Okay, we're going to start the 12:30 session. For those that don't know me, I'm Steve Sakwa. I head up the real estate research effort at Evercore ISI. I'm very happy to be hosting the Empire State Realty Trust panel here. Just quick introductions on who we have. Christina Chiu, to my immediate right, is President. Tom Durels is EVP and Head of Real Estate, and Steve Horn at the end is Chief Financial Officer. I'm gonna just turn the mic over to Christina to make some opening comments, and then we'll lead a Q&A session here. We're certainly happy to take your questions, so we'll certainly leave some time for Q&A. But with that, Christina, I'll turn it over to you.
Great. Thank you, Steve, and hi, everybody. I'll start with a quick overview of who we are, for those of you less familiar with our company, and highlight why ESRT represents a compelling investment opportunity. So ESRT is a New York City-focused REIT that benefits from four key drivers of demand: office, retail, tourism, and multifamily. Our portfolio is comprised of approximately 8 million sq ft of fully modernized, centrally located office space, 700,000 sq ft of predominantly high foot traffic, everyday retail space, 727 multifamily units, and the iconic Empire State Building Observatory attraction. All in all, this translates to a net operating income mix of approximately 60% office, 25% observatory, 10% retail, and 5% multifamily. We believe we are primed to take advantage of New York City's continued recovery and resiliency.
We are seeing this translate into improvements in office leasing activity, excellent performance from our multifamily assets, and continued steady progress in our observatory attraction recovery. As we emphasized on our earnings call, ESRT's top priorities are to lease up space, sell tickets to the observatory, manage our well-positioned balance sheet, and achieve our sustainability goals. Our focus on these priorities has allowed us to put points on the board and enhance shareholder value. Starting with leasing, in 2023, we leased nearly 1 million sq ft, and as of the first quarter, our Manhattan office lease rate increased 200 basis points year-over-year to nearly 93%. The first quarter of 2024 was our 9th consecutive quarter of positive lease absorption in our commercial portfolio and 11th consecutive quarter with positive mark-to-market spreads in our Manhattan portfolio.
These results demonstrate that in today's market, there is a definitive flight to quality towards top-quality space and a strong value proposition at every rental price tier. We are positioned to compete and win in this environment with a differentiated, high-quality offering at a very compelling price point for the broadest population of tenants, and a strong balance sheet to stand behind it, which is even more important these days to tenants. In our observatory business, it's off to a great start in 2024, with first quarter net operating income increasing 13% year-over-year, driven by continued improvement in revenue per caps and 10% increase in visitation. The Empire State Building is true, authentic New York City and has shown immense resiliency over the years through economic cycles, through new competition, and a worldwide pandemic.
On capital allocation, we actively engage in capital recycling, whereby we monetize assets where we have executed on the business plan and redeploy proceeds into acquisition opportunities that are additive to the portfolio and company. Over the past two-plus years, we have disposed of five non-core suburban assets and acquired three multifamily assets and one prime retail asset, all in New York City. We have one remaining asset in Stamford, Connecticut, and we continue to focus on the identification of attractive investment opportunities within New York City office, retail, and multifamily. ESRT is backed by a strong and flexible balance sheet. We had a very busy and proactive start to this year from a balance sheet perspective, as we mentioned in our recent earnings call.
The company successfully addressed the entire $315 million of debt that was due to mature in 2025 and extended the maturity of our revolving credit facility from 2025 to 2029, inclusive of extensions. As a result, we have strong liquidity, a well-laddered debt maturity schedule, and the lowest leverage among all New York City-focused REITs at 5.3 times net debt to EBITDA. Lastly, we're industry leaders in sustainability and healthy building performance. It's a cornerstone of our business as tenants and brokers screen for sustainability partnership with their landlords. ESRT had a unique journey and began its sustainability work over a decade ago with deep energy retrofit of the Empire State Building. The Empire State Building has been 100% renewable wind powered since 2011, and the entire portfolio since 2021.
And since 2007, we've reduced operational emissions by 57% at the Empire State Building and 47% across our portfolio. Our goal for net zero is to reduce operational emissions by 80% by 2030 at ESB and 2035 across our portfolio. We're committed to long-term shareholder value creation through continued excellence in sustainability and delivery of all our other priorities. And with that, Steve, we'll turn to you.
Great, Christina. Thanks for the update and introduction of the company. So, you know, we have seen across the office landscape, for the most part, you know, companies either are flat, but most companies have been losing occupancy the last couple of years. And some of that even started, you know, pre-pandemic. But you guys have really been able to build occupancy and grow the lease percentage. So, you know, could you or maybe Tom just sort of speak to, you know, what is it about the ESRT portfolio that's allowed you to gain market share, number one? And two, you know, we hear a lot about, you know, troubled landlords, you know, balance sheets of private companies that don't provide them the capital.
I'm just curious, you know, what kind of market share gains are you taking, and how are the brokers and the tenants who are thinking about health of landlords today?
Sure, Steve. Well, first, let me just emphasize nine consecutive quarters of positive leased percentage absorption. I think that's, we're unique in the marketplace. And of course, it's a function of delivering what tenants look for and want today, which is buildings that are modernized, spaces that are turnkey, fully built, ready for move-in, that's fully designed and built by the landlord, so tenants don't have to focus on hiring architects or contractors to build their space, but actually turn to us to deliver that. The balance sheet and the execution capability to deliver on promises. We're leaders in sustainability, so we help tenants meet their own sustainability goals. Our buildings are well located near mass transit for the convenience of their employees, and we offer fantastic amenities.
We've added to our amenities, and we're adding more to those now. The narrative that we hear from tenants has changed. It's not a matter of work from home, or when will employees return to the office. Employees themselves want to be in the office. Employers want their employees to be in the office. It's not a matter of whether it's three days, four days, five days a week. It's irrelevant. What employees and employers have decided is that everybody deserves and wants a seat in the office, and that is driving leasing demand. We have examples of tenants that may have shed space right after COVID, and then they thought that, well, things have shifted, where some folks will work from home, and that's completely changed.
Tenants are back to looking at long-term programming. Everybody will have a seat. Where will they house their offices? Of course, when they're making those choices, the choices in the marketplace are actually fewer than the data set might indicate. Because when you look at all the things that I just mentioned that we provide, also at a very attractive price point, most of our leasing is done in the $60-$80 per sq ft range, where the vast majority of leasing gets done, we end up being, you know, kind of the favored choice, and that's explaining those nine consecutive quarters of positive absorption.
Yeah. I think bigger picture, you know, the leasing, as you can tell from our data, is going well. This is really a story of capital dislocation in the marketplace, translating to a lot of negative points around office, as well as a story of haves and have-nots. So for buildings that are well invested, backed by financially stable landlords with good product, thoughtful product, offers a value proposition as real estate, you're seeing the data translate, and it's this other set that dominates the headlines, right? Not enough capital to make the buildings modernized and competitive. Perhaps not even enough capital to fund the capital required to sign leases, and that's what's dominating a lot of the headlines. So there's a real separation, and in periods where there's a lot of caution, it's baby and the bathwater, right?
More important than ever to draw the distinctions between companies, between portfolios, and find your spots.
Tom, maybe speak a little bit about the different submarkets in Manhattan, specifically. You know, where are you seeing the most strength? Where are you seeing maybe less demand? And then secondly, just maybe talk about some of the, the types of tenants, whether it be, you know, financial services, legal, professional services. You know, where does technology fit in? Obviously, tech was a major driver of growth, you know, for several years, and they seem to have gone on the sidelines. So I'm curious, you know, what you're seeing from tech in particular, but maybe speak to the submarkets and then types of tenants.
Mm-hmm. Well, our properties are predominantly located, what we call, within that commuter triangle between Grand Central, Penn Station, and the Port Authority. With many of our properties in the Times Square South or Broadway Corridor, as we refer to it, between 34th Street to 39th Street along Broadway. And then we have property at Grand Central, one up on 57th Street in the Columbus Circle submarket. But we're seeing activity, certainly Grand Central, right within a quarter three block, particularly proximity to Grand Central, is very strong. We saw that coming right out of COVID. All of our properties in Times Square South are performing very, very well. We have two full floor leases out in negotiation at 1350 Broadway, right at Herald Square.
Empire State Building has tremendous activity. We only have one full tower floor that's available, and we have a lease out in negotiation on that. Our pre-builts are moving across the portfolio, where predominantly a bunch of our inventory is at One Grand Central Place, Empire State Building, and some of those buildings along on Broadway and Times Square South. Columbus Circle submarket, where we have one asset, is a little bit light activity, but the property is fully improved and amenitized, and I'm confident we'll lease two full floors there. And then as far as tenant type. We've been attracting and continue to attract tenants in really all industries. We have activity from tenants in professional services, consumer products, financial sector, tech.
The one example that I gave about where a tenant had shed space all but a space at Empire State Building, found their employees were using the amenities and using their space at Empire, and now looking for an immediate expansion and the long-term plans for 2, 3 years out. That's a tech tenant. And so it's a good indicator that tech companies themselves are not just, again, working remote, they're actually working out of the office. I think some of the larger tech companies in New York may have been long on space just before COVID. Of course, they had at least space before they had bodies to fill those seats. Some of them are looking to shed space, but then that has reversed course now.
Christina, maybe just touch on the observatory. You guys put a fair amount of money into that space several years ago for. You know, there was a lot of some competition coming to the marketplace, and you guys sort of upgraded the experience. Just maybe talk about what you're seeing, how you've changed pricing. You know, what have you done sort of through COVID? And as you sort of think about the visitors today versus kind of the pre-COVID levels, I think you're still maybe close to 1 million behind, but, you know, NOI and revenue are probably back to pre-COVID. So just how are you thinking about running that business and, you know, what are the growth prospects moving forward?
Yeah, so, observatory, about 25% of our net operating income contribution. For context, taking 2019 as a clean pre-COVID year, there were 3.5 million visitors. We had net operating income about $95 million. Fast-forward to 2024, we have about 75% of admissions by head count, but we are basically back to the same level of net operating income. So the team has done an amazing job in terms of running the business and operating efficiencies. Definitely had learnings coming out of COVID on a few fronts. First is, whenever you have a business shut down on you, you really learn how to layer back in the expenses so you have better control. The second is, with social distancing requirements, attractions businesses have moved towards timed ticketing.
So the days of getting in line, you get in at some point, you get out at some point, you have no idea, that's over and that's behind us. It's much more planful now, and with that comes some efficiencies. Number one, we can actually plan ahead for operating expenses. If you know you have peak periods, you can staff up for peak periods versus, "This is a busy two weeks, let's staff up for the whole time." So it can result in more operational expense efficiencies. The second is, it really improves experience because you don't have the lines, and better experience translates to better reviews. We were TripAdvisor #1 attraction for two years running, and we've been able to generate our highest per caps historically. So all of that has translated into a very powerful business.
It's a great complement to the rest of what we own. Doesn't have CapEx. As Steve mentioned, we spent $165 million to fully modernize and change the experience, and that was completed back in 2019. So anyone visiting now is really seeing it for the first time. So it's a great business. We have a lot of efficiencies. Revenue's doing really well. In terms of the mix of customers, pre-COVID, we had roughly 2/3 come from international and 1/3 from domestic. And now we're running at 75% of the visitors, and it's roughly 50/50 between international and domestic, so still have more room to go. The most absent piece coming out of international is from China, and that's been the case for the last couple of years.
First, it started as China had a different COVID recovery journey, right? They were still shut while the rest of the world was recovering. Now that they're back open, it's about geopolitical tension, not as many flights coming here. So that portion of the visitor base is missing. As we look forward, we do expect that international will come back. But given we have done more direct-to-consumer sales, that's a higher margin business, whereas international is more wholesale. You do it through tour and travel passes, it's a lower margin. We may be able to have a scenario where we don't have to bring international back all the way, but still be able to achieve NOI and NOI growth relative to where we were. So very positive on the business, and again, excellent complement to the rest of what we own.
Let me throw one more out, and then we'll see if there's any questions from the audience. I guess it's a combination on balance sheet strength, where, you know, you've got, if not the lowest, among the lowest, leverage within the office space. You guys were very disciplined not to do investments kind of early on. I think you got a lot of pressure to put that balance sheet capacity to work, but you did buy back some stock, and then you, as you mentioned, you moved in, and you made some multifamily investments. So just how are you thinking about the investment landscape today? What opportunities have you seen, and, you know, how do you expect to use the balance sheet over the next couple of years?
So right now in the investment market, we definitely have appetite. We're very prepared. As mentioned in my remarks, we have no meaningful debt maturity until end of 2026. We redid our line of credit. All of that is to be early, prepared, and ready for opportunities that come about, and we have nearly $1 billion of liquidity. The biggest barrier in the investment market is there aren't a ton of transactions yet. You know, you're reading about distress. That's not hitting the market and certainly not in volume. You're seeing more situations come up now as compared to a few months ago, but by far and large, a lot of banks are still extending loans. There's still a lot of kick the can down the road, and that's preventing would-be sales from hitting the market.
Couple areas to look out for is, as banks have taken write-downs through appraisals and otherwise, or as CMBS debt maturities come up, we may see more volume, so that's definitely an area of opportunity. We said our focus was New York City office, residential, and retail. The three of those categories will be quite different in terms of what attractive opportunity will look like. So starting with office, for us, that's really about getting a basis reset. You have to be able to go in at an appropriately low basis so that we can spend the capital to turn these into competitive, modernized assets that can lease well in the marketplace with all the traits that Tom described in the leasing comments.
And that basically looks like coming in at a basis, spending more capital, so it would actually consume cash for a while, won't be yielding, and then you start to lease up. So that trajectory probably can yield, for the right location, right floor plates, right ceiling heights, into pretty attractive, multiples on invested capital, but may not be a yielding asset, right? And the IRR clock, you know, may translate into something that isn't as high octane as some of the other opportunities. So we'll see what opportunities evolve. We're definitely interested, but we will be extremely selective to pick the right assets that fit within the portfolio. In retail, we like the asset class. Within our portfolio, we own every day, high-foot-traffic retail. Retail has done quite well. Lenders are more favorable, investors are more favorable.
Retailers coming in now know the size of box they want, what kind of rents they can afford, what does omnichannel mean, and they're picking their locations. So for good quality real estate, where we see long-term growth and have a way to add some value, we're definitely interested. But we don't expect to see that high-quality retail trade at super distressed levels. And then finally, in multifamily, that's something that we added to the portfolio at the end of 2021. The idea being, we are a New York City multi-play. So we have office, we have retail, we have the observatory, it makes sense to have some residential. So we have 3 assets so far in Manhattan.
Very pleased with those assets because the fundamentals are very strong, and from an acquisition standpoint, that makes it harder to acquire those assets, and we don't expect to see distress. Agency financing is still available. If you buy down the rate, you could be low mid-fives, depending on the asset. Fundamentals are really strong, high occupancy rates, and rents continue to be very resilient. So we don't expect to see a lot of distress. That said, for the right situation where we can add some value, we would be interested in adding to the portfolio. So we're actively looking at deals. The nearly $500 million of deals that we've done so far have been off market, so that is a lot of our focus, is really to find those opportunities, that we hope will transpire.
But a big part is waiting for transactions to actually hit the market. It does seem the mood is improving a little bit. Bank financing and other financing may become more available. That could be a catalyst for seeing more transactions come. You had asked about just share buybacks and other items. We've done that in scale, over $290 million since we started in March 2020. But notably, we did that without levering up the balance sheet, and we believe in buying back our shares. It's a good way to buy back your portfolio, effectively at a discount, and for a portfolio that's well leased and already invested in. But in a period where the capital markets are still somewhat uncertain, we don't feel like that's the only path to deploy capital. We want to look at everything in balance, and the key priority is operating runway and flexibility.
Okay, we have a few minutes, so let me see if there's any. I have a few more questions, but let me give the audience a chance to ask anything. All right, I'll let you guys think about it for a minute. You know, one of the topics that's come up quite a bit, and obviously, the mayor, and, and Governor Hochul have been talking about, you know, is conversion of, of old office buildings into residential. Sort of talk about that program, you know, the opportunity set, the maybe the challenges with doing the conversion. You know, how does that cost basis, how low does that cost basis need to be to make that an effective, opportunity? And is that something that ESRT would, would look to, you know, get into?
So, office to resi, huge narrative around that. We expect to see deals get done in the marketplace based on activity that is out there. The challenging part is, it's not going to be for well-leased assets, so it's not going to be within our portfolio. And as Steve mentioned, you do need an attractive basis going in because there are significant costs that need to go into the asset, and that's provided it has the right floor plans and the right window lines. In order to count as a bedroom, you need a window, you need substantially different HVAC, heating and ventilation requirements, different plumbing requirements as compared to commercial. So there are meaningful costs, and that's even for the right product.
So it's something that, you know, never say never, but it's not high on our priority list, given other opportunities that may come about, in the marketplace and the significant amount of work and the basis requirements, but we'll see how it evolves. Net-net, I think we get asked that question because people want to understand what happens to office supply. So if you have low occupancy office, and it gets repurposed on the margin, that's a positive. At the same time, it feels like we're not actually competing with a lot of those assets as is, right? As Tom mentioned, there's a filtering effect. The market is not 400 million sq ft in New York City when you go through well-located, modernized, amenitized, landlord with financial stability, servicing, all these other requirements.
So, to some extent, we've already had some obsolescence. Those may be logical candidates for conversion, and depending on the basis reset, we'll see how much gets done.
Tom, maybe talk a little bit about retail and just sort of what you're seeing on the growth side. Obviously, that was a business that got impacted during COVID. Certainly the foot traffic has changed in Manhattan, just with the way, you know, RTO has worked and, you know, Fridays being a much quieter day in the office than, say, Monday to Thursday. So just, you know, how is your retail performing? How are the retailers thinking about the spaces? And, you know, what leasing opportunities and maybe challenges do you have, you know, inside the portfolio today?
Sure. Well, first of all, there was a correction in the retail market in Manhattan that began well before COVID, as rents had gone to a level where no longer made economic sense for retailers. And so what you saw happening pre-COVID is a set down in rents. And that rent adjustment has taken place and occurred, and what you've seen now is, firstly, all of the submarkets in Manhattan, or at least the prime submarkets for retail in Manhattan, have rebounded significantly in terms of occupancy. And so that we're seeing good, steady demand throughout the city, and then within our own portfolio, we're 91% leased.
Some of the spaces that we have available now are on what we call side street locations, and so we're using that, the lease-up of those spaces, as an opportunity to bring in amenities, particularly food, for to serve the office tenants that you know are occupying office spaces directly above the ground floor retail spaces. We have activity along Broadway, some space at Empire State Building. We've done deals up on 57th Street. We're leased on 34th Street. Foot Locker located directly across Macy's, who has an existing store. It's probably their number one store in the country. If you walk by their space now, it's fully scaffolded.
They're spending millions of dollars to retrofit that store, so gives an indication that they're spending capital on a store that's already leased, and had been in occupancy and operation. But they're making further capital investment, because clearly they are doing the business and doing sales out of that store. But overall, the market is pretty healthy. Our properties are located in areas of high footfall, so you got high pedestrian counts. Walk outside in the streets today, and you'll see the vibrancy in New York City, and that translates into counts, you know, retail sales. So.
I'll give one more shot to the audience. Anybody? All right, shy crowd. Christina, maybe just touch on, I know it's not a big piece of the business, I think you said it's 5%, but the multifamily, you know, what, what are you seeing in terms of rent growth in the market today? And, you know, I guess you mentioned that you don't think there'll be a lot of distressed opportunities, but would you expect there to be investment opportunities for you guys? And are there maybe family deals that you could do, where, you know, some family businesses would look to swap some assets for, you know, ESRT stock?
Yeah, sure. So on multifamily, fundamentals continue to be quite strong, which I think is also proof that New York, very resilient. You know, new graduates want to be here, and that's creating a lot of demand in general. So rent growth has been meaningful over the last couple of years. What we're seeing now is they're able to keep those high levels of rents, maybe with a month of concessions being offered, depending on location. So it's slowing down a little, but in general, very strong with very high occupancy levels. In terms of opportunities, you know, there may be situations where owners are overlevered, and they don't want to continue to put capital, so those could create some of those entry points.
But as Steve mentioned, I think, you know, being able to utilize OP units to do deals could also become a potential opportunity. Some of these owners have very low or no basis, long-term owners, and utilization of OP units could be a way to defer taxes and continue to participate in upside on real estate, so that may transpire. We're not seeing a ton because of the availability of agency financing and the number of buyers that continue to be very interested in the market, but I think some of those opportunities can come up.
Obviously, ESRT has been a New York-focused company. I'm just wondering how things like downtown, Midtown South, Brooklyn, Queens, you know, perhaps the Gold Coast of Jersey, you know, potentially fit into the footprint of ESRT over time, whether it be on office or maybe residential or retail.
We've said New York City focused, so that will continue to be the case. And it's right now, almost everything is in Manhattan, but we did do an acquisition of a retail property in Williamsburg, Brooklyn, that we felt high foot traffic, everyday retail, prime corner, great accessibility to Manhattan, a lot of residential density built in that area. We said that that was a market that we may be interested in going forward. There's residential opportunity as well as other retail opportunity. So our definition of New York City can go beyond Manhattan. As to how far beyond, I think our main focus is to be able to generate shareholder value with a clear path towards it.
So wouldn't rule out that it could be something beyond immediate Manhattan and Brooklyn, but I think important as a company, that we see a strategy, and we're able to articulate that clearly. So not just do a deal because a specific deal is interesting, and it becomes somewhat of an orphan. Really do it as part of more of a strategic path, and opportunity set that may arise, and grow over time as a portion of the portfolio. So we could be open eventually, but right now, the focus is definitely New York City, in those three categories.
All right, well, we're coming up on the last minute. Steve, I'm gonna get you in here. I know the balance sheet's in good shape, but just, you know, what should people be focused on, on, on the balance sheet? Any upcoming refinancings over the next couple years? And, you know, how would you describe kind of the debt capital markets today, and from a lending perspective?
Yeah, I think as far as our current balance sheet, we're well taken care of right now up until, you know, the end of December 2026. That's our. We're well taken care of until the end of 2026, for our most, you know, meaningful maturity comes due at that point in time. The getting done with the line and the term loan and doing our private placement most recently this quarter, you know, sets us up for a lot of runway, to do if we want to do more share buybacks, acquisitions, things like that, have the runway to do it. We're well set up in that regard. You know, I think as Christina's mentioned in a lot of her comments, there's still a lot of issues in the capital markets not functioning properly.
That's gonna create additional headwinds in accessing debt, looking for new transactions, things like that, so a lot of work to be done there. In the meantime, we just continue to execute and lease space, uptake our observatory, and increase shareholder, increase shareholder value.
I'd say on the debt capital markets, I mean, we, we have addressed our debt maturities, but just in general, you're probably all reading, CMBS is widely available again. You may not like the price, you may not like the LTVs, but that seems to be easing up. Banks appear to be lending selectively, but may be able to have a little more flexibility. So you're definitely seeing signs, of some improvement, but there will be a great amount of selectivity, both for assets as well as sponsor.
Okay, great. Well, we've used up our time. I wanna thank you all for joining us, and thank management of ESRT for joining us.