Thank you everybody for joining us, and welcome to SL Green Realty Corporation fourth quarter 2022 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 take forward-looking statements. You should not rely on forward-looking statements as predictions of future events as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risk, uncertainties, and other factors that could cause such differences to appear are set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent 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 Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's fourth quarter 2022 earnings and in our supplemental information included in our current report on Form 8-K relating to our company's fourth quarter 2022 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you.
I will now turn the call over to Marc Holliday. Please go ahead, Marc.
Thank you, and good afternoon, everyone. We appreciate you joining us today. Normally, our January earnings calls are brief, coming only seven weeks after our annual Investor Conference, which we held back on December 5th. We had a great conference on that day with attendance at capacity at One Vanderbilt, and we received a lot of positive feedback after the presentation. Not surprisingly, during the conference, we set out for ourselves a characteristically robust agenda for 2023, which included business plan aspirational goals, I think there were 18 or 20, some of which included 1.7 million sq. ft of leasing, over $2 billion of asset sales and joint ventures, significant debt reduction, and completion of several important development projects that we expect to deliver timely and on or under budget this year.
Notable among them is One Madison Avenue, which we actually topped out ahead of schedule and just one week after our Investor Conference. It was a pretty amazing day. There were over 700 people gathered to witness the event of the laying of the last piece of steel on this truly great project in the Midtown South submarket, marking a turning point for the project where we now see completion in sight. The timing of that topping out was truly perfect as it gave us the ability to stand on that 18,000 sq. ft penthouse floor with 18-foot slab heights and unobstructed views of Midtown and Downtown. Standing there, you can truly understand why our new tenant that has just joined the roster of tenants to the One Madison Avenue rent roll is 777 Partners.
They were attracted to the opportunity. We were able to lease it up over one year ahead of our underwriter. Just, you know, stressing the importance of not only hitting underwritten economics but also exceeding the timing has a big positive effect on the project. We hope there's more to come. This lease, along with the others we announced last night, underscores the early leasing achievements we had in January, which is typically a slow month, but for us turned out to be a, you know, pretty good month and a good start to the year. Hopefully, it portends of increased activity to come in 2023. After a long holiday break followed by the MLK holiday weekend, we've seen a noticeable pickup in tour activity over the last 10 days. We received a round of fresh new proposals.
We're optimistic, we're getting stuff done, and, you know, we're on plan, most importantly. On the heels of signing over 370,000 sq. ft of office leases since our Investor Conference at the beginning of December, we managed to assemble a pipeline of leases totaling 700,000 sq. ft where it stands today, 100,000 sq. ft of which we hope to sign over the next 60 days. You know, we'll be moving and hustling to try and get that done. We're currently negotiating leases at 450 Park Avenue, 919 Third, 45 Lex, 1350 Avenue of the Americas, and another lease at One Madison. In addition, we are just beginning to market our redevelopment project for 245 Park Avenue.
We spent quite a bit of time showing off that amazing redevelopment plan that we have for 245 Park, and we are beginning to execute this year. The early read from the tenant broker community is that this exciting and I think very elegant plan that we have for the asset is gonna be very well received by the tenant market, and there seems to be much interest already that we're generating as we're beginning to take these meetings, and we're also generating interest among foreign investors for JV investment. Recall that identifying one or more JV partners for 245 Park is one of the several capital markets goals we have for the year. For a little bit more color on that, I'm gonna turn it over to Andrew Mathias.
Thanks, Marc. There's still a standoff between buyers and sellers in the market, but we definitely see as financing hopefully returns and as five and 10-year fixed rate financing, the CMBS market reopens, which we and all the rest of our market participants here are anxiously awaiting, we think we'll see that standoff thaw a bit. We've been actively in discussions with investors from around the world. We were in the Middle East several months ago. We have a trip planned to Asia in March. The team was present at the CREFC conference in Miami earlier this month, talking about, you know, financing trends.
We think there's still a lot of interest in prime New York City assets, particularly Park Avenue, which is no secret that it's the best sub-market in New York City. We think we'll have a lot of willing conversations this year from all different types of investors from around the world, talking about 245 and the other aggressive capital goals that we set out for us at the Investor Conference.
Great. More to come on that, throughout the first half of the year. We'll keep you guys updated as we pursue our various goals for recapitalizations, refinancings, joint venture sales. You know, we are full guns ablazing right now here at Green and, you know, working very hard and diligently to set the seeds so that by the middle of the year, we can hopefully start to, you know, achieve and knock off some of these goals and continue on a path to what we think will be a pivot year for us, you know, in 2023, coming out of the markets we've experienced over the past couple of years and hope to see some, you know, more positive news seeping into the market throughout the year.
I did wanna leave, I'd say, the best for the end, before opening up the call to questions. Yesterday, as I trust you may have heard or read, it marked an incredible milestone moment for East Midtown, New York City and Long Island with the official opening of the long-awaited Grand Central Madison Station right underneath Grand Central Terminal and One Vanderbilt, representing the culmination of the $11 billion East Side Access project. It is a watershed moment. I think it's probably the most important and largest project the MTA has completed in many decades. With its grand opening, you now have direct service from Long Island to Grand Central. It's finally become a reality after being, I think, in conception for 60 years and in development for 20.
It opens up a direct seamless trip from Long Island, which has a 1.4 million person workforce that, you know, now can look to either of Grand Central or Penn Station as its primary destination and, you know, choose its most efficient destination. The MTA is estimating that 45%, nearly half of all Long Island Rail Road commuters will are expected and will eventually commute direct to Grand Central once full service is up and running this year, instead of, you know, what is currently all to Penn Station. That translates into 160,000 people a day, and these commuters are essentially arriving literally right at our front door where the majority of our portfolio is located.
I can't stress enough the importance of the projected 40 minutes per day or nearly 3.5 hours per week of saved commutation time that the business community puts a short, easy, safe, and pleasant commute as its top requirement now coming out of a post-pandemic world and as a tool for encouraging employees to work from office. Yesterday, we celebrated with the governor and the MTA Chair, Janno Lieber, the opening of this incredible terminal that spans over 700,000 sq. ft from, I'd say, approximately 42nd Street to 48th Street on, what must it be? One, two, three different levels, dedicated waiting areas, beautiful new retail stores that'll be opening and restaurants and, you know, a host of other amenities. It's all well done, well executed, well designed, well conceived.
I would urge anybody that hasn't yet taken the time to swing by and check it out that they do so, 'cause it's pretty inspiring to see. What can be done, after all the time and after all the money is spent, you look at, you know, the permanent good that will come of it for the decades and, you know, perhaps centuries to come. The terminal contains eight tracks and four platforms, which will be in service and enable Long Island Rail Road to increase its service from Long Island to Manhattan by nearly 50% of capacity. One Vanderbilt and East Midtown rezoning was really a first step towards unlocking the pent-up demand for new and redeveloped office space in and around Grand Central.
Now Grand Central Madison will further transform and revitalize what I think is indisputably New York City's number one business district. We're excited by it. As shareholders or stakeholders or followers of the company, you should be excited by it too, in my opinion. You know, it's a great way to start the year. With that, we'll open it up for questions.
Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. If you wish to remove yourself from the queue or if your questions have been answered, you may press star one one again. Again, to ask a question, it is star one one. Again, we ask that you please limit yourself to two questions. Our first question or comment comes from the line of Alexander Goldfarb from Piper Sandler. Mr. Goldfarb, your line is now open.
Thanks. Good afternoon. Obviously, it's great to see East Side Access finally open. That's awesome to see. You know, just, you know, clearly that's a positive for the Grand Central market and leasing. Bigger picture, especially since you guys put out your investor day, I think it was 1.7 million sq. ft target for this year. You know, the tech layoffs have accelerated. Granted, you know, it's a lot out West and not everything is New York, but it's still, you know, pressure. Obviously, Wall Street's had a tough year. You know, we're reading all the headlines. You know, the state of the leasing market, do you guys feel the same that you felt back in December? Is it slipping? Are there signs that tenants are taking even longer?
Marc, your comments about people resuming activity post MLK Day means that, you know, the leasing activity is sort of divorced from what we're reading in the broker reports and the headlines.
Well, yeah, it's a lot to go unpacking that question, let me start first with the reference to the tech layoffs. You know, I, I think the notion of which you may have termed, you know, sizable or significant layoffs, I'm not sure I would characterize it that way in terms of the ultimate impact and effect it'll have in New York City. These are firms that had been on a, you know, an insatiable growth stage for many years. Tech was probably the biggest grower in New York City over the past five or six years. Went from being a relatively small component of the market to being, I think, almost, Steve, like 25% of the market. Someone's clicking notes.
Alex is typing away.
Alex, we'll send you-
Sorry, I'll stop typing. I'm in the office. You wanted us back in the office.
I was looking around the table, I thought it was one of our guys.
No, you wanted us back in the office, and this is what you get, typing on the speakerphone.
Sorry. You know, there's been massive growth. Steve, correct me, it's, you know, they may be as much as 30%-35% of the total market. Certainly, they were 30%-35% of the incremental demand. You know, now, they're pausing and becoming a little bit more efficient as, you know, companies do at the peak of a cycle. You know, New York City, large employers are required to give warned notices, WARN. You know, even though there are these advertised or announced, I should say, announced layoffs from some of these firms, they represent a fairly modest amount of the overall scope of the companies. I think probably on average, close to about 5%.
Many of the markets these companies are targeting for retention, that I've heard, New York is always among that group of companies. I think there are other parts of the country that'll feel it more. The WARN notices have not been that significant from the tech sector so far, which, you know, would have to reside and be received by the city. So there's no indication yet of any mass layoff. When you look at the job numbers for 2022, and these are the most current numbers we have through December, so pretty current. There were 209,000 jobs added in New York City year-over-year. Recall, 2021 was also a big job growth year. I'll see if I can get that number.
That was 270,000 jobs. 270,000 in 2021, 209,000 in 2022. Office using jobs, 63,000 jobs added. That is the second most office using job count ever added, with the first one being back in 2021, 83,000. In a normal year The city grows by about 20,000-25,000 office using jobs, and last year was triple that number. The growth is decelerating as office using jobs now have eclipsed pre-pandemic levels. I've mentioned that before that the office using job count is about 106% of pre-pandemic, and total jobs are about 90% of pre-pandemic.
The city's forecast for the year, and we've always found the city's forecast to be pretty spot on, is only for, you know, very modest job losses in the first half of the year. I wanna say somewhere on the order of 10,000 or 15,000 job losses in the first half of the year, with about 5,000 of that made back up in the second half of the year. you know, I think our approach in terms of what we're expecting, and I'll let Steve speak a little bit more about what he's seeing in the real, is that, you know, certain sectors are belt-tightening, certain other sectors continue to expand.
I think all businesses are still figuring, you know, their way as to how they're gonna be navigating and, you know, and dealing with work from office versus remote work and, you know, encouraging workers so that we get above this 50%, 60% utilization rate back to, you know, 70%, 80%, which would be, you know, in our opinion, full utilization. The market is not setting up to be, in our mind, any measure of a major pullback in jobs or economic activity based on what we see. Steve, you wanna address specifically some of Alex's comments?
Yeah, I mean, I'll make a couple points. One is with regards to technology guys. I think it's important to recall that it's not like, you know, in decades past where we had the tech wreck, where you had the dot-com boom, where all those businesses went bust. The guys that have announced layoffs, these are mature technology businesses, so their businesses and the lease obligations that they have, those are secure rent payments. They may not be adding bodies and they're therefore, driving additional leasing velocity. It is still a very significant part of the overall New York City economy, which is the most diversified business economy in the United States right now. You know, it's not like the West Coast, which is a one-trick pony.
secondly is that, you know, what we're seeing generally from a leasing velocity standpoint, we saw you referenced some of the brokers reports that you read. You know, if you really get granular on those reports, October and November were the weakest parts of the fourth quarter. December showed a notable amount of leasing increase. Even though the overall quarter was down, there was a sort of starting to repair itself in December. As you see from the announcement that we made yesterday, we obviously had some significant transactions that we were working on, that ended up closing the first couple weeks of January.
As Marc referenced this earlier, you know, even with all of that early day success on leasing of over 340,000 sq. ft in the first couple of weeks, we still have a very robust pipeline of about 700,000 sq. ft. In that are several technology businesses, but also, like we saw all of last year, heavily weighted towards the FIRE sector. Between FIRE, tech, and legal, those continue to be the big drivers. I'll make the last point, which is we continue to see sort of that smaller part of the market still coming back to life.
We've got nine leases out at the Graybar Building, which has always been a good barometer for me to show where the small space market is, and that's an important part of our overall leasing success for the year.
All right.
Okay.
That was the entire market recap right there.
Okay.
Let's go to the questions, Alex. We're gonna have to...
Sounds good. Sounds good.
We're gonna move on, but thanks for the question. Hopefully, that addresses some of, you know, the issues you inquired about.
Thank you. Our next question or comment comes from the line of Thomas Catherwood from BTIG. Mr. Catherwood, your line is open.
Excellent. Thanks, everyone. Maybe just sticking with leasing for a bit. Steve, you mentioned the broker reports and, you know, pickup in December. The broker reports also noted what seemed to be a re-acceleration in tenant concessions. I know that can be swayed by a handful of leases, especially when overall volume is down. What are you seeing on the ground as far as concession trends, and how are those trends impacting your portfolio specifically?
You know what? I don't really see it. I mean, I think it's been fairly stable throughout all of last year. I think it depends on where the leases are being signed. There's no doubt about it when you have two-thirds of the leasing activity being done in the Class A market, so it's the highest part of the rent spectrum, therefore, you would expect also has the greatest amount of concessions to support those high rents, then it starts to skew the statistics. When you get, you know, so many triple digit rents, you expect a bigger concession package vis-à-vis deals in the $60 rents.
If you took the 340,000 sq. ft that we signed in the first several weeks of January. You know, weighted average, we had $43 a foot in TI and five months of free rent. Granted, some of those are renewals that are five-year deals now and a combination of that with some other deals that are 10 or 15-year deals. I think that number would have been pretty much in line with the kind of concessions that we would have reported all of last year. I don't. I really don't sense that there's a movement that's negative.
Appreciate that color. Then maybe Steve or Marc, I can't remember who touched on this last quarter, for 245 Park, you had just over one million sq. ft of leases that expired in 4Q. As you mentioned in 3Q, the majority of those had sublet tenants already in place. It looks like the actual roll down was just a hair over 130,000 sq. ft for the quarter. Are those tenants that stayed, are they all now direct with you? If so, what is the magnitude of the rent and expense reset going forward?
Well, I don't know. There's a couple different moving parts there. I think what we had probably referred to is we had a pretty large lease with Major League Baseball that was where they had moved out of the building several years ago, relocated over to Sixth Avenue. They had backfilled, or we had backfilled a majority of that six floors, seven floors, whatever they had, with some short-term. Some were long-term, but most of them were short-term direct deals. Those leases will burn off in the next year or three. With regards to the rent reset, I don't know, maybe you can weigh in, Matt. I don't.
No, I mean, the Steve made the point on the rents. The rents that were that we took on the shorter duration deals are not really market rents, so we'll be resetting those rents to market as we retenant the space. Kind of, you know, temporary tenants, so to speak.
I, you know, I will use this as an opportunity just to sort of reinforce what Marc had said earlier. We're out there in a big way now with a very well-established development plan and a very strong marketing presentation for the building. That is already paying dividends as we are already receiving proposals that we think have a very credible chance of converting over to leases of significant size.
Why don't you talk about how much space is going to be marketed and what that rental range is, high to low?
Well, we have between now, over the next 30 months, 36 months, about 800,000 sq. ft in the building that rolls. The majority of that space is in the mid to top portions of the building. Rents in the building are, call it, roughly $110-$140 a foot. The proposals that we have received and the conversations that we're entertaining with tenants, those tenant expectations are in line with our underwritten rents.
Got it. Appreciate the answers. Thanks, everyone.
Thank you. Our next question or comment comes from the line of John Kim from BMO Capital Markets. Mr. Kim, your line is now open.
On the CBS renewal, it looks like they downsized by about 40% from the space that they had. If that's the case, it's quite different from the Fox and News Corp renewals, which I think was all the space that they had at 1211 Avenue of the Americas. Is your anticipation that CBS is taking space elsewhere in New York, or are they just truly downsizing their space requirements?
No, it was just downsize. You know, the majority of the people that are there, is sort of an independent group of operating units, separate and distinct from the groups that are over at 1515 Broadway, where they, you know, they occupy the entire building. No, I don't. Our conversations with them have not suggested that they're on an active program to downsize as we sit here today. You know, it's like a lot of these big firms are all trying to figure out their long-term plan as a result of hybrid work environments and work from home and things like that. Even though they're a big advocate of bringing everybody back to the office.
Okay. On page 39 of your stuff, there was a notable change in your mark-to-market or the implied mark-to-market of the leases expiring in 2023 versus the asking rent. It turned positive on your wholly owned assets. Last quarter it was negative.
Mm-hmm.
It looks like it's the same amount of square feet or pretty similar. I'm wondering what that change was to get to that positive mark-to-market.
That's actually a function. John, it's Matt. That's actually a function of the leases we were just talking about at Two forty-five Park, where the large tenant's rent rolled off. Say MLB's rent rolled off, which was a market rent, and it rolled down to what the rent that the old subtenant current short-term direct tenant is paying. Then those short-term, new small direct tenants' rents will flow through the expiration years in whatever year those leases expire. The mark-to-market is based on those lower rents as compared to the previous market rents. None of the changes as a result of our view of a change in market rents. It's simply a function of a change in the starting rent that it's based on.
Oh, expiring. Okay, thanks a lot.
Thank you. Our next question or comment comes from the line of Michael Lewis from Truist. Mr. Lewis, your line is now open. Oops, I'm sorry. Our next question is from Mr. Michael Griffin from Citi. Mr. Griffin, your line is open.
Great, thanks. Marc, in your conversations with business leaders, you know, I'm just curious, you talk about getting that utilization rates back to that 70%-80%, but I think the worry is, you know, are we stuck in this kind of impaired level of call it the low to mid-50s? I guess, as we look forward to the balance of this year, I mean, how confident are you that these firms can get their people back in? Is it possible to get back to that previous high watermark?
Well, I think there's a lot of confidence around three or four days a week. I think the bigger question is, you know, is Friday becoming, you know, more and more like a, like a remote work day for, you know, not, you know, many, but not all firms. You know, that doesn't really impact the space decision. That's just more of a business philosophy decision. People aren't going to, I don't think, take more or less space based on how they gear their Fridays. You know, I mean, we look at Friday as like an equally productive day to the rest of the week. I think a lot of firms do. You know, I think that's the, that's the one area to me I'm not so sure about.
I think for the balance of the week, we just feel like every week there's more and more energy, emphasis, lobby's more crowded, trains are more crowded, streets are more crowded. Our retailers, small and big, are reporting, you know, better, better results. You know, it feels like that as I think the job market normalizes, you know, it was very, very tight market for the last several years. I think, you know, that's gonna start to reverse itself. Although, you know, inflation is still, you know, wage inflation is still stubbornly higher than, you know, where I think where the Fed would like to see it. I do think that'll moderate. I think that'll be this year.
I think we'll get incrementally more gains, whether we get all the way back to pre-pandemic or not, don't know. I also don't think that's a determinant of the ultimate space occupied. I think that's just gonna be, you know, business by business, how they evaluate competitive factors about how they can optimize their, you know, their work plans, with what type of hybrid work model. You know, we find more and more, the meetings are live, doing very little Zoom these days, relative to, you know, certainly the past couple of years. You know, it's just, part of it's the numbers, part of it's anecdotal, and part of it's speaking to the leaders.
I tell you, across the board, every leader says they wanna be on a three- to four-day in-the-office work week for the majority of their companies. I think Friday will sort of just be a case-by-case.
Great, thanks. Then Matt, on the debt maturities, I noticed that some on the unconsolidated joint ventures were past their due date. I think you did a good job at the investor day kind of laying out that some of this might be outside of SL Green's control. Do you have any sense on a potential resolution or how these things ultimately get worked out?
Yes. You're talking about 1552 Broadway.
Right
... Broadway Street, Fourth Street. Yeah, you're right. I mean, we don't unilaterally control those things. We get ahead of our maturities, you know, the wholly owned ones and the ones that we control, you know, well ahead of maturity. You know, we are in active discussions with the borrowers on likely some form of extension. We did short-term extensions, you know, to get pushed, you know, the maturity dates pushed out 30, 60, 90 days, just as a path to getting to something longer duration done, and that's in process.
I think lenders are gonna have to work with borrowers at this time. You know, it's somewhat in our partners' hands, and it's somewhat in the lenders' hands.
Nope. That's, that's great color. That's it for me. Thanks for the time.
Thanks.
Thank you. Our next question now comes from the line of Mr. Michael Lewis from Truist. Mr. Lewis, your line is now open.
Thank you. I saw an entrance to LIRR yesterday when I was on my way to my Metro-North train. I was actually kind of shocked. You beat me to it because I was gonna ask about that. I guess I never thought it would open either. Congratulations on that. My first question, I wanted to ask about an update on the properties you're looking to sell this year. Andrew mentioned a standoff in the market, and he gave some color, but maybe you could just add to that. You know, is it a question of waiting on financing markets? Are there very different opinions of price?
Then also, have you given any guidance in terms of expected transaction timing, particularly for the interest in 245 Park and in One Vanderbilt?
No change in guidance on timing from December. You know, I think just looking at the curve, you have short rates at 4.5% and long rates at 3.5%. Naturally, buyers wanna borrow long, the providers of long debt right now are being very cautious about the deals that they choose, and bond buyers are sort of slowly coming back.
To the CMBS market. I think when you see that long market materialize and start to get more liquid on the debt side, you'll see buyers reemerge for assets. It's less a matter of, you know, There's a big gap in the price people pay because sellers aren't really entertaining offers until they know they can get realistic, and they don't wanna sell at a time when there's a real lack of financing available. You know, I think you're just gonna have to see the long financing come back, and then we'll see where the market settles.
Okay, great. Second for me, a question about the financial leverage and how you're looking at that. You know, you fixed a lot of your debt now.
Mm-hmm.
I'm wondering if that makes it, you know, does it become less of a priority to kinda de-lever to the extent you want to? Does it change at all, you know, how you consider other uses for disposition proceeds, you know, relative to stock buybacks or other investments or other uses?
For 2023, the answer simply is no. You know, the fixing of debt was something that we very carefully choreographed the middle to later half of last year. The timing of the debt that we fixed coincides with our expected timing of asset sales dispositions that and other funding sources that allow that debt to get repaid. You know, what we laid out in December was a plan to reduce debt by $2.4 billion to two and a half billion dollars, you know, through dispositions in excess of $2 billion and other sources of capital, like the funding from our partners at One Madison. To the extent any of that debt that we are repaying is floating and we have swapped to fixed, we put swaps in place that coincide with our expected repayment timing.
it all lines up, you know, the fixing of the debt and the repayment schedule, with what we said in December.
Okay, got it. Thank you.
Thank you. Our next question or comment comes from the line of Anthony Paolone from JPMorgan. Mr. Paolone, your line is now open.
Hi. Thank you. Can you hear me?
Yes.
I can.
Great. Thanks. First question, I guess, for Marc Holliday or Andrew Mathias on the third-party capital side, can you give us a sense as to what type of return you're pitching prospective investors on 245 Park and just a general sense as to, you know, maybe what kind of return that market requires right now for a New York City office project?
Sure, Tony. I mean, that's a unique asset because we have fixed rate financing there that's very much in the money, if you will. You know, very attractive fixed rate financing. You know, we're expecting a range of returns there in the low teens type levered IRRs. I think that type of return is a very attractive relative return for an asset of that quality without, you know, with in-place financing in place. You know, it's part of the reason we're confident we got a good buy on the resolution, if you will. You know, we took it over at an attractive price, and we're confident we'll be able to find partners to come into the equity there with us.
Got it. Okay. Just one quick one, I guess, for Matt. On One Vanderbilt, can you give us fourth quarter cash and GAAP NOI contributions to try to think about where that was relative to the kind of stabilized level you're getting to?
Sure. Just bear with me one second. I like when you ask detailed questions, Tony, it makes me look for stuff quickly. GAAP, our share, about $27 million, cash, $16 million. That's our share, fourth quarter.
Great. Thank you.
Yep.
Thank you. Our next question or comment comes from the line of Ronald Kamdem from Morgan Stanley. Mr. Kamdem, your line is now open.
Hey, just going back to the transaction markets. Number one, just on One Vandy, just any update there on the 10% JV, prospects as well as sort of the $2 billion-plus plan for this year. Just what's being marketed, what's the interest like? Any color there would be helpful.
One Vanderbilt, no update from December. You know, it's still a goal of this year to get that interest sold, and we're hopeful to make it happen. The second part of the question I did not hear. Can you repeat the second question?
Yeah, just the $2 billion of dispositions for this year. you know, I think some had already been marketed or in the process of being marketed. Just where are we in that process? What kind of interest are you seeing there?
The biggest component of that is 245, which I think we've covered at length so far.
Seven days in the market.
Seven days in the market.
We're giving tours. I mean,
121 Greene Street went to contract. We announced that in the release last night. That's a component of it. We have a couple more assets that are out to market or will be shortly. I think as Andrew said in his commentary earlier, you know, we're trying to make a lot of headway on that plan in the first half of the year. We're, you know, doing an admirable job on plan with that strategy.
There was some comment about I mean, has been in the market. These are all pretty fresh initiatives.
Yeah.
Some of which, you know, we haven't begun yet. I mean, we give a plan in December.
A year
... a 12 and a half month period. There are certain disposition plans that we'll be bringing to market spring and by summer. There are some, as Andrew mentioned, we're currently underway with
All of which are pretty fresh, all of which we've reiterated a couple of times on the call where, you know, we're standing by the guidance and, you know, it's not, it's not an easy market. It's never an easy market, easier to buy than sell, but, we're pretty good sellers. I think we've demonstrated over 25 years as a public company, the ability to monetize more assets than certainly anybody else in our market here in New York. You know, I think, I think quite a bit even, you know, measured on a, on a larger basis. You know, we own and we have ownership interest currently in I think about 46 million sq. ft. We've owned and monetized interests since day one on 124 million sq. ft.
We've monetized and repatriated far more than we have today. We have a business plan on these, I think it's about five assets for sale or JV. We feel pretty good about it. You know, markets may be not as good as it was, but we wouldn't characterize it as a bad market either. There's pockets of equity. There's opportunities for debt. We're marketing very good positions. We think we'll get good pricing. You know, that's where we are now. There'll be more updates to come, as I mentioned in the opener of my narrative, you know, by roughly mid-year.
Great. Just my second one was just earlier in the month, the New York Gaming Board released the request for applications. you know, there was no artificial deadlines. I think those are the first rounds of questions due February thi rd. Just sort of wondering from that release, do you plan on asking questions? Was there anything surprising, not surprising? Just what's the update on the plan for the casino? Thanks.
Well, I mean, we've got a robust team and growing daily for this casino project, both, you know, it, you know, our investor team, strategic team, grassroots supporters, coalition members, we're all over this thing. I mean, this is a real priority for us. We're leaning into it very hard. We're gonna put our best foot forward here to make it happen because we feel it's great for Times Square. We feel it's great for New York City and Manhattan. We think it's good for this company. We think it's good for the state.
You know, gaming, when executed at a high level, you know, a targeted boutique level where it's really an integration of gaming, entertainment, hospitality, live entertainment, and, you know, not solely focused around, you know, the casino element itself. I think it's something that, you know, when it's done that way, it's incredibly good for the immediately surrounding areas. There's a big halo effect that can come for it if the facility is built as an integration to its neighborhood and not as kind of like a moated destination where, you know, people go, and they don't leave until, you know, until they're done. You know, we have a project that's the exact opposite of that.
It's something that really is a bid, you know, on behalf of all Times Square businesses in an area that I think, you know, hasn't fully recovered from pandemic, that can use the help, even though, you know, every day it's getting better and better. This would be a significant investment of capital in, you know, a part of town that is one of New York City's treasures. You know, Times Square is the crossroads of the world. It, it does have, you know, 60 million tourists and visitors a year. It has 350 or 60 thousand people a day coursing through it, both visitors and locals. It should be as great a calling card to the city as all other parts.
We think, you know, this project will help, you know, continue to direct it in that, in that, direction. You know, we're going through the RFA, and, you know, there's no surprises to date. We're gonna be responsive. We're gonna be competitive. Hopefully, at the end, we'll be victorious.
Thank you.
Thank you. Our next question or comment comes from the line of Steve Sakwa from Evercore ISI. Your line is open.
Questions have been asked. I just had one quick question on the ground lease at 625 Madison. I know the kind of reset date came and went, and I'm just wondering if you could provide any update on the timing or how those conversations are going.
We're currently in an arbitration process to determine that rent, as leaseholder. You know, with respect to the rest, unfortunately, as we've said on prior calls, there's a lot of controversy and litigation surrounding that asset, and we're not really able to comment further.
I can appreciate you can't give a lot of detail, I guess, would it be your expectation that that gets resolved sometime in 2023, or is it too difficult to even handicap that kind of timing?
We would expect the rent on the leasehold to be resolved in 2023, yes.
Okay, great. Thanks. That's it for me.
Thanks.
Thank you. Our next question or comment comes from the line of Camille Bonnel from Bank of America. Ms. Bonnel, your line is now open.
It's a follow-up on the capital structure and strategy behind it. Do you see any difference in the longer-term leverage levels between your consolidated and JV portfolios?
Our view of leverage is first one of LTV, not debt to EBITDA, because that's how real estate leverage is measured. We look at it obviously at a corporate level, you know, rolled up combined basis, you know, are comfortable where we are. We're a little higher than typical right now because of some asset acquisitions we did, that's part of the reason we're targeting debt repayment over the course of this year. Where we were prior to that and where we'll be at the end of this year based on the plan we have in place, we are completely comfortable with. As it relates to, you know, consolidated, unconsolidated, we tend to have, as we move more into this asset management model, more unconsolidated JVs than we have in the past.
I'm sure it'll continue to move that way. That leverage level will be, you know, taken on a case-by-case basis based on the asset that the JV invests in and then rolled up through the company to make sure that we maintain an approved amount of leverage as a company. Where it sits is not, you know, necessarily something we're as focused on as the overall leverage profile.
Okay. Just taking another angle on the transaction market. More of our conversations with brokers seem to indicate that we won't see pricing discovery over the next 12 months. Can you update us on how you think about this in the context of opportunistic investments, and how much of your pipeline is based on distressed opportunities?
Well, we hope to have price discovery on five of our assets certainly within 12 months. That doesn't dictate the market, but certainly, you know, is sufficient for us. I mean, we definitely pride ourselves on having a good pulse on, you know, where pricing is. I would not call this a market where pricing is undiscoverable. I mean, we've seen those markets. I don't think that's this market. This market, you know, I think there will be trades done this year. Certainly, you know, we anticipate doing trades. You know, you have to have, you know, bring a realism to the table as to, you know, current values.
I think, you know, we're good about that because we constantly are refreshing our internal NAVs throughout the year, asset by asset, lease by lease, you know, making adjustments for market factors like growth and cap rates and required returns, et cetera. You know, I think there will be, you know, it's like a tale of two cities. There'll be a normalized market for better sponsors and better assets like we have, which I think have largely retained their values, and I think for which there will be a market.
There's gonna be properties that either have less solid sponsorship or capital stacks that are, you know, far too over-leveraged, or, you know, a sponsorship that doesn't have the liquidity and capacity to muscle through redeveloping or monetizing or re-tenanting their buildings. Those properties, you know, will fall into an opportunistic bucket that, you know, in the second half of this year, I would think, you know, you might see us start to poke our heads up again. I did mention that in December that we definitely have our own capital resources. We have access to third-party capital resources that could make us acquisitive or, you know, reentering the investment market opportunistically, probably in the second half of this year.
You know, there'll be some opportunities, but, you know, for all that people anticipate in terms of what, you know, kind of, distress there might be in the market or otherwise like that, it rarely evidences itself these days in New York City, and specifically in Manhattan because, again, you've got like the top 10 or 12 owners controlling 50% or 55% of the inventory in the market. These companies tend to be, best, you know, liquid and capable of, you know, weathering through this market. Already we're starting to see the rate rise, moderate. We've seen the long end actually come in quite a bit, over 50 basis points from its peak.
I think as Andrew mentioned, when the long-term financing market comes back and it will, then you're gonna see that liquidity spigot back on and, you know, and on we go. You know, we think this is more of a mini correction. We don't think this is, you know, something else that maybe some of the brokers are implying. You know, we'll see how the year goes. Right now, you know, we're still sticking with our plan and, you know, we feel we can execute it.
Thank you.
Thank you. Our next question or comment comes from the line of Derek Johnston from Deutsche Bank. Your line is open.
Hi, everyone. Thank you. You know, as the DPE balance decreases and loans mature or repaid, I think this quarter was $57 million. How do you plan to put that capital at work? Can you just remind us if are there any restrictions how those repayments or capital can be deployed? You know, just an update on the DPE strategy. I think we have the 23 strategy for the near term, but, you know, what are the thoughts for the midterm?
As it relates to, you know, use of capital upon repayment, we have no restrictions.
$57 million was a loan that was repaid.
Right. The $57 million was repaid. We anticipated the repayment to come in 2023. It came in late in 2022. We simply paid down debt with it, which is what we've been doing along with share repurchases with a lot of the repayments and sales proceeds that we've gotten off the DPE book for the last couple of years. We don't have any specific restrictions as to how we use those proceeds.
We don't treat the DPE book as sort of a closed system where money has to get redeployed into DPE. Those dollars are fungible and can go towards debt repayment or investment into assets or investment into new assets. we'll, you know, we evaluate all the investment opportunities across all our business lines, try to figure out where the best, you know, risk reward is, and we'll allocate dollars there.
Okay, thanks. Got it. Then maybe a fun one, if you would. You know, what gives you guys confidence that the casino license that, you know, your, you know, Times Square project is superior and what kind of, you know, makes it stand out versus the others? Now even a potential Penn District application being submitted. Thanks, guys.
Well, you know, I'm not speaking about other locations, just speaking strictly about Times Square. I don't know if the question's rhetorical or not, but I cannot think of a better location in the United States for a high-end gaming, entertainment, you know, five-star hospitality hotel with live entertainment, sports betting, restaurants and, outdoor space with which to be able to, you know, integrate into the surroundings of what goes on in Times Square on New Year's Eve and otherwise than in Times Square. I mean, I just, it's certainly in New York State and certainly in New York City, I couldn't conceive of a better location.
I think it's a district that was actually conceived in its Use Group 12, large format entertainment, with the theater overlay, with, you know, the mandate of having, you know, exciting signage and technology and entertainment uses. I mean, those are all celebrated within this Times Square district and celebrated fairly uniquely in the city. And, you know, when you take that, you know, very commercial district, you know, and then you layer on top of that unprecedented access to public transportation with 11 subway lines that service Times Square, a block from the Port Authority, which is about to go through its own redevelopment, almost equidistant between Grand Central, Penn Station, obviously new Grand Central Madison, put a plug-in for that.
You know, you think about a facility that's gonna be drawing, you know, millions and millions of visitors and yet making the least impact, because of the ability to maximize usage of public transit relative to almost any other location that, you know, that might be, you know, that might be vying for this award. You put those two things together, the incredible nature of the district, the compelling nature for attracting not only domestic tourism, but foreign tourism that will come to New York to gamble at a Times Square casino, you know, I think it just puts it at the, you know, at sort of the top of the chart. It's not to say there aren't other viable sites.
It's just, you know, at the end of the day, it's going to come down to an analysis about economics, job creation, incremental tourism creation, least disruption to the surrounding grid. Recall 1515 Broadway is an existing building. It exists, it's built, it doesn't have to be developed. It doesn't, you know, it's not going to displace anything in its place. It won't, you know, you know, come at the expense of housing or parks or schools or anything of those lines. It's a commercial building that exists. You know, I'm pretty excited that we just have the good fortune to happen to have a site there, that, you know, is a viable candidate for this casino licensing. It's gonna be very competitive. There's gonna be lots of proposals, I imagine.
You know, there'll be some real competition, which is what New York City is all about. There's three licenses on the table. Hopefully, SL Green and Caesars and Roc Nation will come away with one of them.
The great partners. Thank you. Thank you, Marc.
Thank you. Our next question or comment comes from the line of Blaine Heck from Wells Fargo. Your line is open.
Times here in the Q&A, you've commented about how businesses are still navigating, how they're going to deal with in-office versus remote work. Are you seeing any signs that tenants are looking at hoteling as a way to more efficiently use their office space? I guess, do you think the hoteling strategy could be more widespread in a more hybrid environment?
Well, would you say it equivalent?
Say the second part again, Blaine, just the last...
Yeah, just repeated kind of do you think the hoteling strategy is going to be more widespread given that we're in a little bit more of a hybrid environment?
Look, Hoteling has been around for a long, long time. You know, the concept of shared desks, hot desks, Hoteling, it's decades. You know, is there more of it now than there was? There was a trend in that direction leading up to the pandemic. I think there was a trend away from that immediately post-pandemic, where it was almost like, you know, forbidden, I mean, remember, it wasn't too long ago where, you know, there was like plexiglass up between cubicles, and cubicles were being, you know, separated by feet. You know, they were depopulating floors. We've passed all that, I think we're now trending back to the way people thought about it initially.
hoteling has and always has had a role, I think, in New York office. Whether it's more or less prevalent now, I can't really say. Maybe Steve, you can. I mean, not that I'm aware of, but, you know, I'd say it's more than it was maybe coming right out of pandemic, I can't say it's more than it was in the years leading up to it.
It's also only applicable to very large tenants. You know, if you really think about the average tenant in New York City that's less than 25,000 sq. ft, hoteling is not a viable way of them operating their business. If you're talking about a tenant with hundreds of thousands of sq. ft, then it's a conversation. Typically, where we see it's very specific to certain types of industries. You know, sales businesses, consulting, media businesses. When you go into the big financial firms and things like that, we see it far less frequently.
All right. That's very helpful. Just to follow up on a couple of earlier questions, I was hoping you could just comment a little bit more in general on debt availability for office assets and landlords today, and how you expect that availability and even pricing on debt to trend throughout 2023.
Beyond the commentary we gave?
Yeah, we touched on it a bit earlier. You know, I think, you know, we're getting some real-time feedback because we're out in the market with a $500 million refinancing of 919 Third Avenue. The interest has been good. I mean, you have to have,
Floating rates.
floating rate, shorter duration.
Widely available.
... is widely available. I think Andrew said earlier, sponsorship and building quality location all matter, more so than ever. We're out with good product. We're obviously a good sponsor, and the feedback has been good.
I think we expect that, you know, second half of the year, you'll see, you know, a little bit of return of the long part of the fixed rate market. You know, again, these are pretty short, you know. It sounds long. I mean, if you're gonna blink your eyes, we'll be sitting here on our second or third quarter conference call. Hopefully, by that point, you know, we'll be talking about more capacity in the market. Fortunately, we don't have any projects ourselves geared for that kind of execution this year.
Right.
So-
That's right.
... yeah, we're in good shape.
Thanks, guys.
Thank you.
Thank you.
Okay.
Next question, operator.
Operator?
Next question comes from the line of Peter Abramowitz from Jefferies. Sir, your line is now open.
Thank you. Just one more on the financing market, 'cause I think you're, you talked about 919 Third Avenue, and then you also have 220 East 42nd. I guess Third Avenue is or Lexington, depending on who you ask, has kind of been cited as the cutoff for, you know, how assets are performing differently by sub-market, with a little bit less activity, both leasing and then utilization east of that cutoff. Do you sense any, like, kinda difference in the conversations when it comes to that, just in terms of, you know, 919 versus would it be easier to refi, you know, a similar asset closer to Park Avenue?
No. No. I mean, you didn't hear that commentary from us. I don't-
Yeah.
Not at all. If you look at our tenant base at 919, it's about as institutional a roster as you get. We sold 885 Third Avenue to a hospital at a great price at the end of last year, if whoever gave that commentary missed that print. I don't. It makes absolutely no difference in the financing market.
220 East 42nd Street matures in 2025, so we're not out discussing that right now.
Right. Okay. Got it. Thank you. Is that it, operator?
Thank you. I'm not showing any additional questions in the queue at this time, sir.
Okay. Well, for anyone who's still on the phone, I would encourage you to check out highlights from today's 2023 State of the City address that Mayor Adams gave this morning. You know, it announced amongst a host of other things, several exciting investments that were born out of the New York plan that a lot of stakeholders worked on, including us here at Green, in order to create an action plan to really bring New York forward. It was great to see how quickly the recommendations were developed, how executable they were in their communication.
Now to see Mayor Adams including, you know, much of that in his State of the City, which includes $ hundreds of millions of investment in new public spaces and permanent open streets, which we think is great for the city to make CBDs 24/7 cities in Manhattan and all five boroughs. He reaffirmed his commitment to building more housing and more affordable housing through what he calls his City of Yes by, you know, making the necessary modifications to zoning and, you know, working with council to make that happen, and making the incentives in place there for conversion of office to residential as well as new development.
Other investments in quality of life initiatives in and around the commercial corridors throughout the City, which I think, you know, are very much needed and appreciated. The City and State are working together towards common goals, making the City safer, cleaner, better, and, you know, it's a good thing to see and, you know, more on that to come. Thank you for joining in today.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.