built suites, which in the Q4, it was fairly slow in terms of the level of proposals we were exchanging, and we've seen a big pickup this quarter. Now I would caution a lot of that activity will translate into activity in the second half of the year.
Great. Thanks for the color. And then maybe I don't know if this is for Tom or Christina, but you guys the $11,000,000 reduction in OpEx in the Q1 is strong.
And I know you guys a lot of
that is due to lower utilization. But as we think about going forward, how much of that $11,000,000 is kind of permanent? And as people come back, can you guys materially improve the NOI margins at kind of a stabilized point versus maybe historic levels?
So first, I'd say that echoing what Tony had comments that he made in his opening remarks that we are actively looking at ways to improve our operational efficiency so that we can lock in permanent savings. The reductions made to date represent aggressively managing our expenses. Certainly, the bulk of it was due to reduced physical occupancies related to COVID, but we have completed our redevelopment work, which allows us to reduce permanently certain expenses and certainly keep a cap on the growth in expenses we get into next year. So we do expect to lock in a portion of those. We haven't given a specific number, but I think that was our benchmark will be 2019, which is our last year of full building utilization.
And I think that we're to see some improvement off of those numbers.
Great. Thanks, guys.
Thank you. Our next questions come from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
Great. Thank you. Good afternoon. I was hoping you could talk a little bit about the smallest tenant leasing activity versus larger. Just you were able to keep your percent leased flat, which is impressive.
It looks like you had a couple of buildings that had occupancy dip a little bit. Just curious if there's any kind of read throughs for small tenants versus larger tenants based on what you're seeing?
Sure. So Jamie, the increase or the increase in vacancy or decrease in occupancy that you noted from the prior quarter was really due to known tenant move outs, which we had communicated last quarter. The most significant was the termination of a full floor tenant for 40,000 square feet, which we have already re leased to ClearView, which we announced last quarter, whose lease will commence by the end of this year. The most important thing is that our forecast of 300,000 square feet of tenant vacates in 2021 has not changed significantly from prior forecasts. And we have 305,000 square feet of signed leases that we expect will commence by year end.
So I think from an occupancy standpoint, we're in very good shape. On the small tenant activity, as I just mentioned, we've seen a big pickup in activity and level of interest both on tours and proposals being exchanged for our small suites that are fully built to comply with our standards for IEQ and sustainability. We offer turnkey suites that means for a price increase, we'll offer the suite fully furnished, fully wired and provide move coordination. Comparing to where we were last quarter, I'd say we're probably about 3 quarters or 80 percent of our pre COVID level, which represents a big increase from last quarter.
Okay. Thank you. And then you had said, you think net effectives are down about 10% to 15%. Can you break that out by face rents and concessions and free rent or TI's?
Well, first, I would say that, our every deal is unique and really depends on the space condition, the location, the tenant credit and other factors. For example, the Burlington expansion, the Zentallis and Belkin leases were all turn key deals with leases that range from 11 to 16 years. Generally, there's been more negotiation around concessions, but one of those deals, we gave maybe a rent discount of $2 to $3 per square foot compared to pre covered levels combined with 3 to 4 months of additional rent and a few dollars more in TI, whereas the others we held rent flat and gave more on concession. So it's really a mixed bag and it depends on the individual deal and the negotiation. I would point out that our average lease cost per lease year for this quarter for TIs and commissions was about just under $9.5 per square foot, which is right in line with our leasing costs for all of 2019.
And of course, we had a weighted average lease term this quarter of 10 years and that compares favorably with the last 2 to 3 quarters.
Okay. Thank you. And then I guess, I know you've talked a lot about the investment activity. But just to be clear, are you would you consider assets outside of New York City or entity level transactions if they did have assets outside of New York City?
We are and thanks for that Jamie. We are omnivorous opportunivores. I've used that word before. Our focus is Manhattan and the Greater New York Metropolitan area. In order to grow the business, we need to look at all types of transactions.
I would just say that.
Okay. Is there it's funny because I was going to use the same word, but I didn't want to take it out of your mouth. You've been using that for a long time. I mean is there a regional limit? I mean, would you look at national stuff or west of the Mississippi River or not necessarily?
Gosh, I mean, I didn't know that the world existed west of the Hudson River. Is there something else out there? No, I think joking aside, the last thing we want to do is generate speculation. I think as prudent fiduciaries to our stakeholders, as prudent investors, we really need to look at all things which are that could be logical. And how we allocate our capital, we look forward to have something to talk about other than speculation and we'll be much more talkative as and when we do.
Okay. Thanks for that. And then just some thoughts on the suburbs. That portfolio looks like it's been relatively flattish on the percent occupied side. I think you had a little bit of a dip at 10 Bank Street.
Just any would you say there's been any pickup or it's been pretty flat?
Well, Jamie, remember we have a 63,000 square feet with Berkeley insurance that will commence later this year and that comes on the heels of a fairly large earlier move out by a tenant at Metro Center. So that will help our occupancy numbers. We have seen a pickup in tours like in Manhattan, and that pickup since the start of the year brings us to tour volume today at about just at about pre COVID levels, which I think is a positive sign. Still not still I think that that's going to translate into activity in the second half of the year. So it's a it is a bit early on that.
Downtown White Plains, I think it's generally performing good. Downtown CBD Stamford is where we see a good amount of tour activity. Up in Norwalk, I'd say it's slower, but we are exchanging proposals with some fairly large tenants because we have a large block of about 80,000 to 90,000 square feet at our Merritt View property. And so we'll see as that translates into real activity later in the year.
Okay. I mean, is there anything in behavior during the pandemic that would make you want to grow transit oriented suburban?
We like our portfolio. We think we're very well located next to mass transit. We did recently complete upgrade of all of our common areas, including gyms, dining, coffee lounge, lobbies and outdoor areas. We've got a little bit more work to do at Metro Center, but properties show really well. And I think we're focused on leasing up our vacant space there.
Yes. And I would put it this way. I think it's important to note what you didn't ask is, have we seen a big flow of tenants in that tour group out of New York City? And the answer is no, we haven't. A handful.
Yes, a handful. And some leases done, smaller leases under 10,000 square feet on which we've reported. Right.
Okay. All right. Thanks for all the color.
Thank you.
There being no further questions, we're going to we'll finish up here. We have one we have no further questions. So what we will do is we will go to one last comment and then get you all to your 1 o'clock. I do again want to compliment our great team without them ESRT is nothing, number 1. Number 2, please do review our sustainability report.
Don't do it today, but do it when you've got a moment. It really will show you what's more than the 100% of renewable wind energy, what's more than healthy buildings. You get to see where the puck will be when you read our 1st annual sustainability report. And finally, we want to make sure that you understand that our forward looking statements on plans to ramp up the Observatory and return to business are for discussion purposes only to help you with your models. They are not guidance nor are they guarantees.
We look forward to a chance to meet with you many at the upcoming NAREIT conference virtual and we look forward to seeing you all return to office, return to here. We're healthy, we're vaccinated and we're in a very, very safe place to come and visit. So say hello. We look forward to seeing you in person. Thanks much.
Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.