Earnings Call: Q1 2019

Apr 18, 2019

Thank you everybody for joining us and welcome to SL Green Realty Corp's First Quarter 2019 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward looking statements. Actual results may differ from the forward looking statements that management may make today. Additional information regarding the factors that could cause such differences appear in the MD and A section of the company's Form 10 ks and other reports filed by the company with the Securities and Exchange Commission. Also during today's conference call, the company may discuss non GAAP financial measures as defined by SEC Regulation G. The GAAP Financial measure most directly comparable to each non GAAP financial measure discussed in the reconciliation of the differences between each non GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at www.slgreen.com by selecting the press release regarding the company's Q1 2019 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the question and answer portion of the call, please limit your questions to 2 per person. Thank you. And I will now turn the call over to Mark Holliday. Please go ahead, Mark. Okay. Thank you. Good afternoon, everyone, and thank you for joining us today. The Q1 of 2019 was another strong period of performance for SL Green and for the New York City economy that continues to drive our success. Yet again, SL Green was far and away the most active player in our market, signing significant leases, hitting major milestones in our development portfolio, moving swiftly to originate debt and preferred equity opportunities and contracting to dispose of mature and non core assets that fund our aggressive share buyback program, thereby capitalizing on the unprecedented discount in our stock. At our investor conference in December, we detailed 18 specific goals and objectives contained within 7 broad categories of performance. In the leasing category, Q1 is typically our slowest leasing quarter. However, we executed over 400 1,000 square feet of Manhattan office leases, more than doubling our internal expectations for the quarter. And to start April, we have already inked another 235,000 square feet of leases in the Manhattan portfolio and still have over 680,000 square feet of deals in pipeline. The 3 new leases announced yesterday is further evidence of a market moving in the right direction as each of them represented organic growth in space leased. Clearly, the confluence of a strong New York City employment growth along with the winnowing supply of suitable office inventory is driving improvement in net effective rents and increasing average asking rents. Notably, our mark to market for the quarter was 4.5%, above the high end of the range we provided to you in December. And there is 20,000,000 square feet of active tenant searches that we are closely tracking. In the area of investments, the market continues to demonstrate good support for the deals priced at the market. There were several sizable deals consummated in the otherwise typically quiet Q1. 30 Hudson Yards sold for $2,000,000,000 237 Park completed a partial sale at $1,250,000,000 valuation And 250 Church sold for an excess of $8.60 per square foot, fairly attractive price for downtown asset. And of course, SL Green participated in this market by entering into a contract to sell 521 Fifth Avenue for $381,000,000 a price level that was above our own internal NAV for this asset. During the Q1, there was $39,000,000,000 of private capital raised for global real estate investment, dollars 8,000,000,000 more than the prior quarter, and it is now estimated to be at $338,000,000,000 of total dry powder for real estate, representing almost $1,000,000,000,000 of potential buying power for real estate around the world. And certainly, New York City will continue to garner more than its fair share of that dry powder as it did in 2018 with over $50,000,000,000 of commercial transactions. Obviously, the public market concern with New York City stands in stark contrast to the views and actions of private market investors who are targeting the exact type of product that we invest in and know better than anyone. These investors are typically looking to invest in assets with global appeal and strong credit tenancy in a market with enormous depth and liquidity. We think private investors, which make up the vast majority of the real estate investment market, have the market analysis right, and we trust that the public market will eventually recalibrate and return to a fair valuation for our highly sought after assets. Through all of this incredible work, we remain true to our core mission of investing, managing and developing world class properties in New York City. We continue to demonstrate our ability to undertake complex development projects with over $7,000,000,000 worth of assets now or soon to be in development or redevelopment. At One Vanderbilt, construction progress has been just as vigorous as our leasing activity. As of April, the building superstructure reached the 60th floor, which is just above the height of the op deck and steel is projected to top out in October of this year, months ahead of the original plan. So far this year, we signed expansion deals at One Vanderbilt with the Carlyle Group and McDermott, Will and Emery along with a new lease to KPS Capital Partners, bringing the project to 57% lease with more leases pending, so we are well on the way to our upsized goal of 65% leased by the end of 2019. Building on the success of One Vanderbilt, we announced plans in December to reassemble the same design and development team, KPF, Heinz and Gensler, for a sweeping redevelopment of 1 Madison Avenue, Class A office tower across from Madison Square Park. We are excited to break ground in this project in 2020 as we believe One Madison will transform Midtown South in the same dramatic way that One Vanderbilt has already done for East Midtown. We commenced our leasing program for the redevelopment of OMA and are getting very strong response from tenants confirming the excellence of the design of our development plan. When you put all these pieces together, you can see that we have a comprehensive plan in place to outperform our peers and stay at the top of our game. But that we know is not enough. Our entire executive team is deeply invested in our stock and we share your laser focus on doing everything in our power to restore the connection between our share price and the underlying value of our assets. In 2019, we will continue to monetize assets and redeploy capital into share buybacks because every time we buy a share, we're buying more of a better portfolio. And we know it's only a matter of time before the public market follows the private market and recognizing that New York real estate remains a stable, profitable and desirable investment. So with that, we'll open it up for questions. Thank you. And our first question comes from the line of Emmanuel Korchman with Citi. Your line is now open. Hey, everyone. Good afternoon. Mark or maybe it's more appropriate for Andrew. If we're looking at your DPE business, you've had a few assets, specifically retail that you've repossessed over the last couple of quarters. Can you just talk about how you envision the rest of the assets within that book performing? And also just maybe an update on the retail environment overall? Sure. I think we've as of the end of Q1, we have 6 retail DPE positions remaining after 106 Spring came on board as part of the portfolio. We anticipate repayments in 2 of those over the next 60 days or so. So we'll be down to 4 assets remaining. So I think that in terms of retail assets coming back from the book, we're probably towards the end of that unless we find new distressed assets to acquire, which I definitely wouldn't rule out and we did in the case of 2Herald. Generally, the retail market, we think most of the major submarkets have bottomed out. And we've seen if you take, for example, 106 Spring, we're going to be reducing asking rents on that property from where our borrower was asking to where we're going to ask as the new owner, probably in excess of 30%. So you'll see, we think that will generate activity at that property and you see activity in other properties where owners are able to meet the market on rents. There are tenants active in all the major retail submarkets in Manhattan. So I think it's we think most of the submarkets have bottomed up. Great. And Mark, in your prepared remarks, I think you said there's 20,000,000 square feet of active tenant demand in New York. Could you break that down for us into maybe how much of that is maybe more musical chairs and how much of that is kind of expanding or looking for new space in the market? No, I can't offhand, Mandy. But I can tell you that a good chunk of it is growth space for sure. I mean, you're seeing in our portfolio and elsewhere, enormous growth in the market, which is driven by employment growth. Last year was another big year for employment growth in the city. We're off to a good start. Private sector job growth is over 20,000 jobs, I think, through February of this year already. So as long as there's new jobs, new office using jobs, there's going to be growth in that segment. First Republic lease that we announced yesterday is a great example of that, where that most, if not all of that, Steve, I believe is growth. So I mean that's enormous and enormously favorable. And that's why financial services have reemerged as a one of the leading sector for both tenant re leasing but also growing. And that's, I think, contrary to what certainly people we've spoken with in the past had thought would be the case a year or 2, 3 years ago. There's significant growth, obviously, in the technology industry. And so that's there's a big I'd say most of the technology demand within that $20,000,000 is almost entirely growth because they're new to the sector. So when you see technology taking down in a given year, let's say, 15% of 30,000,000 feet forward, anywhere between 3000000 to 5000000 square feet of space, that's all growth because they're not really or mostly growth because they're not rolling legacy leases. They're new to the market. So I can't give you an exact number of the $20,000,000 but I'd hazard to say at least 20% to 25% of that represents growth. But I just want to caution them giving you sort of an off the cuff answer based on just extrapolating from the experience in our own portfolio. Thanks, Mark. Thank you. And our next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Your line is now open. Thank you. Good afternoon. Good afternoon over there. So two questions. First, on a modeling perspective, diesel came out. So I'm guessing that that will get offset later this year by Puma coming on, but then you have the Ralph Lauren exploration at the end of this year, which would leave a $30,000,000 NOI hole in next year. So maybe you could just provide some perspective on how we should think about the diesel and Puma interchange this year and how we should be thinking about what you guys are doing to backfill that 31,000,000 dollars of Ralph Lauren NOI that's going away at the end of this year, so the impact to next year? I'll cover the first part on diesel and Puma. The diesel outcome is not yet certain. So we have to see that play out over the next couple of months before we know the impact on the numbers expected to be nominal. The charge we took in the Q1 is related to write off of straight line. That's a non cash adjustment that we have to take because of the uncertainty of the future depending on what happens. I don't expect there to be a big impact for that deal and of course Puma coming on is important not so much for 2019, it's probably the back half of the year, very late in the year, but more so for 2020. So we'll highlight that in December, and I'll let Mark address the 625 situation. Well, I mean, on 625, Ralph Lauren, I think I have a number here somewhere is about 300 and 85,000 square feet. Every year in the portfolio, we have anywhere between 1,250,000 square feet that rolls. Polo seems to get a lot of attention. I think if it goes in the paper, it gets a lot of attention. If it doesn't go in the paper, it doesn't. We had a very large tenant at the news building that rolled and then we back filled with VNS. And I can and we can go on and on. We had vacancy at 10 East 53rd, now it's a leased building. We have vacancy at Tower 46, now it's a leased building. So we'll have vacancy at 625 Madison. We'll lease it. It will be leased building. So we say, how are we going to deal with it? I don't see dealing with it in a different fashion than we deal with all of the role in the portfolio. We have 30,000,000 square feet that we own and manage. In any given year, as I said, about 1,250,000,000 square feet roll. So in 2019, at the end of 2019, Polo will be a part of that. I don't think it's exceptional or notable in its size nor how we'll deal with it. Our typical approach for any building and certainly for 625, which has been earnings for us for 15 years will be to go through some level of redevelopment of that building and then long term lease that space to replace Polo. But again, I don't know I don't see it different and notable than what we've done over the decades in any building we have when we have a tenant rollout of what I'll call space that needs to be upgraded because Polo was in that space for, I think, 15 years, Steve. So the space and the building itself is probably in need of a revisit, and that's kind of what we do, Alex. It's just is reposition, turn and then re let the building, which is why we're 96% leased. And I don't think really ever been below 94% leased in the history of the company. Right. No, Mark, I understand. I'm just saying from the perspective that a permanent long term tenant or rehab is on hold until you guys reset the ground lease. That's why I was asking if there's a separate tenant? I wouldn't say necessarily. I mean, we feel very confident in our position in 625. I think I said that on the last call as well or maybe at the Citigroup. I said that, maybe it was at the Citi meeting that we had. But in one of those two venues, I mentioned that we are very experienced as both a leaseholder and a fee owner. I think we've had probably in the aggregate more experience in those 2 as almost any other owner in the city. And we have an expectation of where rents will land on a revaluation. And we're going to be actively marketing the space in 2020. But you can't really market this kind of space, Steve can elaborate on, until you have possession, you white box it and you have redevelopment plan. But I could say that about 20 other buildings. So we're not going to really treat this any different, and we think we have a manageable plan for the rent reset, which we fully anticipated when we originally bought the building and now the date is here and we'll deal with it. But I don't know, Steve, do you want to add anything to that? Well, I mean, as we sit here at this point in time, we're deep into design development for the repositioning of the space. Polo has the majority of the building. The building's bones are obviously great. It's got one of the best locations in the city. Its pricing will be extremely competitive relative to other large blocks of space in that part of town. And we think we've got a very appealing capital program for the that we're designing for the lobby, elevator cabs and entrance to the building. Okay. And then second question is just with the recent passage today of the Energy Act that the City Council did to upgrade all the buildings. You have the commercial rent control discussion, Mark, as you know, is still in discussions. Have you seen any change in the way people are underwriting commercial real estate or NOI profiles or anything that would go into how you guys look at buildings given what's been passed by City Hall today and what potentially could be passed? Not our buildings because we've been what's being passed or potentially being passed by City Council was being proposed in any case, is something along the lines of what we've been doing for 10 years. And a lot of the major owners are on this, being good corporate citizens and making their buildings as green as possible and lowest carbon emission with very smart building management systems today and materials that are extraordinary at preserving electricity and conservation and everything that goes along with it. So I think 63% of our portfolio is LEED certified. We have something like 24 Energy Star labels. We're another again in 2018, EPA Energy Star Partner of the Year. We rank very high on a number of the rating scales that are published and shareholders see. So like the Bloomberg index, I know for 1, I think we're one of the top performers in our sector. So this is if you own older buildings that you haven't been investing in and the bill passes as contemplated, there'll be certainly some onetime cost to renovate the benefit of that is your operating costs are lowered. But for buildings like ours that I think are already at the leading edge, there'll be some additional compliance, but we would have done it anyway because that's the path we're on. You've heard me speak many times about wanting to be a lead partner in the administration's goal of reducing energy emissions 80% by 2,050. And we have our own internal goals that are more accelerated than that. So look, there are elements of the bill that I think badly do need to be massaged and revisited because they've taken, in some cases, a one shoe fits all approach, which isn't appropriate. So there are details of the bill that we're hoping get changed in the final hour to reflect more fully the input that we've had with the Urban Green Council and other owners have had. And we hope City Council doesn't turn a blind eye to some of those recommendations. But in the general spirit of having a framework within which to continue down a path of making our buildings more sustainable, I feel like we're already on that path. Thank you. Thank you. You. Our next call comes from the line to the DPE book, you guys had a big origination quarter in 1Q, but I know the target for the year was to kind of shrink it by $75,000,000 So you maybe just give us how you guys see the trajectory for the balance through the rest of the year? Sure. It's David. I don't think there's any change in our guidance. We can't 100% control when we get payoffs and when we find attractive originations. So I think you'll have probably as you're seeing higher front end originations and we expect to get more pay offs starting the next quarter and by the end of the year we'll be at the level that we set. And then just on the sales environment, you guys got 5.21 done. Just curious kind of what the depth of the buyer pool was there? And maybe just update us on what you guys currently have in the market? Maybe what else maybe marketed here in the near term? Sure. It's Andrew. We had great demand for that asset, both foreign and domestic. There were we went to contract on that asset without a due diligence period. So there were still hard offers, which is kind of unique to the New York market and felt very strong about the process there. 2nd part of the question? What do we have out to market? Out to market, we're sort of other than the suburban portfolio, which we've discussed, we're evaluating next steps and which asset will be most appropriate to roll out next to meet the healthy demand. That's helpful. And what was the cap rate of 5.21? 4.6. Great. Thank you. Thank you. And our next question comes from the line of John Kim with BMO Capital Markets. Your line is now open. Thank you. On your DPE, looking at 2020, I know you don't want to give guidance on that now, but you do have $1,300,000,000 of maturities next year. And realizing there's a lot of extension options in this portfolio, can you just discuss your ability or willingness to replenish this amount of capital? Yes. Look, I think we originate well over $1,000,000,000 a year and we're very active working with existing borrowers on extending loans. So I think our average kind of life is somewhere between 2 3 years in general. So I don't maybe it's a little larger than it has been in some prior years. It's probably because we have some chunkier positions, but working with borrowers right now to do some extended deals. And given the historical pipeline we have, I think we'll have no issue having the levels end up exactly where we want them to be. Yes. Just I would also just add to that. There's always this kind of push pull we hear from shareholders. Balance too high, can you keep the balance high? The balance too high, can you keep the balance high? And so it's always confused us over the years. So we just sort of manage it to roughly that 10% mark. And it's been a great business, obviously, hugely profitable business. And this year, it's yielded a number of very interesting and compelling investment opportunities for us, which is it isn't always the case, but over the years, we can probably rattle off a dozen or more properties that the DP program led to direct ownership. So the program is great. I think we have very good management of it. But in this sort of unique moment in time, as yields on this paper hover around 9%, and I think the FFO yield on buying back our own stock is probably close to 7% or 8%. That the conversion of structured finance investment balances that we don't reinvest for any reason into either further debt pay down but also on a leverage neutral basis into equity, into the buying our own shares is almost a push earnings wise. So it's a very interesting time for us where you mentioned that $1,300,000,000 of money coming back. Now we expect to be very active in the originations front next year as is this year. But again, next year is next year, and we'll have to gauge the market and things could change, in which case, maybe we're not. But with the stock where it is and the yields almost at parity, we certainly have a very interesting alternative if we choose for whatever reason not to put out the same levels into DP next year. Okay. And Mark, you referenced in your prepared remarks, the public markets will eventually recalibrate to private market valuation. Can you just what the catalyst will be for that? Because I think a lot of us thought the catalyst would have been selling assets and buying back your shares and it hasn't happened yet? Well, I think then we just continue, right? I mean, taken to its extreme, we've got assets worth what they're worth. I mean, again, $5.21 we put out we talk about NAV at levels much higher than, I guess, dollars 87 a share, much, much higher. The NAV underlies that and $5.21 went for us north of NAV. So again, and that's just and that's the same as 3 Columbus and that's the same as 1745 Broadway. So when we sold those assets last year. So we have a high degree of confidence in being able to properly value, I would almost say conservatively value our portfolio. And as we just keep realizing, it's not a theory, it's when you sell it, you actually get the cash at or above the NAV and then buy back the shares at the very discounted value. So that taken to its limit is almost self fulfilling. So whether or not that will be a catalyst for people to come in and buy the shares, we hope so and we would expect so. But if not, we certainly can continue our program of doing that and fully expect to because this is, as I've said before, probably one of the greatest investment opportunities we've seen in our 21 years as a public company. Thank you. Thank you. And our next question comes from the line of Jamie Feldman with BoA Merrill Lynch. Your line is now open. Great. Thank you. Matt, it looks like on some of your portfolio metrics, you're trending ahead of where your full year guidance would be, like same store NOI, leasing spreads. Can you talk about how those how you expect those to trend for the rest of the year? And it looks like you maintain guidance, but just what your thoughts are around that? Sure. Yes, after 3 months actually across the board, we were ahead, FFO, we were ahead of our expectations, leasing volume mark to market, same store occupancy, same store NOI growth, everything was ahead. But it's 3 months in, so we're encouraged by that, but not in a position to adjust at this point any of our guidance or goals that we set out back in December, but happy to see trending ahead, of course. Okay. And then maybe for Steve, can you talk more about just tenant discussions and what types of tenants you might think might be interested in One Madison and even for the rest of One Vanderbilt? Sure. Let's start with One Vanderbilt. We've got active discussions with several tenants at One Vanderbilt that are all financial services related or in the case of one good sized tenant, call it, business services type tenant. But I would think as we finish off the podium of the building and focus our attention towards the upper third of the house, it will almost be exclusively financial services. The signing of KPS, we've got another lease that we're well down the line with a private equity firm. And we're doing tours over there of the site tours and then boardroom presentations almost on a, if not daily, every other day basis. So it's just the momentum is really feeding on itself at this point. With regards to One Madison, the obvious tenant base there is TAMI. But having said that, we've received RFPs from a large financial services business. So I wouldn't be surprised for sort of a FinTech type tenant to be a likely candidate for that building. But we've been in front of maybe a dozen, 15 tenants at this point. People are really enthusiastic about the development plan for the building because it's bringing brand new large scale state of the art product to a submarket where that opportunity doesn't exist. And we're sitting right on top of a subway line across the street from a park. So it checks all the boxes whether you're financial services or whether you're Temi type tenants. But that building, I think, is going to be a wild success from a leasing perspective. And you think it's a full building user based on discretion? I think it will be large space users. So whether that's full building or it's 300,000, 400, 500,000 square foot tenants, I don't think it will be one off leasing the way One Vanderbilt is going to finish off its leasing program. Okay. All right. Thank you. Thank you. And our next question comes from the line of Derek Johnston with Deutsche Bank. Your line is now open. Good afternoon and thank you. Just on pricing power and trends, could you separate out concessions and leasing trends with your in place portfolio versus the development redeveloped assets and give us any significant differences that are notable? Steve? Let's see. Let's go sort of broad struct on that. That's a mouthful. Certainly, on new construction and redeveloped buildings, which you could put the vast majority of our portfolio into the camp of redeveloped buildings. There's been a flight to quality over the past year or 2 where there's been a lot of tenant demand for better quality buildings. Now we're the beneficiary of that because we have a portfolio where we've reinvested into the buildings and we continue on new acquisitions like 460 West 34th Street to make heavy capital investments in those buildings. And as evidenced by the First Republic lease, finding a strong tenant demand for it. As far as concessions go, there's this odd situation where new construction actually carries a slight TI savings. I don't think we've we haven't given a tenant at 1 Vanderbilt, by way of example, more than $95 a square foot with all the leasing we've done in that building. Yet you can go to other buildings and more commodity buildings where you sometimes have to spend more than $100 a foot in order to land a tenant paying a lot less in rent. But I think that's a function of supply and demand where the best quality product is in high demand and TI doesn't have to be as fulsome in that case. Okay, great. And just switching gears, any update on the suburban markets and interest in the marketed portfolio that you have out there? Sure. It's Andrew. Isaac is not with us today. The capital markets are significantly more challenging in the suburbs. We continue to work through the portfolio and generate decent leasing activity, including our recent renewal with Skadden Arps at 360 Hamilton and White Plains, which is a big deal for us. But we're trying to be patient because we don't want to accept kind of distressed prices for the assets, if you will. So we expect over the course of the year to execute some different strategies and wind up the resolution of the portfolio. Thank you. Thank you. And our next question comes from the line of Nick Yulico with Scotia Bank. Your line is now open. Thanks. Just turning back to the stock buyback, Mark, you talked about willingness to do more over time if that's what's needed to do to close the valuation gap. But can you just remind us where you're at in terms of whether it's a tax issue or a REIT rule issue that would prevent you from doing a larger buyback once this current program ends? Well, there's nothing that prevents us that I'm aware of. I got Andy Levine here and look correct me. So that's some of the it's a question of source of funds, and we have source of funds that's completely tax efficient, partially tax efficient, in some case, tax inefficient. But at the moment, we have a $2,500,000,000 authorization. I think we're about $1,800,000,000 or so into that authorization, maybe $1,850,000,000 So at least for the foreseeable future, we have sources of revenue that we feel more than comfortable that can finance those acquisitions in a debt neutral way to get to that 2.5. And then when we get there, we'll evaluate going further, but somebody on the call earlier referenced I mean, I guess taken to its extreme, dollars 2,300,000,000 of cash that we have invested in the DPE portfolio, which just I was just making the point coincidentally has a yield that's not too differentiated from the FFO yield on share repurchase. So clearly, that is another formidable sitting here in 2019 with a plan that we think is executable for the balance of this year and probably a fairly obvious plan for next year. But beyond that, we have other strategies we have developed, have not yet deployed, which would enable us to go further. But I don't want to get ahead of yourself, I think is our goal is to see that price reach its natural level, which would be equal to the value of the assets. And if that happens, then there'll probably be no more buyback program once that occurred. And certainly, we hope in the next year or 2, we'll see that kind of increase occur as it should. Okay. Second question, you mentioned 30 Hudson earlier. I'd like to hear a little more what you thought about the pricing of that asset? I mean, we heard it was around a 5 cap rate, 20 year lease, long term credit deal. I guess I'm wondering, is that indicative of what long term credit deal would trade in the market? Or is the condo within a building, did that affect valuation there? Thanks. I think certainly the it's a very large transaction, so it makes the universe of buyers smaller given $2,000,000,000 of aggregate size. And I think given that it's not multi tenanted and you have sort of this bullet expiration, if you will, the entire space expiring, it takes a certain type of buyer. So I think in terms of cap rate on 17.45, David, we achieved around the same or were we inside of that? We were inside the 4th. So I think between 4.5% and 5% cap depending on the circumstances, the per foot where the rents stand versus market is a good estimate for sort of large single tenant credit tenant leases in the city right now. Thanks, everyone. Thank you. And our next question comes from the line of Jason Green with Evercore. Your line is now open. Good afternoon. As we look out over the next 2 or 3 years, are there any other kind of early renewals similar to Viacom that we should be taking into account from a cash NOI perspective? Well, we have several larger leases when you go out in time, but those are 3 to 5 years out. And most of them have significant mark to market increase expectations. In the case, for instance, at 753rd Avenue where we have Advanced Magazine and publications that's part of Conde Nast, all that space has been was subleased years ago to a variety of different subtenants. The prime lease in that case, tenants paying us sub $50 a foot. So we're going to see a big uptick in rent on there and we're already trading paper on big chunks of that space. So I think there's going to be a couple of big opportunities for us to have a very positive outcome. Okay. And then at One Vanderbilt, you guys set a goal for being 65% leased by the end of the year. You delivered the asset in Q3 of next year. I guess how long after delivering should we expect the asset to be stabilized? Well, we put numbers out there, I think at the last 2 or 3 December conferences, which had the full lease up schedule right through the end. I don't have that at my fingertips. I thought it was 21 or 22, but I don't remember. We have to get back to you on that one because unless Matt, do you have it? I think it wraps up in 2021 and you're probably in a stabilized year starting in 'twenty three. 'twenty three on full year basis. 23 full year I think is stabilized, but I think that's what was on that schedule. Right. But for revenue recognition purposes, the standard is when the tenant space is ready for its intended use, you start to recognize revenue. So looking at its earliest, we start turning space over to tenants later this year. And the building opens in August of 2020 with space that it should be ready for its intended use for some of these tenants. So you could start to see at the base of the building revenue recognition as early as late 2020. Yes, a quarter of the building, we turn over for tenants to start their construction by the summer of this year. So a year in advance of completing construction of the building and having a TCO in hand. So all of those tenants will construct their space and move in probably within 30 to 60 days of the TCO date, which means we'll be recognizing that revenue at that point. Okay. Thank you. Thank you. And our next question comes from the line of John Guinee with Stifel. Your line is now open. Great. Thank you. First, a quick one for Matthew Liberto. If you look at the right for use of the asset, the operating lease is about $400,000,000 of value. Do you think that's a good assessment of value to the ground lessor of that those ground leases? No. So the simple answer is no. That is the new lease accounting for our ground leases finally coming out of the balance sheet, the decades long odyssey that all the accounts have gone through to get to this point. That is not an indication of value. You put it on the balance sheet using discounted cash flows at some assumed rates and you put it on the balance sheet, it just grosses up assets and liabilities and there's no indication of value and it's probably of no value to the readers of the financial statements either. Okay, thought so. Okay, thanks. Ed or not sure who, but if I look at 1 Madison and if this is in your Investor Day slide deck, just direct me that way. But what's the gross and net rents in place now? What's your total net rentable square feet going to be when you redevelop it? And have you come have you created a development budget yet and figured out who's going to come in as a JV partner or how you're going to finance it? The question is One Madison, yes? So on One Madison, I don't what's in place now, I mean It's 1,001 square feet now, it's going to 1,500,000 square feet as redeveloped. The in place escalated rents are around $82 a foot. Gross. Gross. And the redevelopment budget the redevelopment budget is probably well, the actual construction cost alone order of magnitude $600,000,000 plus or minus, the redevelopment budget obviously will be higher than that to include we'll work it up and have probably by this December's meeting, everything with TI, marketing, deficit ops carry. When we give a budget, I'd like to think everyone gives it this way. We give a fully loaded soup to nuts interest, land that cost with whatever market Jaden Partner comes in at, all the TI commissions and everything. So but the actual physical work for completely reimagining the podium and adding the tower for which we've spent extraordinary amount of time over the past 12 months designing and estimating, we think it will be somewhere in the range of about $600,000,000 of hard costs. And do you have a sense for what sort of gross or net rent you have hit for this to be sort of value created or creating? The answer is yes. We know up and down. I think we're going to sort of we're going to unveil it all in December as we did with 1 Vanderbilt because I think having pieces of it without the whole picture can lead people to confusion. So we want to give people a very good sense of those rents, which obviously are much, much higher than $82 gross if that's where the current escalator is, even for the podium alone, let alone the new tower. So the average rents were much higher price point than that. But still, for a product that we expect to deliver in 2023, middle of 2023, we're going to have a rent point there for what we think will be among the most desirable buildings in all of Midtown South or the downtown markets at rents that are achieved daily today in 2019. So we're not pricing in inflation. It doesn't mean we don't expect there to be rent inflation. It just means we're modeling this building based off of a rental market that exists today, not one we hope to exist in 2023, although we hope it's higher. So this deal underwrites extremely well like 1 Vanderbilt did. In some ways, it's a little bit of an easier exercise because the building exists and it's a large scale redevelopment at its base, but it's new construction, very attractive construction. And it's tower, but it's not a high rise tower, it's a medium rise tower. So the cost less, the timing is more efficient. And I think when we unveil the financial metrics both in terms of cost, returns, rental points, etcetera, the deal will certainly hold its own with any deal we have in the portfolio. Okay. Operator, I think that's last question, yes? Correct, sir. Okay. Good. Well, listen, we finished up 10 minutes early today, so tremendous. Thank you for your questions. It was a great quarter. We look forward to more of the same in Q2. And most importantly, everybody have a very happy holiday upcoming holiday season this weekend. Happy Easter and good Passover and see you and speak to you soon. Ladies and gentlemen, thank you for participating in today's