Good morning, and welcome to the Vornado Realty Trust First Quarter 2021 Earnings Call. My name is Vanessa, and I will be your operator for today's call. This call is being recorded for replay purposes. Our speakers will address your questions at the end of the presentation during the question and answer session. I will now turn the call over to Ms.
Cathy Creswell, Director of Investor Relations. Please go ahead.
Thank you. Welcome to Vornado Realty Trust First Quarter Earnings Call. Yesterday afternoon, we issued our first information package are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP to December 31, 2020 for more information regarding these risks and uncertainties.
The call may include time sensitive On the call today from management for our opening comments are Stephen Roth, Chairman and Chief Executive Officer and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth.
Thank you, Kathy, and good morning to everyone. I hope all of you continue to be safe and healthy and that you're all vaccinated or on your way We are full speed ahead on the Penn District and are confident of its success. Farley is well along. We delivered half of Facebook's 730,000 Square Feet on January 1, And we will deliver the second half on June 1, just 1 month from now. At tenone, we will deliver the 34th Street lobby in July, The building's enormous amenity package in October and the 33rd Street lobby at year end.
And PENN2 and the Long Island Railroad Concourse Elements are now under full scale construction. This transformation will take over a couple of years to complete. The decision to permanently close the Hotel Pennsylvania will allow us to get this site ready for development in less than 2 years from now, which is perfect timing for the next phase I believe that the Hotel Penn site will be the best development site in town. Notwithstanding that we will be delivering for tenants the most robust and unique amenitized offering in the city, With the added convenience of being directly on top of New York's main transportation hub, our strategy here is to price PENN1 and PENN2 below our neighbors to the west under their price umbrella. Since we are coming off $60 rents, this will be an outstanding outcome.
Over time, as we continue to remake the Penn District, I fully expect rents will aggressively rise to the premium that they deserve. Over the summer and into the early fall, we will be reopening and returning to normal. All of our tenants are telling us that they are anxious to bring their employees back And we are anxious to welcome them back. We remain strong in our belief that working from I continue to believe the Irvin office is the workplace of the future. As I have said, I believe we will come out of this difficult year in an economic boom fueled by a tsunami of government stimulus, of which New York is a very major beneficiary.
The financial sector is now booming, tech is now booming, healthcare is now booming, Retailers like Walmart, Target and Home Depot are now booming and there is enormous pent up demand from consumers eager to travel, We need tourists returning to New York and spend on all manner of goods and services. This is beginning to happen all across the country. Importantly, the major tech companies are telling us that they intend to continue growing their office footprints in New York And that New York's deep and diverse talent pool is unrivaled anywhere. As you can tell, we are very bullish on New York. Finally, a word about ESG.
We filed our 2020 ESG report on Form 8 ks on April 12. We continue to demonstrate our leadership here and we're proud of the many awards and recognitions we have received. This is an important topic that we believe in. Please do take a look at this important report. Now over to Michael for comment on our numbers and our businesses.
Thank you, Steve. Good morning, everyone. I too hope you're all safe and healthy and look forward to seeing you again in person soon. Let me start with our Q1 financial results and I'll end with a few comments on the leasing and capital markets. 1st Quarter comparable FFO as adjusted was $0.65 per share compared to $0.77 for last year's Q1, a decrease of $0.12 primarily due to the effects of the COVID shutdown.
One change you will note is that the Hotel Pennsylvania results removed to non comparable given our decision to permanently close the hotel. The decrease this quarter is reconciled for you in our earnings release on Page 4 And in our financial supplement on Page 6, it was driven by the following items. $0.04 from our variable businesses, trade shows, signage, garages and BMS Still being offline. Dollars 0.07 from tenant vacancies and bad debts, primarily the JCPenney and New York and Company lease rejections last year. $0.03 from Penn District space taken out of service, dollars 0.03 from Macy's lease cancellation income in last year's Q1, partially offset by $0.05 from G and A and interest savings.
These items are not new news and are right in line with our statements over the past few quarters. Most of these are temporary and the income will return over time. Furthermore, the Q1 results are consistent with the sequential 4th quarter run rate we discussed last quarter, adjusted for the accelerated vesting of equity awards for retirement age executives in
the Q1.
With respect to rent collections, in the Q1, Overall rent collections were 96%, a continued improvement from the prior quarters. We collected 97% of office rents and 90% of retail rents. April collections ran at the same level. While the aggregate headline same store cash NOI numbers for the Q1 are negative on their face, Excluding the variable businesses, our core New York office business actually was positive 3.9%. Lending in Chicago and San Francisco, our office business overall was a positive 1.9%.
The big takeaway here is
that our core office business Representing over 80% of the company is continuing to hold its own in this challenging environment, protected by long term leases with credit tenants. And while the retail same store numbers are down, overall retail NOI is flat quarter over quarter, again consistent with our recent guidance. Finally, we have planned to seize for significant growth as the pandemic recedes and the city returns to normal level of activity. In addition to the savings we will realize from the previously announced overhead reduction program, we expect significant growth from the return of our variable businesses. From the Farley Building fully coming online in 2022, followed by the delivery of PENN1 and PENN2 and reduced interest costs as we roll over our debt.
1 of the analysts even predicted that Vornado will have the highest growth rate in our sector over the next several years. Now turning to the leasing markets. We are seeing improved conditions in the office leasing market with the pace of activity up nicely in the past 60 days. The phones are ringing, tour volume is up, Proposals are coming in and leases are being signed with the flight to quality trend accelerating. According to the brokerage houses, leasing volume is certainly up versus 20 The Q1 had the most activity of any since the Q4 2019 with most of the action occurring in Midtown.
At the same time, we are realistic and recognize that availability across all submarkets remains high. But an encouraging sign, sublease space has recently come down some. Almost 600,000 square feet of sublease space has been removed market by occupiers who plan to reoccupy the space. Moreover, a substantial portion of the sublease inventory is challenged space, Either physically, by way of the over tenant having poor credit quality or turn constraint. Roughly a quarter of the sublease space in the market today has less than 3 years of terminate.
During the Q1, we completed 12 office leases totaling 208,000 Square Feet. The 2 largest leases of the quarter were both new to our portfolio. Young Adult Institute for 74,000 Square Feet at 825 7th Avenue For the new state of the art schooling facility and fuboTV Inc, a new world content streaming platform coming off their successful IPO launch For 55,000 square feet in the base of 1290 Avenue of the Americas. Both of these leases represented expansions from their prior locations. We are currently negotiating paper on 300,000 square feet of which 200,000 square feet is with new tenants and in addition we have Rolling pipeline of 1,400,000 square feet, which is up meaningfully from recent quarters.
Last year, we completed the 2 largest leases of the year, Facebook and NYU. The current sweet spot for deal making in the market is with small to midsized firms Looking to relocate into new or redeveloped assets. Remember, all of our space is redeveloped or in the Penn District, which is under redevelopment. This dynamic matches up well with our current vacancy, where our largest available blocks are only 180,000 square feet at 330 West 34th Street and 117,000 square feet at share at 8510th Avenue. As a reminder, our office expirations in Our leasing team is now in full stride in the Penn District with multiple presentations, tours and meetings each day with brokers and tenants across all industry Using our new Penn District Experience Center to showcase Penn 1, Penn 2 and our grand plans for the Penn District really brings everything to life.
Reception to our vision for the district and our best in market differentiated project offerings has been nothing short of phenomenal. Turning now to Chicago and San Francisco. In Chicago, we are also seeing more activity at the market. During the Q1, we completed 85,000 square feet of leases, including a 45,000 square foot office renewal, Along with 18 showroom transactions totaling 40,000 square feet, of which 15 were renewals. We currently have a 90,000 square foot Renewal lease and negotiation and a pipeline of 500,000 square feet showing real interest in the property.
Importantly, we will be restarting the trade show business In October this year with the NeoCon Show beginning to bring back that income stream. In San Francisco, 5x5 California continues to be in a league of its own. Coming off the heels of our recent large renewals with both Bank of America and Goldman Sachs, In April, we executed a lease renewal with KKR in the triple digits for its 50,000 square feet in the tower. Our occupancy here is 98% with minimal expirations until 2023. Turning to retail now.
Retail leasing in New York City is beginning to come out of a period of inactivity to a phase where retailers who are succeeding and even thriving are now looking for opportunity. All current leasing activity is very price driven. The tourist driven higher rent markets of Fifth Avenue and Times Square have seen the lease activity As retailers remain on pause until there is greater visibility on when the 60 plus 1,000,000 tourists will return. During the quarter, we completed 11 retail leases for 46,000 Square Feet. These included 2 long term renewals at 1290 Avenue of the Americas, including a lease with JPMorgan Chase for a flagship branch and a 7 year extension with the luxury retailer Todd's at 650 Madison Avenue.
Our leasing also included another 6 leads assigned at the Farley Concourse where demand remains strong and we are in negotiations with tenants to fill the balance of the concourse space. Overall, we are upbeat about the future of our markets, our leading position in them and our prospects for creating value. Turning to the capital markets now. First, let me congratulate Jan La Chapelle on her promotion to Executive Vice President, Head of Capital Markets. The real estate financing markets continue to improve with both the CMBS market wide open and banks beginning to lend again a high quality office.
Spreads and all in coupons are very attractive levels as evidenced by our recent strong refinancings of 1 Park and 909 Third Avenue, both of which were at significantly reduced rates. The unsecured market for real estate companies also continues to be very strong Finally, our current liquidity is a strong $3,940,000,000 including $1,760,000,000 of cash and restricted cash and $2,180,000,000 undrawn under our $2,750,000,000 revolving credit facilities. With that, I'll turn it over to the operator for Q and A.
And thank you. We will now begin the question and answer session. And follow-up question before we move to the next caller. And we have our first question from Steve Sakowak with Evercore ISI.
Thanks. Good morning. Michael, I was wondering if you could just
spend a little more time
on leasing and gave a lot
of detail there. Maybe talk about the terms that you're seeing in terms of TI, free rent And then length of lease that tenants are sort of looking for today in the market.
Steve, can you just repeat it?
You cut out for about 10 seconds.
Sorry. I guess the question was really around lease term, TIs, leasing commissions, free rent, how are you seeing some of the impact not just in face rents, but some of the concessionary items? And then what are
I mean, the first thing I'll tell you is lease term, we're seeing a lot of long term lease commitments, 10 years, 15 years. We actually just completed a lease this quarter for 30 years with the school at 8.25seven. So we're seeing lease terms long, we're seeing commitments for sure. We've seen no change in that as we go quarter to quarter. TIs are elevated and pre rents are elevated, net effective were up, but I think they stabilized at this point.
But right now, if you want to lease space, meet the market, you have to give the TIs to fill the space and that's what we're doing. But they have stabilized Over the past, I'd say, 2 to 3 months for sure.
Okay. And maybe as a follow-up, I don't know if this is for Michael or somebody else. I know there Been some discussion around the refinancing of 555 California and there was an article recently about a north of a $1,000,000,000 new mortgage there. To the extent that You did refinance at that level. How do you think about the excess proceeds and what would that be used for?
I don't think we're going to Steve, it's Steve. I don't think we're going to comment on that other Just to tell you that generally speaking, what is smoke, there's fire. We won't comment on anything about that transaction at the current time.
Okay, thanks. That's it for me.
And thank you. We have our next question from Manny Korchman with Citi. Please proceed.
Hey, everyone. Good morning. Just wondering what your sort of how progressed the conversations are with tenants are at Penn, both for the large blocks available at the current Penn buildings as well as the Penn fifteen and if that drove your decision to Take the hotel offline and move forward with the larger redevelopment there.
Hi, it's Glenn. So I'll tell you, we're in this experience center down at PENN1 multiple times a day showing all the projects. I will tell you the action at Penn 1 from a leasing standpoint is absolutely on fire. We do not have any real large blocks there, but In the tower, we have some single and 2 floor deals happening, at rents that are at our underwriting. So we're performing very well there.
The reception has been excellent. We are also beginning to showcase PENN2 into the market also daily. A lot of great presentations and incomings, We're going to go slow with PENN2. We just started up on the physical construction. And as this thing keeps going on a construction standpoint and the tenants can see it Physically, it will just get better and better in terms of the incomings and people's reception.
And yes, on PENN15, We are beginning to show people our plans. The announcement of knocking on the Hotel Penn has brought a lot of incoming calls and emails.
And I don't know if this one's for you or for Michael. But if we think about the occupancy trajectory for the rest of the year Do you anticipate that this is sort of the bottom for New York City office occupancy or vacancy?
Or do
you think there's a little bit more to come from a net absorption perspective?
I don't have the exact numbers in front of me, Manny. Manny, I can't tell you, maybe move around a little bit here I think we're pretty close to the bottom. Again, I'm not going to say it won't take a little bit, but I think we're basically there.
Manny, anecdotally, I would tell you that Glenn told me that several of the brokerage houses Have told their folks and their clients to get into the market now that this is the bottom And that they expect a turn from a tenant market to a landlord's market to happen over the next 6 months. So that's anecdotal information, but it's important information.
Thanks, everyone.
And thank you. Our next question comes from John Kim with BMO Capital Markets. Please proceed.
Thank you. The announcements and the news flow of New York City reopening is very fluid and even as Maureen Goldman Sachs announced plans to come back next month. Are there any more details that you could share as far as what's happening in your portfolio today as far as More details on lease proposals, what you expect to be signed as far as leases in the second and third quarter and potentially So traffic in your street retail portfolio.
I'll take the office. It's Glenn. Michael remarks in the script, in his opening remarks, our pipeline is robust. We have over 300,000 feet of leases In negotiations, we have another 1.4000000 feet of deals that are in discussion. I'll tell you things are picking up a lot, Not a little.
So tenants are coming out of the woodwork. Many are looking for new space to better quality products. So we're seeing a huge uptick in office leasing activity as we sit here right now. In terms of the utilization in the building, that's also up ticking week to week. On a percentage basis, we're now in the teens at all Most of our tenants are telling us returning starting in June through Labor Day.
But certainly, the narrative is unwinding
In retail, we're seeing a major uptick in conversation that's primarily due to the fact that the Survivors of the pandemic in retail have actually been thriving. New York City is probably the last on the list To be opportunistic because the rest of the country has been booming, and New York City is suffering from the lack of our 60,000,000 tourists being in the street, But the smart retailers are now in the market being opportunistic and I don't think New York retail has ever offered a better value
That's very helpful. Thank you. My second question is on the tracking stock that Steve you mentioned in the Chairman's letter. Are there any more details you could share at this time as far as The timing, whether or not you plan to raise capital through it and will you be stripping out the financials of the Penn redevelopment from Vornado
I really don't think it's appropriate to comment on This, we're working very hard on it. It's a very, very exciting project that we're very excited about. We're targeting hopefully year end. Other than that, I don't think it would be premature to Get into any details, but I'll give you a little bit of what our thinking is. And by the way, attracting stock It's something that has been used very successfully by folks like John Malone at Liberty and It's Sidekick, Greg Laffei and Barry Diller and for example.
Generally, what it's used is when you have a business inside of your core, which is different And which has a different range of growth and it's different characteristics. And so we feel that the Penn District mega project that we have is different than our core assets. And so we feel that Investors would benefit enormously by being able to invest in the Penn District And its characteristics, by the way, we do remember it's a development company, for better or for worse, and our core assets. So The differentiating aspects of the Penn District is at what we consider to be the epicenter of the New York. It's directly on top of the major transportation hub, which means all of the subways and all All of the railroads, all of them come into that hub.
And that's an extraordinary statement because you can get in and out of Penn Station No matter where you are in the New York City region, on one ride, The most important part of it is and by the way, it's enormous. When you look at the number of assets and the scale of the assets and the number of The most interesting part of it, I think from my point of view and Glenn's point of view is, It's a cluster of buildings that are interconnected, generally underground. So what that means is, is that a tenant Who has a 300,000 square foot requirement, and I've written about this, who goes into a 500,000 square foot building is locked in, there's no place to go. But a 300,000 square foot tenant in our 5,000,000 growing to 10,000,000 growing to 15,000,000 square foot complex Has enormous opportunities to grow should they want to in the same building or in adjacent buildings. So I believe that a strategy which A cluster of buildings in a campus, which also will allow for an enormous series of amenities that Somebody who has even a giant million foot builder can't afford to do makes us totally unique.
We're seeing Very much the same thing down in Northern Virginia, where our SpinCo, JBG Smith, has this Enormous concentration of buildings and land, etcetera, in the Crystal City complex that Vornado contributed to that company when we did this spin in 2017. We've now attracted Amazon HQ2 there, Mainly because of the concentration of assets that we have and obviously because it's a great labor market. The same is true of our New York Penn District. So what we're trying to do and the objective is to take businesses which are different, Meaning the Penn District is different than a corner office building on Keeben Park Avenue and allow investors to have the choice. So we're very excited about it.
It's a very important work in process and more details will be coming As we advance it and when we announce it. I think somebody said in their reports last night That it was not well received by investors, which is troublesome to me because that's totally And so if that's the case, then we have some work to do to talk to our investors and make everybody understand exactly what we're thinking But we couldn't be more excited, and I think that's it for now.
When you list the key attributes to invest in Vornado, arguably Penn District would come up as number 1. So have you gotten feedback that this Really isn't that different to the recent investment in the company?
I don't understand the question, John.
I guess your point that you're stripping out something that's different, when in reality it's just a redevelopment of your existing assets that Is the key reason to invest in brand new today? I'm just wondering why you think it's different?
Well, I can say what I said for the last 5 minutes But the answer is, it's totally different in many, many different ways. It's real estate, but it's totally different. The other thing is when you think about stock performance, we don't think that our stock could go with or without we're getting no credit And the Vornado stock and trading price for the Penn District or basically anything else. So what will happen is that we think that the corpus of Vornado will the price of Vornado will be unaffected Or maybe even rise hopefully, whereas the Penn District stock will get to its true value. But we think if we don't agree with you, we think it's totally different.
Got it. Thank you.
And we have our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, Steve. Good morning, Michael. So I'm going to take a different tack with my questioning this quarter. So I'm going to focus on 2 what I perceive to be positives in your portfolio. Steve, in your news in your terms letter, you outlined And your Netflix binging and the fact that studios are now on your radar, it would seem that the J.
C. Penney space at Manhattan Mall and the Penn Station Penn District redevelopment, both of those assets have huge loading docks, Huge amounts of potential space that can be carved out and obviously being in the city is incredibly convenient for studios versus People having to truck out to Queens or some of the outer boroughs. What are your thoughts on converting either of those two assets or some of your other existing That have those sorts of attributes to studios.
This all began with 2 things. Number 1, all of us have become network Netflix Addicts. And number 2, we have got incomings from Entities that are in the soundstage business or that need soundstages. And so what's happened is that the streaming business and the entertainment business has Become an unbelievably powerful, dynamically growing business and it's consolidating and so the companies that are in that business are And they all have a hankering and even a strong desire To be in New York, apparently there is a significant, maybe even dominant concentration of talent In New York, and so it's really basically, they say, in 3 places, New York, Southern California, and I guess in one of the European cities. So the point being is that there is a tremendous amount of unserved demand.
And so we're responding to incomings, and so we have assets that could Service that demand. Now I could make a way too aggressive statement that says the Penn District could become Hollywood East. So I don't take that to the bank, by the way, but there's a great deal of interest in some of our assets that we are working on. Okay. Nothing imminent.
Nothing imminent. We're just responding to where we see pockets of unique demand in the marketplace.
Look, that's good. And obviously, it's something new, and it would seem to be something that's good to repurpose, especially large blocks of space
And we feel we have assets that could be adapted to those kinds of uses.
Okay. The second question, Steve, is going back to Penn Station, you guys for over 2 decades have been talking about Penn Station. We all know the issues about the streetscape and the neighborhood and the desire to see that improve. When you look at Grand Central, That area is already there. Eastside access is clearly going to siphon away a huge chunk of Long Island commuters.
And you guys have 350 Park. It would seem that 350 is almost a better site than Hotel Penn, just given that the neighborhood is already there And there are a lot more people being excited by the Commuter Hub and you have Eastside Access coming in the next few years. So What are your thoughts on accelerating 350? And where does that fit in your pipeline as you guys are glad to market Anchoring a hotel 10 versus getting tenants to anchor a 350?
We're an equal opportunity employer. Wherever the tenants want to go, that's where we want to put them. We have obviously, we have an enormous amount of respect for our 350 Park Avenue asset, it's a great asset. It's kind of like bite sized, it's a 500,000 square foot asset. It's obviously a candidate for a teardown and rebuild, but a teardown and rebuild is A combination and we can grow the site too, by the way, as that's been speculated in the press.
So we could grow it somewhere just more than a 2,000,000 square foot building If we wanted to just focus on our own site without growing it, which would be a million square foot building. That is an immense financial undertaking, Which would require record rents, which we have talked to several tenants about, And we may do that, but the likelihood is we will not do that. The more likely outcome is that we will rent up the existing 350 Park Avenue Very favorable rent and sort of like postponing for a cycle And retain the option of doing a new build on it or continuing to rent the existing building over time. So it's more likely that we will not do a teardown on that site and rent it out for 1 more cycle and focus our efforts on the Penn Station District. Although we couldn't be more delighted to ask.
By the way, if we decided that we wanted to sell that asset With all of its optionality in terms of a new build or whatever, we think we could get an extraordinary price for it, but that's not something that's high on our agenda right now.
Okay. Thank you, Steve.
Thanks, Alan. And thank you. We have our next question from Jamie Feldman with Bank of America, please proceed.
Thank you and good morning. Steve, I want to go back to a comment you made at the outset of the the call where you said major tech companies plan to continue growing their office footprint in New York City. Can you talk more about exactly what you're seeing? I
The answer is, I'm really not going to comment on our Sort of confidential conversations with our customers whom we cherish and we respect their confidences. We deal with all of these folks. We obviously have them all in our portfolio, all the way from Facebook to Apple to Amazon, etcetera. We can only tell you that they this is first hand information. They love New York And for most of these folks, New York is their 2nd largest outpost and center.
What they love about New York is, first of all, their employees love New York. There is a very, very large And very importantly, a diverse workforce. And that's very important to these clients. So they have their fingers on the pulse of New York. They follow the real estate in New York as closely as we do.
They all have very professional real estate organizations that we are in contact with frequently, almost daily. And they so the answer is that I stand by my statement. They are very aggressively interested in New York. Their interest in New York continues unabated and we think that's a very exciting thing. By the way, their interest in New York is We almost exclusively to the west side of New York.
That's where their employees want to be and that's where their culture says they want to be. So that's so we think we're very well positioned for that. And we think that bodes very well for the future of New And for the future of Renato.
I mean, if you think about the tech business, right, you start with the big 4 or 5, I mean, The earnings that they recently posted, the growth rates they continue to have and the aspirations they continue to have. Then you have a entire segment of Now, either gone public and graduated a point where there are mid cap companies and lower cap companies in New York. These companies have got significant ambition. They need people to execute on those ambitions. They need to be in person, right?
Huge amount of engineering talent, Collaborations required, etcetera. And so both from our own tenants and others that are in the market that are continuing to expand. Obviously, we just brought, for example, Fubo TV, who just went public into our portfolio. These companies have significant aspirations on growing their business. And as Steve said, New York is a central aspect of that.
I think that's very positive for this marketplace.
Michael brings up a very important point and that is the newbies and the aspirants Who are high growth people, they want to be in the same cluster and in the same neighborhood as the established Huge tech tenants are. And what Glenn likes the best about the new tenants is they are enormous growers And they look to locate in clusters in buildings which have the potential where they can add 50,000 feet, add 100,000 feet. And when we started with Facebook, When we started sales, it was 7, 8 years ago? 2010. They started with a couple of 100000 feet and then they grew to 700000 feet Over a 3 to 4 year period, that's the kind of client that Glenn loves and that's what we're trying to That's the kind of occupancy that we seek.
Thank you. That's very helpful. The 1,400,000 square feet pipeline, like can you how would you divide that up by those types of growing tech tenants versus Kind of upgrade relocations or if there's any other meaningful category you'd split that into?
Yeah, I'll tell you, Jamie, it's very diverse industry sector mix and a very mix of good mix of renewal, important renewal transactions as we Look towards our expirations the next 3 to 4 years, along with very good new tenant activity, a A lot in the Penn District, but also throughout our other assets. So it's a very healthy mix of new renewals, some expansions And really every type of industry sector. The one industry that's really leading the chart right now is the financial tenants. They're busy as they've ever seen it. So our financial oriented buildings are really busy.
We have backup deals on deals that are 88.7, 2 They're leading the charge, but in terms of the mix, we feel really good about Really covering everyone out there right now in that pipeline we've talked about.
Okay. Can you quantify how much of that's renewals of the 1.4?
I'd rather not get into the exactness of the numbers.
Okay. That's fair. And then, I guess another question for you, Steve. You had commented on the boom. I'm just curious what your thoughts are on the benefit to New York City from the Biden plan and the outcome.
I know It's still early, but the mayoral race kind of what should we be thinking about either the risks or the rewards based on who's in the game?
So, let's see, your question is how will New York benefit from the boom? And then what's going on with the mayoralty base, is that correct, Dave?
Well, just what are your thoughts on the Biden plan and how you think that really could Trickle through to New York and then how should we be thinking about either the risks or the benefits from the mayoral race?
So first of all, I mean, I think it's pretty clear the country is in a boom. The only thing that I'm uncomfortable about talking about is that the consensus feeling amongst almost everybody. So consensus is Normally, I like to be on the other side of that, but it is the consensus. That is also what I believe and I think it's happening. If you go to other places around the country, which have not been as shut down as New York, It's happening now.
You go to Texas, etcetera, where they have different where they have been more lenient in the restrictions. You can't you go into a Target store and the shelves are empty. You go into some of the luxury retailers Across the country and the shelves are empty, the demand is amazing. They can't build enough houses, etcetera. So I think that's pretty clear.
The Biden's policies, together with the fact that The majority leader of the Senate is from New York. There is a significant and fair by the way in terms of when you look at Distribution of these programs across the nation. There is a significant amount of benefit and financial benefit that's coming to New York in terms of the stimulus package. First, in terms of closing the budget deficits for the city and state, which is a universal program across the country, but it's good that we're getting it And other benefits to our population. So we think that the stimulus will be an enormous benefit to New York, and I think that's proving out.
With respect to the Merrill race, that's a different kettle of fish. The oddity The politics in New York is that more than 75% of the registered voters are Democrat In the city, so therefore the mayoral race is not the election, it's the primary. So almost invariably whoever wins the Democrat primary is elected mayor in the general election. There are Double digit number of candidates. And interestingly, there's really no candidate which has a defining lead.
We also have ranked choice voting for the first time, so nobody really quite knows how that works. So the first the 2 or 3 or 4 leading candidates are certainly all in the race. I'm hopeful The candidates will all believe in a couple of principles that I think we believe in. First, That the quality of life is, if not the single biggest issue, the biggest issue, and that is safe streets, Clean Street, for example, the home of the situation has to be handled. And so quality of life issues are very important.
They're number 1 on my list. On my list, the second is that we need to be a growing city With employment growing, which I think everybody subscribes to, which means we have to be a business friendly city. And so every once in a while, we have flunked on that. The Amazon Disaster a couple of years ago at Long Island City is probably the number one example of that. So Quality of life, safe cities, the homeless situation, being business friendly Our number 1 and 2, we then have income inequality, racial inequality, We have to be a fair city.
And so those are the major issues, I think, in the campaign. And I believe that the 3 or 4 candidates who are look like they have the best chance of being elected Are all well qualified with respect to that. I think one of the very interesting things about elections is that this is a time When the political leadership or the political aspirants actually listen to the population. And I think that the message that I just said, and I think it's the universal message that's going from The voters to the politicians, it may be some groups of voters may say Income inequality and ratio inequality is more important. Others may say business friendly and quality of life.
Those four major points are the issues, I think, in our city and every other great city, probably in the world right now. I'm very hopeful that we will get a mayor, 1 of the 2 or 3 or 4 leading candidates that will be well qualified in that regard.
All right. That's really helpful color. Thank you.
And thank you. Our next question is from Vikram Malhotra with Morgan Stanley.
Thanks so much for taking the question. Good morning, everyone. Maybe just first one, Steve, you talked obviously there's a lot of activity on the development front and future development. I'm just wondering, in the past, you've made comments about the right time to buy. And I know the stress has not been plentiful, but Given the bullish view on office over a multiyear period, can you maybe walk us through how you're thinking about value added opportunities
in the New York area? As I think you have heard today and over the years, we are We are, as they say, loaded up on New York and we think we like our position. I am disappointed that there has not been in this period unique Opportunities to add value by buying distressed, which is something that we have been able to do in past cycles, But that's not the way this has worked out.
So
this has kind of been a We've gone through a recession, a COVID caused recession. It By $200,000,000 because certain of our businesses were shut down like signage and garages, etcetera. On the other hand, And the other benefit of that is interest rates are historically low, chronically low. It looks like they're going to be low forever, That we've been able to buy, although we've been looking very hard. So I'm disappointed in that, but what is, is I do believe that the best opportunity that we have for capital in our business by far and away Is investing in the Penn District, which I think if one has a 5 and even a 10 year view is going to be One of the great investments and one of the great developments in out there.
So that's my view.
Okay. Thank you. 2 more real quick ones. Just on street retail and particularly the vacancies on Fifth Avenue, Can you maybe talk to us about where are we specifically on 5th and just more premium corridors, where are we in terms of Rent levels that are low enough to attract retailers to really come back and start signing leases. Just Wondering how do you start to fill up some of the vacancies that you have in the portfolio?
As Haim said a couple of minutes ago, this is a market cycle that we've been through many I think we can almost predict how these cycles go. There is a and By the way, this is a very difficult cycle because in addition to everything else, we have the secular change from brick and mortar retailer To Internet shopping, which is a secular change, which sort of makes this cycle much deeper. Nonetheless, it's a cycle. So there's lots of vacancies. The first thing that happens is that the vacancies are scooped up By a group of tenants who realize the value and who have business models that can operate and thrive with reasonable rents.
When the vacancies start to get to be absorbed, the rents rise. And during the whole process, The highest quality space demand commands the highest rent and the highest demand. So that's beginning to happen now. And as Haim said a few moments ago, the retailers that have thrived are beginning to recognize That this is the bottom and are beginning to recognize that they want to add and even in New York aggressively add At this price point, the unique important scarce site. So an example of that is that we did a deal with Fendi on Madison Avenue and 57th Street recently.
We extended a lease with on Madison Avenue and 60th Street recently, and there's multiple other examples of that. So what's going to happen is, I wouldn't focus on the spot rent today. That's meaningless. That's the rent that is that rent will disappear in a year. And so what's happening is the smart players, the players who have a business model that works are beginning to absorb the good space And that will cause the market to shift and in a year or 18 months or so, you'll see a totally different market and in 3 years from now, you'll see a Monumentally different market, which will be thriving with much higher rents.
Great. And then just one quick clarification on Facebook. Can you maybe remind us the contribution, the GAAP contribution that's there this year, Some of that already recognized in the numbers and just how does that ramp over the next 6 to 12 months?
We're not going to comment The details of the Facebook lease other than to say we are so pleased with our relationship and they are pleased with us. The most recent deal that we did with Facebook was 730,000 square feet in the very height of the pandemic To give you a feel for the courage that it takes for even somebody at Facebook's scale to sign a lease, Multi, multi, multi $100,000,000 financial commitment in the in last summer, if you remember, The Facebook lease, which covers 730,000 square feet in Moynihan And Farley is totally unique space that we believe and I think they believe is unique across the country Where it is in the city of New York and the scale of it being a low rise With 150,000 Square Foot Floor Place. So we anecdotally talked to their some of their occupiers, their engineers. They are very excited. They can't wait to get into the space.
And other than that, we're not going to comment on the financial details.
Thank you.
Thank you.
And thank you. We have our next question from Daniel Ismail with Green Street.
Great. Thank you. Glenn, I believe you mentioned a stabilization in office concessions. I was just curious, is that a reference to Concessions maintaining their current levels or a return to pre COVID amounts?
Right now I'm referring to stabilizing as of during pandemic, not pre. We're not back to pre for sure. The goal is to get back to pre. We're not there yet, but they have stopped rising for sure. So I'm talking about in the current environment during the pandemic.
Dan, the same comment about markets. The market has to tighten up a little bit. When the market types up, the concessions will tighten up as well.
Got it.
And then just a quick question for me on PENN. Any update on the ground lease at PENN1?
No.
Got it. And then a bigger picture question on A few of the non office assets you mentioned in the annual letter. How do you view non office opportunities like Studios, gaming, etcetera, as a percentage of the overall company, how big can some of these non office opportunities be?
That's an unanswerable question. The reason I put that in there was I think that our shareholders have a We'd like to know some of the things that are perking below the surface, even though they may not be So for example, gaming is an interesting thing. There are everybody that follows New York knows That there are 3 gaming licenses that are yet to be issued in the New York Enabling legislation And that they are targeted for downstate. And there's been a fair amount of news about that recently So people who are following, not our company, but following the basic ebb and flow of stuff in New York knows about this. Now those three licenses are scheduled to be released in But there has been a great deal of speculation in press that that may be accelerated earlier Because the budget deficits, etcetera.
The urgency may be offset a little bit because We have probably the largest portfolio and we have been receiving multiple incomings And so the inquiries that we have gotten have been for Manhattan Properties and it turns out that it's consensus that our potential assets Probably the best. We have multiple assets and they're probably the best suited for this kind of activity. So now, I mean, we have we realize that there is in the enabling legislation, which was passed 4 or 5 or 6 years ago, There's a prohibition against gaming in Manhattan. So that's sort of a disconnect. Why are the operators coming in, In multiple inquiries about our assets when there's a prohibition.
So the market is sort of saying, well, maybe that Prohibition doesn't make a lot of sense, etcetera. So when you think about it, if there's going to be 3 licenses issued, it does make sense that one would be to the east of Long Island region, one would be to the Westchester region and then there's a third. Well, and as I wrote about this, fairly short, was doesn't make a lot of sense for that 3rd license to be issued in direct competition, the one On Long Island, the 1 in Westchester and that leaves Manhattan, which may be the golden goose in terms of getting revenue for our school systems and what have you. So it's impossible to predict how this comes out. We have multiple assets that are of high interest to these folks.
This is a complicated political process and all I can say is that we're just satisfying incoming interest. And we'll see where that goes, but you can discount that to 0 in your spreadsheet. Although if it did happen, it would be financially interesting. We have no interest in being in the gaming industry Or being an operator or anything like that, we are a real estate vendor. That's what we do.
With respect to the SoundStage business is exactly the same story. We are a real estate vendor. We are not going Hollywood, Although I think some of us would like to have a bid part somewhere, whatever, And we are responding to incomings from an industry, which is a streaming industry, which is unbelievably hot. They have a great deal of interest in being in Manhattan because that's where the talent is. So these are They said ideas, which I put into the letter because I think our shareholders are entitled to know some of the things that are going on in the background.
These will undoubtedly not become large parts of our business, but who knows. Just remember, I said, Look at the Penn District could become Hollywood East. It won't, for sure. But it's an interesting thing to sort of fantasize about.
Daniel, all these things that Steve referenced are, I think, to me, the key point for You guys, shareholders, etcetera, is our job is to maximize the value of our assets, right? We look under every rock how to do that. And you got the streaming business, which is booming. Steve just talked about the gaming dynamics. And so, our objective every day we come to work is how do we maximize the value of our assets and look Every different direction.
And so anything we may do here would be accretive to what we have today. And that's what we do on every asset, right? A lot can't be repurposed, but some things can't be.
Great. Appreciate the color. And then just a very quick follow-up, if I may. You mentioned the
There is a GPP, a general project plan, which was Introduced by the State Economic Development Commission, which would take the assets that circle Penn Station and supply more density than that is a pending initiative which has been promulgated by the state. And there are 2 things sort of involved in that. The first is that everybody, everybody is in favor of improving Penn Station from a logistics point of view, from a traffic point of view, From a usability point of view and from an aesthetic point of view. And so the state government and the railroads are actively involved in multiple attempts to do that, which involves attempts to do that, which involves public money. In addition, it's a Totally accepted land planning principle that the most density in any city should be at And surrounding the transit hub, and that's us.
So that's in process now. It's Going through community comment periods, etcetera. And so there's a lot going on in that regard.
And thank you. We have our last question in queue. It is from Alexander Goldfarb with Piper Sandler.
Hey, thank you. Thank you, Steve. I just want to go back, you mentioned about Penn Station and the Mayoral, I think it was Jamie who asked about the Mayoral situation. But when you look to Albany, they just passed $4,000,000,000 in taxes on the wealthy, which are really the business leaders and those are the So Steve, how do you as you think about Penn Station and you mentioned that there's some pushback on the tracking stock, How do you think about you're putting 1,000,000,000 of dollars of investment into the Penn Station area When Albany seems to be and you couple it with the Amazon Fiasco a few years ago, seems to almost be encouraging people To relocate, how do you sort of reconcile those 2?
My children want me to go to Puerto Rico. Look, New York, there will always be New York. New York will always be great. New York will always be a high tax place to live And it will be it will continue to be the center of commerce. And it will Now, I agree with you that The folks in various governments by the way, the prize may come out of Washington in terms of taxation.
Albany may be a second runner here. But the point of it is that The loss of some very high earners who are at retirement age, by the way, It's something that is happening. It's happening all around the country. It's happening more aggressively in California, by the way. California folks, they flee to Texas and New York folks flee to Florida.
What I'm saying basically is the backbone of New York is not the 20 or 30 hedge fund trillionaire, billionaires who are going To Florida or wherever, the backbone of New York is the $300,000,000 $500,000 even $1,000,000 earning management people in their prime, in their 40s, who are raising families, etcetera, Whose jobs can who are not the heads of their businesses and can live anywhere, whose jobs and future depends upon being in New York, Where they can do 3 times better than they can do anywhere else. As long as that holds, New York will be fine. And as we see it, people like JPMorgan Chase Building, Eduheadquarters Building, etcetera, the businesses that are, I'm not talking about the entrepreneurs who can live anywhere and there are very small number of people, although they're very financially important. The mass of the talent that New York has pretty much is staying in New York, has to stay in New York, wants to stay in New York, loves to stay in, loves Loves to live in New York and has to live in New York because that's where these unique jobs are.
Yes, but Steve, when you look at New York share of GDP, it was 11% 2 2 decades ago, now it's down to 7. So it's clear that the economic growth elsewhere is outpacing and that just seems to be Something where New York depends on its historic laurels. That seems to be the biggest risk here.
Well, the answer to that is that New York It is not growing as fast as some of these other smaller places are growing, but it's certainly not contracting and We still think there will be a demand for our product. I'm going to set you up and get you a date to go up to Albany And talk to all my friends at Albany because I think you have a lot to say.
That's why we like writing it in print.
And thank you. We have no further questions in queue. I will now turn the call over to Mr. Stephen Roth for closing remarks.
Thanks everybody. We appreciate your participation. We appreciate your interesting and provocative questions And we certainly appreciate your interest in our company. When's the next quarter call? Tuesday, August 3rd.
So we will see you if we don't see you before and we're dying to see you in person. We're dying to see you in person And break with you and talk about all of the interesting things that are going on. And our next quarterly call is Tuesday, August 3rd. Tuesday, August 3rd at 10 o'clock we'll see you then. Thank you.
And Thank you for your participation. You may now disconnect.