My name is Camille Bonnel, and I am the office and industrial REIT analyst on the U.S. research team here at Bank of America. And I'm also joined by Jeff Spector, sitting to my left, who heads the team, as well as Dan Breen and Andrew Berger, who work closely with me. Our next roundtable session is with Vornado, and we have a full team representing the company. In the middle, we have Mike Franco, President and Chief Financial Officer. To my right is Tom Sanelli, EVP Finance and Chief Administrative Officer. Next to Mike is Glen Weiss, EVP of Leasing, and next to him, finally, Gary Hansen, IR. So we ask if the company can just provide a brief overview of your business before diving into Q&A.
Sure. Good afternoon, everybody. Hopefully, nobody ate too much cheesecake that's sitting outside and about to have a food coma. So welcome to the afternoon session. Nice to be here. I think most of you know Vornado, but I'll make a few comments, and then we'll get into it in Q&A, and I'm sure hit a lot of high points. I think with respect to Vornado, I think the important points are we have a best-in-class office and street retail portfolio in the most important market in the country, which is New York City. We also own the franchise asset in San Francisco and the premier asset in Chicago. The world, as we've talked about for two or three years running now, is separating into haves and have-nots.
It's a portfolio that is filled with haves, right? It is a modernized, amenitized, transit-oriented, well-maintained portfolio, and the leasing reflects over the last few years and continues to reflect in our pipeline. And I think if you look at the leasing that's been done, we have a track record of doing the biggest, most important leases in the city, whether it's Meta at the height of the pandemic, Citadel more recently, and a bunch of others that Glen can talk about. We've leased over 6 million sq ft in the last three years. Again, I think reflective of that trend, at starting average rents of $90 per sq ft, which are market leading, industry-leading mark-to-market numbers. So despite all the headwinds, our portfolio continues to perform in an environment where sponsorship is becoming more critical, the orientation of your assets, where they're located, the quality.
All of our assets are in Midtown, Midtown West, Midtown South. Those are the right submarkets to be in, and, you know, we're benefiting from that. Not too far from here sits the Penn District, which is the heart of the city. It's a 10 million sq ft campus that we are in the process of transforming. I don't think it's hyperbole when we say it's the most exciting and transformative development, certainly in the office sector, and one of those in REIT land. And what we've done, if you haven't seen it yet, between Farley, which is done, PENN 1 , which is done, PENN 2 , which is on the brink of being done, is truly going to transform that district. The early returns are quite good, and the best is yet to come.
Last couple things I would say is that, you know, we have a strong balance sheet. We have always run our business carrying more cash probably than almost any other company. I think that's served us well in these sort of times. So we've got significant liquidity. We've got well-laddered maturities. We refinanced $several billion a couple of years ago, knowing that the markets were attractive and taking advantage of them, and we did. And so we're in good shape from a balance sheet perspective. And so, you know, we're focused on continuing for that to be the case and looking to sell assets and take other decisions to maintain strong liquidity. Last thing I'll say is, you've got a management team that has been at the company for a while. We're battle tested.
We've been through cycles. You know, we grind through them, and ultimately, you know, we've got a track record of creating value. We've all got significant skin in the game. We're aligned with shareholders, and so while the stock is off the mat a bit, in our view, we have a long way to go, and we're going to realize on that. And then lastly, sorry, one last thing, that and it's hard for you guys to see this, you know, on the outside, and people talk about it and whatnot, but I think we are the unquestioned leader when it comes to sustainability and technology.
I think between what Glen, Tom, and the team does on the technology front, if you're actually in our buildings and what we do with our app, with some of our systems, I don't think any other landlord has a better system for interacting with tenants. And that creates a virtuous circle there, and that relates to sustainability as well. So Camille, with that, I'm going to pause unless you guys want to add anything, and we'll get into it in Q&A. But I think that gives you a quick overview of our company as we sit today.
So sentiment around office has been very negative, yet so far, the office roundtables we've been hosting have been essentially full, as you can see in this room. As you sit here today, what gives you the most optimism?
I'll start, and I'll let Glen chime in. You know, when everybody is super negative, you know, that's the time when you want to buy. And this notion that people were never going to work in the office again was ridiculous. We had the same dynamic of, you know, no one, no one's ever going to shop in stores again, four and five years ago. That was ridiculous. The retail sector is back. Obviously, Class A malls are doing very well. Street retail, which we'll talk about in New York, is clearly rebounding. So, you know, there's this quick movement to always rush to judgment. It sells more newspapers, more magazines, but, you know, you have to get into what reality is.
We've dealt with some extraneous circumstances, but the reality is that certainly in respect to New York, and I think it's going to be everywhere, people are going to largely work in the office. Companies recognize that. They recognize the importance of creating and maintaining culture, attracting talent, developing that talent, and they want to be in the best spaces. And so the leasing we've done, the leasing that we're in the process of doing, I think gives us that comfort. I'll let Glen, you know, tack onto that, but that's my sort of two cents.
Sure. Hi, everybody. So I mean, you don't have to really read the statistics to understand what's happening. Just walk the buildings. They're humming, including Mondays all of a sudden, by the way, too. So I think we're quickly settling upon, I'll say, a four-day in-the-office work week. That's happening. CEOs are requiring, not optioning, to come back to the office, and with that, we're seeing a tremendous uptick in leasing activity, tour volume, proposals, incoming, et cetera. For example, I shouldn't even be here right now, Jeff. I have four deals-
I had to drag him, Jeff.
I have four leases in negotiation right now. One is for 240,000 feet with a financial company. Another is for 175,000 feet with a law firm. Another is for 133,000 feet with a fashion company, and another big one for 175,000 feet. So that's just four deals, right? So, you know, I know everyone's reading the newspapers and the negative narrative, but we're seeing it very differently, and we've been building up to this. I think quarter to quarter, you've been hearing us on our earnings calls. We've been echoing this, and I think it's now here, and it's only going to get better as we go. And as Michael said in the outset, tenants want the best, and we think we have the best, pound for pound.
Just look at our portfolio, walk the buildings. So, and if you, you know, look outside here. When we walked in here, I mean, the streets in New York are crazy, right? I mean, the restaurants are full. You can't walk the sidewalks. Everyone wants to be in New York. Every company wants to have some type of space in New York. New York's clearly leading the charge nationally, clearly. So we feel really good about everything. When, you know, we have projects that are going on like nobody else. All right, we finished Farley, PENN 1's off the charts, off the charts. PENN 2's coming next. It's going to outperform PENN 1. We just knocked down the Hotel Penn. It's the best site in the country. And 350 Park Avenue's on deck with Citadel and Ken Griffin. So, you know, the last thee years has been tough.
It's been tiring, it's been exhausting, but we, we grind, we keep going, we keep our heads down. We're making deals, we're building projects, and here we are, standing, and we're proud of it, and we're going to keep going. That's, that's what's going on.
When you're talking to these tenants, and you're right on, I mean, we're in 4 days. You know, we've been in 4 days for the past year. Are we seeing any signs of stabilization in terms of needs on the 4 days? Let's say 4 days is the new norm. What does that mean in terms of leasing? Because we keep getting asked, you know, is that a reduction in space? Is that equal in space?
Look, I think, Jeff, net-net, there will be some type of reduction, net-net, but it's completely situational. There's no one-size-fits-all category to the question. But if you think about it, if it doesn't, it will settle on four days a week, no question. Everyone's going to need space. Then the question is, how much space? And the bigger question is, where should the space be? We feel great about the last question as it relates to us, and that's exactly what we're seeing in our activity. So whether they're downsizing, upsizing, staying neutral, you're seeing definitely a demand for moving, refreshing, revitalizing, rebranding. So people are moving more than ever. And that's okay. But so there's not one answer to it. It really is so dependent on the company, the industry, the situation. But net-net, that it's a negative net-net.
I'd say in total, you know, leasing, in terms of your question, you're going up, down, or sideways.
I guess for these four examples that you mentioned, you know, are these tenants looking for equal, slightly less or slightly more? More or less bringing in pricing, right?
Mm-hmm.
You know, maybe at the end of it, they're taking less, but they're willing to pay more.
So of the three deals, four, of the four deals I mentioned, three are expansions. One is a downsize. Yeah, look, the rents are holding very, very well. It's the concessions that are still too high, but the rents are holding very well. People will pay for quality, no doubt.
I mean, I think, I think if you look, Jeff, on, on the rental side, I think if you look at where we are achieving what rents we're achieving, where we have vacancy, and we're doing leases today versus where we thought they would be, you know, I guess, at the beginning of the year, right? You know, and I'm talking about the Park Avenues, the Sixth Avenues, you know, the place where we have, you know, space that's coming up for lease. You know, generally, those are double-digit percentage higher than what we thought they would be, okay? And Glen and I went through one asset yesterday again, and, you know, as we sort of look, I said: "No, you know what? We can push the rents even more there," right? Because there's just not a lot of availability.
When you get into -- again, define, let's say, Sixth Avenue and Park Avenue. Let's just take those two submarkets. True Class A space, and, you know, we talk Park Avenue, we're talking about Park Avenue above, you know, above JP Morgan's headquarters, you know, north through 57th Street. You know, you're talking about sub-10% vacancy there, right? So you're basically at equilibrium from a, from a landlord-tenant standpoint, which is a fair fight. And of any size blocks, you know, those are becoming fewer and far between. So that gives the landlord pricing power, and as Glenn said, the concessions remain high. But, you know, it's one thing when the concessions are high and rents are turning over flat. That's not a good game for a landlord, right?
When you can start to push the rents, you know, at least that becomes economic, right? And that's, and that's what we're seeing certainly with respect to those two submarkets. Obviously, Penn's a different example because we're totally sort of step changing that submarket, and we know that, you know, we've walked through the math there previously. But, again, for the, we call them the haves, right? For the haves in the, in the right submarkets, you know, you're starting to see rents move. And, you know, the other overlay, again, you know, notwithstanding, we're going through circumstances none of us have ever seen before. To some extent, you know, we're, we're in a traditional, dynamic where the cost of money is high. There's gonna be very little, maybe none, new construction, right?
And so, you know, the Class A buildings are gonna have this, in a period where they're going to have very good runway because there's going to be nothing of quality built. So all the new construction is basically leased. Maybe there's a block here or there, but the tenants are now looking to, you know, that next wave of top-tier buildings, and they're gonna, they're gonna benefit because the rents are $50-$100 less in some cases. And so if you're moving $10, $15, $20, that's okay from a tenant perspective.
How much do you think on a net effective basis, rents have moved, maybe from a year ago or versus 2019?
I mean, from a year ago, probably not much has changed. From 2019, you know, if I said 10%-15%, net effective down, somewhere in that range is what the statistics will tell you. Mainly based on concessions, not as much on the front-end rent.
That's interesting. We heard from another meeting earlier today that rents in Midtown Manhattan have bottomed, and it sounds like it's similar. You haven't seen any changes there in the concessions?
I mean, if anything, as Michael said, we're looking to raise rents in some spots right now. So not only has it bottomed, we're seeing some opportunity to raise.
I know it's a hard question to answer, but the have-nots are weighing on the office sector, on the stock. So can you share any thoughts on the have-nots and how that plays out over the next one or two years? Or, again, anything, say, the example of the recovering mall, it took so long to really figure out that those dominant malls, as you said, are doing really well. And then, you know, smart investors that can figure out the something to do with the others, they're doing it. But how does this play out?
I mean, I don't, I don't know that it's that complicated, Jeff. I mean, you know, you can, you can pretty easily identify at least the top 100 million sq ft in this submarket, in this, in this market, right? That's gonna do fine, right? Now, then you start going beyond that. Is it 125, 150? What's the, what's the break point, right? And then there's the bottom... Again, I'm just gonna throw out, maybe it's bottom 150, right? And that's just done. It's not coming back, right? That's not office. It's not its highest, best use. And then the question is, whatever is in the middle, which direction does that go? Can that be repurposed? Does it have to be torn down? Does it have to be reinvested in?
For a lot of those have-nots, you know, this is not gonna get resolved in two years. It could take 10 years. Okay, I mean, you're talking about buildings that, in some cases, maybe they're 50%, 60%, 70% leased. It makes no sense for the landlord to invest new capital in that building. They've got debt. It's ultimately the lender's decision about what to do. The lender's not gonna want to put money in that, right? So the asset's either gonna deteriorate or the lender, in a lot of cases, the lenders, you know, they're just dump the asset, right? Sell it to somebody that's going to do something better with it, whether it's tear it down, convert it to residential.
I mean, at some point in the next 24 months, hopefully much sooner than that, there's going to be regulations implemented that are gonna facilitate the conversion of a lot of these older buildings. By the way, when we say older, it could be pre-1990. It's not that much older, right? Depending on where the proposal was, I think in 1991, but I don't know where it'll ultimately get settled. So, you know, when the four tenants that Glen mentions, it's not a price at which they're gonna look at the bottom 250 million sq ft in the market, right? That's not gonna ever be competitive again, right? They're gonna locate in a certain submarket. They want a certain type of space. It's all about, like, we're in a 3.5% unemployment, right?
Talent retention, talent recruitment is critical for every company. Being in some, you know, off-center location or low quality, that's not a way to get your, get your employees excited about coming in or, or continuing to come to your company, right? So that, that bifurcation is real, and it's just gonna be a different track in terms of recovery. And that have-not bucket, it's gonna take, it's gonna take years to resolve. I can't tell you if it's two, five, 10, but it's gonna take a long time.
How are the tech or-
And by the way, the public guys, by and large, and I'll say public guys, by and large, own the best portfolios across the country. Right? So your guys' job is to figure out and recognize that and recognize, okay, who's going to benefit the most, right? Most public companies, by and large, don't own the majority of the have-nots, so.
Right. And we do want to make this interactive. If there's any questions, feel free to raise your hand. How are the tech firms doing on return to office, and maybe bring San Francisco into the conversation?
Yes, so, you know, the tech firms, we have all of them, fortunately. You know, Apple, Google, Amazon, Facebook. Relatively speaking, they're all back in our buildings in New York. Go to Apple at PENN 11, buzzing. Facebook at the Farley, buzzing. Google at 85 Tenth Avenue, you know, so, you know, we. We think they're all in the office more than they have been ever during this period. So, you know, I think that's improving. I don't think there's expansion right now by any of them, but that's okay. That will come back. That will come back, because they want to be in New York. They have to be in New York. But they're, they're in the office. They are in the office.
I think that is. I don't know if that's the case for some of those companies around the country, right? I think in New York, they are more in the office than what we are hearing, certainly on the West Coast.
Particularly in San Francisco, yeah.
Maybe Apple's the exception there.
Mm-hmm.
But, in New York, you know, the comments Glen told you earlier, that number of days in the week, it's consistent across the tech companies.
And, like, do you get a sense that those tech companies are employing that four-day work mandate as well?
Yes.
Cool. So when we think—like, we continue to hear that news around San Francisco is quite dire, but your assets still remain well leased. I guess, how do you think about your exposure over the long term? Because it, it seems like there's still a lot of pressure and pain in the market needs to work out.
I talked to one of our tenants in 555, what's today? Today is, talked to him, I guess-
Yesterday.
No, Friday. Sorry. And the person told me that last week there was a material increase, not just at 555, but streets of San Francisco, right? And there's the people back in the cities. And I think that's generally the case. Post-Labor Day, I think this employer insistence on return to work, I think, is actually having an effect, you know, more broadly. So, like, we don't want to be notwithstanding, you know, we think we have the best building, the best rent roll in San Francisco. You know, we need the market to be healthy, right?
Glen and his team did a tremendous job on renewing many of our tenants in the height of COVID, and so we're well positioned there. But, look, we're believers in San Francisco, and I think as bad as it got, as bad as it still is, I think it's off the bottom as well. You know, I think you've seen a couple announcements on a couple of AI firms that have taken a couple hundred thousand feet each. And, you know, the interesting thing, San Francisco is always the most volatile big city market, right? Notwithstanding, it's this, you know, cosmopolitan city. It's not that big a market, right? And so it can get moved up or down very quickly either way.
It's gotten crushed on the way down, mostly because the employers, you know, lost control of their employees and can't get them back in effectively, and now it's starting to come back. But cheap rents also induce people, too. You're still near some of the greatest universities for technology innovation in the world, if not the greatest. And so startup activity is still going to occur, you know, in the greatest proportion out there. The city is starting to benefit because, again, a lot of those young people want to be in urban environments close to each other. They're working their asses off, and if they can lease space cheap for a couple hundred, they'd rather do that, right? So you're starting to see the early days of a bottom form out there. How long is it going to take?
We can't predict, but I wouldn't write San Francisco off.
You know, you're talking about the importance of safety. Penn District is so important to you. Can you talk about, you know, some of the initiatives that you, as a company, implement in that district? I guess, with the hope maybe that the politicians fix things a bit, but, you know, what does the company do to ensure the feel of safety in that area?
We do everything. We've been doing everything for 20 years, not just during the last 3. So first and foremost, we run our own security operation, mainly focused in Penn. You know, in-house run, you know, led by a, you know, very senior person in our company, number one. Number two, we work hand in hand with the NYPD hourly. We work with the Business Improvement District hourly. We work with the MTA hourly, all the police districts, the LIRR and New Jersey Transit, the whole thing. So it's a big operation, number one. Number two, Jeff, if you go down there today versus 2 years ago, it's unbelievably better. I'm not saying perfect, but unbelievably better. And you can see that in the leasing. I mean, think about the tenants coming to Penn One.
If they were worried about the district, they would not be coming to PENN 1. So we got work to do. There's always work to do. It's a transportation hub, right? But number one, by virtue of the physical transformational improvements, it's going to make it better and drive those who we don't not want on the streets out of it. And number two, I think, you know, just by all of our activities, things are improving. So we're always on top of it. Believe me, I walk around every day, almost down there, making sure. So it's a chore, and it's on our minds, and it's one of the first questions that comes up in every major tour. But, you know, I think we're progressing, we're improving, but it's never a done day's work.
Is this an example, do you think that this really needs to be done across each district? Like, you know, companies need to get more involved, let's say, Times Square or whatever it is, like-
Yeah, maybe. I mean-
Yeah.
Yeah. I mean, look, what, what's helped us is we have formed really what I call a coalition with Madison Square Garden, Macy's, Related, Brookfield, Empire State, AMC, all of our major tenants and fellow landlords. We've created a real good group.
To figure it out, and it's worked. It has worked. So maybe, yes, maybe that should be done more in other, you know, neighborhoods. Yep.
Can we get your latest thoughts on the transaction market and investment opportunities? We did hear earlier this morning that the best investment may be paying down the next loan, or as a better place to put your capital. So, I guess, how are you thinking about this today?
Well, I think, I think you asked two questions there, I think. I think you asked about the transaction market, and you asked about our own investment approach. So, look, on, on our own investment approach, capital is scarce. It's always scarce. It's particularly scarce right now, right? You have to be extremely disciplined with how you deploy capital. And, and our number 1 goal is, you know, we've got to maintain a strong balance sheet and have the capital to continue to survive and thrive, right? So, we want to keep our leverage levels appropriate. You know, we've dealt with all our maturities, but, you know, as we look out, you know, one, two years out, you know, we're starting to deal with some of those things.
So we'll, you know, be, you know, proactive in being disciplined about how we utilize that capital and extending out some of those loans. So, you know, our first and foremost, we talked about it. We paused the dividend. We'll reevaluate that at year-end, and we've done some buybacks. Obviously, the stock's moved quite a bit since then. It got to be stupid cheap, you know, where it was, still cheap in our view. But, you know, we did some of that. We're gonna continue to delever the company. Not to say that, you know, there may not be opportunities externally. I think there will be, although I think it's still somewhat early.
You know, we're gonna seek higher returns, and if we deploy that capital relative to our own stock or to delever, and I think that's the order, right? Our own stock, our own balance sheet, because we know our assets, and we know how they're valued, and we can't buy assets our quality that cheap out there, right? So I think the important thing is, when we look at our development pipeline, that we're finishing in PENN, you know, that was all fully funded from cash, right? I mean, I think it's just... I can't think of another situation where you've seen three developments, the scale of Farley, PENN 1, PENN 2, done entirely out of cash, no debt, right? That's a great position to be in, right? We sleep well at night.
There's no gun to our head on having to take a lease that because we've got some interest expense chewing us up, you know, we can, we can think with an appropriate medium- and long-term outlook on the right thing to do for the asset. So that's that. On the transaction market, like, the financing markets remain very challenged. Right? The banks are out of the market. Very selectively, they'll lend on a small, on a small, basis. You got to cobble two or three together. It's challenging to do. The CMBS market is open to some extent, not a wide extent. I mean, we all know the best, you know, longest term leases, highest credit, right, things like that can get done, more multi-tenant, et cetera. That's more challenged, you know, unless it's very little leverage. So the financing markets are challenged.
Base rates are high. That's gonna affect, you know, capital flows. And frankly, until we have a well-functioning financing market, I think you can expect the transaction market to remain, you know, pretty challenged. And so, you know, we're not in an environment where pricing is real. There is capital that's looking at New York again. It has noticeably picked up in the last quarter. Capital is definitely focused on; it's definitely focused on the retail sector, and I would say people are kicking the tires again on the office sector. And you've got users looking as well, because they view this as maybe an opportunistic time. So, you know, I think you'll see that pick up.
But again, I think until you see a financing market that has some rhythm to it, you know, you're not gonna see a normalized transaction market. And so in general, unless it's a situation where, you know, it's either a small asset, you've seen us sell a few small assets and get good pricing, or there's a specific user or buyer has a strategic reason to buy something, you know, I think the pricing is, you know, it's not gonna be great right now.
When you say you see capital coming back into New York City, is this more sophisticated investors that you're seeing these trends, or is it more of those smaller mom and pops who are looking?
No, I mean, look, it's hard to be mom and pop in New York, given the deal sizes, right? So, I think what you're seeing initially is a lot of high-net-worth capital, whether it's individuals, family offices, you know, some just foreign institutional capital that, you know, has less exposure here, that views this as an interesting entry point. You know, you're seeing a number of. You know, there have been a lot of pools of capital formed that have more of a credit orientation to them. So if there's term on leases, you know, they're willing to deploy and invest capital and sort of get a safer return and give away, you know, more of the upside. So a little bit of all, you know, flavors.
I wouldn't say it's a robust institutional return of capital yet, right? I don't think you're seeing any U.S. sources, by and large, come back. Maybe some U.S. high net worth, but not U.S. institutions. On the institutional side, sovereign side, more some of the foreigns, foreigners, you know, kicking the tires a bit.
From a funding standpoint, you know, where do you stand? You talked about a number of projects you're working on, some in the future. You know, you have self-funded several. I guess, from a funding standpoint, how should we think about that?
I mean, you know, everything that's on our plate, Jeff, we have the capital, you know, on balance sheet to do. You know, Penn, we're gonna finish out 350 Park, you know, if and when that comes up, our land contribution is basically, you know, all the equity we need, right? Maybe there's a little bit more, depending on financing markets. You know, we just announced Pier 94. You know, again, our land contribution is a meaningful chunk of our equity there. You know, there's a modest additional amount of capital. So, you know, and that's really it for the development side right now. You know, beyond that, we'll, you know, there's some time before other situations are ripe. And again, you know, we need the financing markets to return there.
It's not an environment where it's easy or frankly, economical to build things of scale, given just the lack of depth in the financing market. But that, that'll change, you know, in the next couple of years. So really, as we look out, you know, everything we need from a capital standpoint to fund our business, you know, we have on hand today, and that's a good place to be.
On Pier 94, given that recent announcement, can you talk to the opportunity and returns you're seeing from this? Is there plans to further expand this partnership?
You know, so the history of Pier 94 is we've controlled that pier for, I don't know, Glen, 14 years?
Fifteen years.
15 years. You know, it was originally operated for trade shows and art shows and so on, but ultimately, that wasn't a-- that wasn't the long-term plan of how to drive value. And as we saw, as we, as we evaluated different options over the last few years, you know, we thought with the growth in, you know, in production content, that or content production, that, you know, maybe there would be a need for additional studios in New York. There was nothing really in Manhattan. It was purpose-built. And so we reached out to HPP originally three years ago. Just so happened they wanted to expand in New York and, you know, and, and, and we knew each other, you know, well from just history and, and, you know, we went about putting it together.
So, you know, we had to change the use with the city, which we were successful at doing. And ultimately, you know, got that through recently and as you saw, closed it and announced it. So look, we're, I think, collectively very excited about it. You know, it's gonna be the first purpose-built facility in Manhattan. Great location, Midtown, six new stages with, you know, support space, production space. And it's really one of these things where, like we put out, I think HPP put out returns. And so they're comparable for us, other than the fact that, you know, out of, you know, half our equity is coming from the land contribution. So for us, in terms of incremental return on cost, it'll be, you know, double digit incremental returns on cost to us.
That's, you know, that's sort of baseline what the expectation is. The reality is there is nothing like this in Manhattan, right? So none of us really know what the pricing is gonna be. We're optimistic. If anything, I think the worry is, you know, if we, based on interest, we undershoot and say, you know, "We should have waited a little bit longer," right? I think it's one of those things with patience, you know, we're gonna do better because the announcement and then the incomings, you know, since then, you know, have been quite interesting. So, you know, we're, we're excited about it. If you look at the studios in Manhattan, they're all generally makeshift. This is literally purpose-built, designed for, you know, this industry today. It can accommodate a variety of uses.
So I don't know that we know the upper limit, and that's our goal, right? We gotta go out and achieve it. You know, I think time is our friend here. So we're, you know, we're optimistic about it. You know, there's an opportunity to expand it, you know, possibly. You know, I think anytime you start a partnership with a group, and we've had some discussions on doing other things, you see where it leads to, and whether it's our own portfolio or other de novo things, you know, maybe there's an opportunity. So there's nothing on the drawing board today, but, you know, we'll see where it leads.
So we're almost out of time, but we can't end the meeting without asking: What are some of the key thresholds or factors that the board's considering to reinstate the dividend? And then we have some final rapid-fire questions.
I mean, look, you know, the dividend, if you go back to what we said, right? We said, we're gonna pause the dividend till the end of the year and see what taxable income is. And that's really what we're gonna do, right? We're gonna see where taxable income is. So the dividend is gonna be whatever taxable income is at the end of the year, take that relative to what we've already paid this year, right? That's what we'll pay out, right? So it's as simple as that, and that's the mindset going forward. And, you know, as we made that decision, which we thought was the right decision, and I think it's been sort of validated based on the feedback we've gotten. You know, we're in a fluid world. There's a lot of moving pieces, good, bad, whatever.
Let's just see where we are at the end of the year, right? So the dividend reinstatement is solely based on where taxable income ends up, you know, at the end of December.
Okay. For our rapid-fire questions, the first one is on the Fed. Do you believe the Fed is done hiking, yes or no?
Pretty much.
Should we put you as a yes, then?
Yes.
Okay. Do you expect the Fed to cut rates in 2024, yes or no?
Yes.
Second, do you believe real estate transactions will meaningfully pick up by, A, the fourth quarter of 2023, B, first half of 2024, or, C, second half of 2024?
C.
Third, are you using AI to help you run your business, yes or no?
If I tell you that, I have to kill you.
Put a no.
A touch. Touch.
We're in the process. Are you planning to ramp it up, yes or no?
The answer is, I think, I think if you're any company in the world that's not assessing how AI can improve your business, then you're not doing your job, right? So our job is to study it, figure it out, continually study it. How can we utilize this to improve our business?
Thank you.
Yeah.
Thank you. Thank you, everyone.
Thank you.