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spk08: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, July 28, 2021. I will now turn the call over to Sumit Sharma, Vice President of Business Development and Investment Relations.
spk01: Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our second quarter 2021 earnings release and the supplemental information which were released yesterday. Both can be found under the heading Financial Information-Quarterly Results in the Investors section of the Paramount Group website at www.paramount-group.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. forward-looking statements, which are usually identified by the use of words such as will, expect, should, or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, including, without limitation, the negative impact of the coronavirus, COVID-19, on the U.S. regional and global economies and our tenants' financial condition and results of operation. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and the financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or a substitute for our financial results prepared in accordance with GAAP. Our reconciliation of these measures to the most directly comparable gap measure is available in our second quarter 2021 earnings release and our supplemental information. Hosting our call today, we will have Mr. Albert Baylor, Chairman, Chief Executive Officer and President of the company, Wilbur Pace, Chief Operating Officer, Chief Financial Officer and Treasurer, and Peter Brindley, Executive Vice President, Head of Real Estate. Management will provide some opening remarks and then we will open the call to questions. With that, I will turn the call over to Albert.
spk02: Thank you, Sumit, and thank you, everyone, for joining this morning. We delivered a quarter with strong operating performance as we continue to experience a steady return to normalcy. For the second quarter of 2021, we reported core FFO of 22 cents per share, which beats consensus estimates by two cents per share. Our same-store cash NOI grew 3% year-over-year despite headwinds from our recent vacancies at 1301 Avenue of the Americas and 31 West 52nd Street. I'm extremely proud of the team's focused work as we have already backfilled over 62% of the recent vacancy at 31 West 52nd Street. This comprised of the previously announced lease with Bracewell and a new lease with Centerview Partners. As we head into the second half of the year, we are increasing the midpoint of our earnings guidance by three cents per diluted share, driven by better than expected portfolio operations and higher gap rent income. Wilbur will provide additional details. During the first half of 2021, as our markets have been recovering gradually, we have leased over 435,000 square feet, capturing more than our fair share of deal flow in the market. In the second quarter, we leased a total of approximately 247,000 square feet, including approximately 81,500 square feet at 31 West 52nd Street, where, as I mentioned earlier, We backfilled more than 62 percent of the space formerly leased to TD Bank at a positive cash mark-to-market gain of 11 percent. Peter will go into greater detail on what we are seeing on the leasing front, but let me spend a minute sharing some observations. Activity is accelerating, and our leasing team is quite busy in both of our markets, New York and San Francisco. The pipeline of activity continues to recover, but is still below 2019 levels. We are not seeing major declines in asking rents in New York City, which speaks to our high-quality portfolio, and it continues to command premium rents. Our tenants appreciate the quality of our space at premier locations that feature attractive amenities that support the employees' health and wellness. Within our New York portfolio, the Barclays space at 1301 Avenue of the Americas remains our primary focus. We believe Sixth Avenue is one of the most desirable submarkets in the city. Our space is centrally located in that submarket in a high-quality building with large and efficient floor plates, which remains very attractive to prospective tenants over the long term. In San Francisco, Offices fully reopened on June 15th, and tenants are taking a measured approach to returning to offices. Our leasing activity still favors renewals over new leases. However, the market improved modestly during the second quarter, gaining strong momentum throughout the period. Every day, we see more reasons for optimism in our markets. as more and more companies continue to plan for a return to the office. As I highlighted last quarter, based on ongoing conversations with our tenants, we continue to expect to see a meaningful uptick in space utilization beginning in the fall. We look forward to welcoming more of our tenants back to the office and are ready to accommodate the evolving space needs. Turning to the transaction market, Overall deal volumes during the first half of the year have been muted compared to 2019 levels, though there has been a small uptick in volume quarter-over-quarter in New York. Pricing continues to hold steady since last year. Poor assets that are bell-leased with a blue-chip tenant roster and longer-weighted average lease terms continue to command strong pricing. Recent transactions in New York and San Francisco highlight opportunities for well-capitalized buyers for assets in need of modest stabilization spent. We remain interested, yet disciplined. To conclude, our long-term strategy remains on track to manage our portfolio to the highest standards and allocate shareholder capital in a prudent manner to achieve the highest risk-adjusted returns with an eye towards creating long-term value for our shareholders. Our priority remains the lease-up of our availabilities, as well as the reintegration of our current talents in a safe and healthy manner. As has been the case for the past year, we continue to maintain sufficient liquidity, which amounts to $1.5 billion at the end of the quarter. With our portfolio of stable trophy assets and our historical ability to allocate capital, we remain well positioned for the long term. With that, I will turn the call to Peter.
spk00: Thanks, Albert, and good morning. During the second quarter, we leased approximately 247,000 square feet, including 35,000 square feet of theater space, for 15 years at 1633 Broadway. which further underscores the growing optimism for an accelerated return of consumer and tourist demand in Midtown Manhattan. Aside from the theater lease, we completed approximately 212,000 square feet of office leasing with a weighted average term of 9.3 years. The highlight of this quarter's office leasing was undoubtedly the 81,500 square feet of office space we leased at 31 West 52nd Street. which backfilled over 62% of the space vacated by TD Bank on April 30th. We signed leases with Bracewell, which we previously announced in April, and with Centerview Partners, a leading investment banking and advisory firm. Centerview is an existing tenant at 31 West 52nd Street that expanded their footprint within the building by over 33%, and now leases roughly 110,000 square feet at 31 West, or approximately 14 percent of the building. Taking into account TD's expiration and the subsequent lease up of a majority of that space, our portfolio-wide lease rate stands at 88 percent at share at quarter end, which is 60 basis points lower quarter over quarter. We believe that this will be the trough for our portfolio in 2021. Our remaining lease expiration profile is manageable, with approximately 6.1 percent expiring per annum at share on a square footage basis through 2023. This is the direct result of our ongoing strategy to pre-lease space and de-risk future lease role. Turning to our markets. In Midtown, second quarter leasing activity of 2.1 million square feet, excluding renewals, was up 9 percent quarter over quarter but 45 percent below the five-year quarterly average, according to CBRE. Renewal leases accounted for 430,000 square feet during the second quarter, down 64 percent quarter over quarter, suggesting the pandemic trend favoring renewals, particularly short-term and length, is shifting, and tenants are opportunistically considering relocations and longer-term space commitments. Midtown sublease availability did increase 20 basis points quarter over quarter to 4.3 percent, and now comprises 24 percent of total available space, slightly above the five-year average of 21 percent, but below the peak ratio realized during previous recessions. Important to note, however, is that gross sublease additions have declined in each of the last four consecutive months, an important early indicator of improving market sentiment. Finally, tenant touring activity in the market continues to accelerate, particularly in well-located, high-quality buildings. Our New York portfolio is 86.5% leased on a same-store basis at share, down 80 basis points quarter over quarter. During the second quarter, we leased approximately 225,000 square feet at a weighted average term of 9.6 years with initial rents averaging approximately $70 per square foot. Our New York portfolio has 1.1 percent or just 62,548 square feet at share rolling in 2021. Looking ahead, our overall lease expiration profile in New York is manageable with approximately 5.2 percent expiring per annum at share on a square footage basis through 2023. As we have stated previously, 1301 Avenue of the Americas remains our primary focus as we market this block of space, and we are getting more than our fair share of activity in the market. The prospective tenants we are engaging with currently represent a wide variety of industry. We expect to benefit from the ongoing diversification of Midtown's tenant base and the flight to quality trend taking shape as tenants pursue the most well-located, highest quality assets and managers. We look forward to updating you on our progress in future quarters. Turning now to San Francisco. San Francisco office leasing has begun to rebound as San Francisco's economy fully reopens and indoor capacity limits are lifted on all businesses. Sizable venture capital funding for high growth startups has resulted in new lease expansions in the market contributing to an increase in leasing velocity quarter over quarter. sublease availability remains elevated but appears to have plateaued as it declined 6.3% quarter over quarter as per JLL. Importantly, tour activity continues to increase, particularly for well-located, high-quality product as we have experienced in our own portfolio. We are cautiously optimistic and remain long-term believers in the resiliency of the San Francisco market. Our San Francisco portfolio is 92.1% leased on a same-store basis at share, up 10 basis points quarter over quarter. During the second quarter, we leased approximately 22,000 square feet for a weighted average term of 5.1 years, with initial rents averaging more than $83 per square foot. Our San Francisco portfolio has 1.4 percent, or just 31,806 square feet at share, rolling in 2021. Looking ahead, our overall lease expiration profile in San Francisco is manageable, with approximately 8.3% expiring per annum at share on a square footage basis through 2023. Needless to say, our San Francisco portfolio was well positioned to manage through the current environment. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
spk09: Thanks, Peter. Yesterday, we reported core FFO of 22 cents per share, which was 2 cents ahead of consensus. Same-store cash NOI increased 3% for the quarter ended June 30, 2021, as compared to the prior year's quarter, driven largely by better-than-expected portfolio operations. During the quarter, we executed 20 leases covering $246,000 922 square feet of space, including 34,570 square feet of theater space that was leased for a 15-year term. Excluding the theater lease, we leased 212,352 square feet of which our share amounted to 197,000 square feet that was leased at a weighted average initial rent of $70.81 per square foot. Of the 212,352 square feet leased in the quarter, 156,117 square feet represented our share of second-generation space for which mark-to-markets were negative 1.4% on a cash basis and negative 5.2% on a gap basis. It is important to note that the overall negative mark-to-markets were driven largely by lease renewals at 900 3rd Avenue. In fact, the 81,516 square feet that was leased at 31 West 52nd Street that backfilled a majority of the TD Bank vacancy was leased at positive mark-to-markets of 11.1 percent on a cash basis and 8.6 percent on a GAAP basis. Moving to guidance, based on our results, For the first half of the year and our outlook for the remainder of the year, we are raising 2021 full-year guidance on multiple fronts. We now expect core FFO per share to range between 86 and 90 cents per share or 88 cents per share at the midpoint, which is three cents higher than our prior estimate. This increase is driven by two cents per share from better-than-expected portfolio operations and $0.01 per share from higher straight-line rental income driven by lease renewals in the quarter. Given stronger operations, we now expect the company's share of same-store cash and OI growth to be flat with a range between negative 1% and positive 1%. We've also improved our leasing goal for 2021, which now stands between $700,000 and 900,000 square feet for the year. Turning to our balance sheet, we ended the quarter with $1.5 billion in liquidity comprised of $507.8 million of cash and restricted cash and the full billion of borrowing capacity under our revolving credit facility. Our outstanding debt at quarter end was $3.6 billion at share and has a rated average interest rate of 3.2% and a weighted average maturity of 4.4 years. The 1301 loan became freely prepayable earlier this month, and we are finalizing the completion of that refinancing, which we hope to announce shortly. Lastly, we have also updated our investor deck, including our schedule of free rent and signed leases not commenced, which now sits at 23 million. This information can be found on our website at www.paramount-group.com. With that, operator, please open the lines for questions.
spk08: At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. Our first question is from Steve Sokwa with Evercore ISI. Please proceed with your question.
spk04: Thanks. Good morning. Maybe this one's directed to Peter. You know, I know you went through a lot of the leasing stats, and you don't have a lot of space rolling, you know, the back half of this year. I think it's under 100,000 feet in your share. of space rolling next year is under 350, but do you have a sense for what the renewal rates may look like on either the second half space this year, or as you talked to tenants in 22, I know the retention rate was much lower this year, but what are you thinking about over the next 18 months from a retention rate standpoint?
spk00: Well, we're in front of just about every one of these tenants, Steve, as you would expect. We expect to keep many of the tenants that you outlined having lease expirations over the balance of this year and into 2022. We typically lease space 12 months in advance, but we're in discussions with these tenants typically in advance of listing space. And our expectation is that we will keep the majority of our existing tenants.
spk09: Steve, let me just say, with respect to 2022, you should... I should point out that on that 334,000 square feet that's expiring in 2022, that includes 81,500 square feet at share of Deutsche Bank. So 25% of that activity is a non-vacate. So you're really, the number you're dealing with in 2022 is 250,000 square feet or so that is the real activity that we'd be looking to attempt to renew.
spk04: Okay, thanks. And maybe as a follow-up, Peter, just, you know, as you're talking to tenants, and I realize that, you know, people's return to offices has been a bit slower. The Delta variant may create a little bit of havoc, you know, coming into Labor Day. But, you know, what kind of discussions are you having with tenants on kind of space needs, expansion opportunities, reconfiguring existing space? You know, just what are the discussions like with tenants on that front?
spk00: I think tenants are raising the bar, much like how landlords have raised the bar themselves, amenitizing their buildings and so forth. I think tenants are looking to improve their space in new and innovative ways to not only compel their employees to come back, but to enhance the overall experience. I think more and more tenants acknowledge the importance of the office, and the only way for these companies to realize their full potential is to get people together. And so they're looking, and Centerview is a nice example of that. They've taken additional space. They're thinking very creatively about how they're going to create a floor that is more communal in nature, that brings people together, that allows them to attract talent in new and different ways. And they're really at the forefront, and we're seeing more and more tenants think more critically about how we can build really very dynamic space. No longer is it acceptable to deliver a bland space with a sea of cubes and beige walls. Tenants are thinking very creatively now about how they can enhance the overall experience of being in the office and as a result realize their full potential.
spk04: Okay, thanks. And then maybe just last for me on the Barclays space, I realize you guys are working hard to backfill and I realize size of tenant will matter, but, you know, just given kind of where you are in the various discussions with tenants and realizing you don't know which deal you'll make, you know, what is a realistic at this point, you know, if you were still able to get some leases signed by the end of the year, you know, what's a realistic kind of start timeframe for a lease for that space, you know, from a kind of a gap revenue perspective?
spk02: Steve, as we have discussed over the years, These are large spaces, and they normally take their time to get negotiated, especially in New York. And so you have to expect that we put out the goal that we would rent half of the space, of the vacant space, and we stick to that. And you should expect that you will do more in the second half of this year, and that's where we are at this point. So we don't want to give you much more in detail. You will most probably not get much of revenue this year at all on that space.
spk09: I think, Steve, you were alluding to would we be recognizing gap revenue really in the second half of 2022, and assuming we... we hit, which we believe we're going to, you know, do what Albert outlined in terms of our goal for year end. But let's assume a deal gets done in this year. I think the expectation that the second half of 2022 would be revenue producing from a gap basis is entirely realistic.
spk04: Great. Thanks, Wilbur. Appreciate it. That's it for me.
spk02: Thank you, Steve.
spk08: And our next question is from Vikram Malhotra with Morgan Stanley. Please proceed with your question.
spk03: Thanks so much. Good morning. Maybe just first one on the pipeline you've outlined, you know, tenants, you know, looking at spaces that are vacant this year or maybe expiring next year. I remember last we spoke, you had outlined more demand from small and medium-sized tenants. Can you give us a flavor of kind of the pipeline today, maybe by size and sector? Sure. for yourselves?
spk00: Sure, Vikram. This is Peter. I would say that we're seeing quite a bit of activity from financial service tenants. They're, in our experience, leading the charge. I think it's been reflected in the statistics that they represented I think 40% of contributed approximately 40% towards leasing velocity year to date. And so we are seeing more than our fair share of financial services I think just because a function of our product is such that we are also seeing large tenants, right? Of course, 1301 being our primary focus, there are large tenants in the market as well. But the point I made previously holds true, which is we are seeing quite a bit of demand from smaller to mid-sized tenants as well, probably financial services, but not in its entirety. We are working to convert prospective tenants that represent other industries aside from financial services or call it the fire sector more broadly. but generally we feel that activity continues to increase week after week, and we feel generally pretty active in our portfolio.
spk02: And you see a little bit of a flight to quality. You see tenants that take this as an opportunity to get into a Class A building. Tenants are very focused on the safety and security of their employees in the future, and That's where we are focusing on as a company to offer the best product there.
spk03: Okay. And then just the expectation, I know at the TD space you had a nice roll up on a cash basis. I'm just wondering like how representative is that of sort of your other big vacancies, you know, just new or updated thoughts on where the mark to market could shake out for the Barclays space?
spk02: Every building is different. It's like if you have children, you have a couple of them, every child has a different character. So every building has a different character, and every lease is different. And sometimes you have raw space, and of course you have to invest more capital to get it leased, and some assets are... in higher demand, so it's very hard to, you have to look at asset by asset here.
spk03: Just specifically on the Barclays space, what's the latest relative to maybe where you started the last year at?
spk09: I think the expectation, Vikram, is still the same. I think in a pre-COVID environment, we thought it was going to be a low double-digit uptick in mark-to-market, and I think we're now in the mid-single-digit uptick with respect to the Barclays space. Nothing has changed in our view relative to where we were when the year began.
spk03: Okay, great. And this last one, Wilbur, for you, can you just clarify – Two things. One, the $5 million termination income, how much of that actually is at your share impacting your $0.22? And then is the – I'm assuming the termination income is backed out so the 3% same store is excluding termination income.
spk09: That is correct. So on the same store question, we typically do not include termination income as part of our same store. So if you look at our reconciliations, there's a negative adjustment that backs out the impact of that termination income to arrive on an apples-to-apples basis. That same store is organically up 3%, excluding termination income. With respect to the impact of that on earnings, that $5 million was at an asset in which we have a 31.1% interest, namely 300 mission. And so our share of that was about 1.5 million. So the contribution is really half a cent with respect to this quarter's beat in terms of how termination impacted this quarter's numbers.
spk03: Great. Thanks so much.
spk09: Sure.
spk03: You're welcome.
spk08: And our next question is from Derek Johnson with Deutsche Bank. Please proceed with your question.
spk07: Hi, everybody. Good morning. It seems that expectations on leasing for full year 21 from the guidance range has upticked a little bit. The low end, I believe, went from 600,000 square feet to 700,000 square feet. And this kind of leads us to believe that you guys are becoming incrementally more positive on maybe perhaps the vacated Barclays space. Is it a fair question if I ask if you guys are trading paper at this time?
spk02: Well, I mean, trading paper is a long process, as I just mentioned a minute ago. In New York, these kind of leases, especially the larger ones, take a while. And I think Peter has pointed out that we are having proposals out, and I think that's as far as we can go. But we feel generally more optimistic as we were in the beginning of the year. Yes, we do. In both of our markets, the activity on the leasing side has picked up, and that's why we feel comfortable to increase that target for this year. Okay, great.
spk09: Maybe just to add some color on the leasing guidance bump, as you noted, we bumped the lower end. That implies a 50,000 square foot. bump at the midpoint of the guidance, and part of that also stemmed from a lot of the renewal activity we did this quarter, which, you know, when we originally came up with our guidance assumptions, we weren't sure whether those tenants would renew. And that has a direct impact on earnings as well. So if you noticed on the core FFO guidance, we bumped a penny because of straight-line rental income. that is directly related to that leasing guidance bump as well, right? So you had renewals, which otherwise would have been vacation, you know, space that would have been vacated, rather, and that would not have contributed to a straight line increase in the current year. But that space got renewed, and as a result of that, we're picking up some straight line in the back half of the year.
spk07: Okay, great. And then San Francisco has, you know, certainly rebounded more slowly probably because of the prolonged lockdowns. But where do you see demand coming from? Is it coming from the traditional tech tenants? Are you seeing, you know, more fire activity in leasing in San Francisco? And when do you really think we'll see an inflection point of leasing demand in that city? Thank you.
spk00: Derek, we're seeing, you know, venture capital funding has reached record levels most recently in the second quarter, just shy of $4 billion raised by San Francisco-based companies. So, we're seeing a lot of early stage technology companies that are the recipients of all of this capital expand in the market. We're also seeing a lot of private equity and financial services tenants that are choosing to upgrade the quality of their research, of their real estate, rather. And so, we've been very active, in fact, At several of our buildings, we've had competing offers that we've now advanced to lease negotiations. So I would say it's predominantly financial services and early-stage tech that have been most active in the early going in our experience.
spk08: And just as a reminder, if anyone has any questions, you may press star one on your telephone keypad. Doing so will ensure you're spotting the question and answer queue. And our next question is from Jamie Feldman with Bank of America. Please proceed with your question.
spk05: Thank you. Good morning. So I guess as we think about Labor Day and it's coming back, I mean, what are your expectations for utilization in the portfolio? And then also, you know, how do you think that's going to affect operating margins?
spk02: Well, we as a team, the Paramount team is back 100%. So we want to be leading by example. We know from, and we are surveying our tenants by our property managers being in close contact with all of our tenants. We get an indication that after Labor Day, over time, companies are getting back to hopefully by end of the year somewhere around 60% or so occupancy and some of them are doing part-time still work from home I think it also depends a little bit whether the Delta variant is making a major major spread into New York and San Francisco currently it looks like because of the high vaccination rates, it's not going to be an issue, but I think that might tend some of the tenants to be a little bit more cautious. We see a gradual uptick already now, and we're looking optimistically into the second half of the year for this.
spk05: Okay, thank you. That's helpful. Yeah, you know, clearly the Delta does make some questions. I guess But I guess, are you saying the normalized rate, you think, whenever things do get back to normal is 60 or no? I'm just trying to think of apples to apples. What was it before the pandemic and what do you think it returns to based on what you're talking about with your clients?
spk02: Yeah, that will be more into 2022 if you look at before COVID occupancies will be more 2022. I'm saying it's gradually... picking up, especially after Labor Day. And you have seen the announcement that we have seen, and we hear it from our tenants directly. Some of the service tenants might opt to, especially law firms, maybe take a little longer time to work full-time back in the offices, and others want to be back. We have one tenant who is back 100% and has been even during the lockdown coming to the offices. So each tenant takes it very differently. Our tenants seem to be careful and want to manage it properly. But I think with the vaccination rates picking up further, this will be coming to normal in 2022.
spk09: And, Jimmy, maybe just to dimension it a little bit, I mean, our physical utilization in our buildings and our portfolio today covers around 20 percent, right? And we've seen that gradually uptake over the summer to where we are today. And as Albert said, even in his prepared remarks, you know, we expect a meaningful uptake post-Labor Day. Obviously, there are other factors that could derail that, but based on where our expectation is, you're going to see a meaningful uptick from the levels we are today, post-Labor Day. And as far as returning to a pre-COVID utilization, that's realistically a early 2022 kind of scenario.
spk05: Okay, that's helpful. And then I guess, Wilbur, as you think about getting back to normal and, you know, the cost of operating this building, do you think you just go back to your kind of pre-COVID operating margins or NOI margins or? Do you think there's something incremental?
spk09: Yeah, there is incremental. I mean, you saw we bumped guidance. We talked about better than expected portfolio operations. That was really stemming partially from low operating expenses, the better operating margins in the first half and what we see thus far into the second half. What would help us to achieve the high end of the guidance would be, again, in one way, depending on how people come back and the velocity at which they come back. over the second half of the year. We don't think operating expenses go back to pre-COVID levels until 2022. So we have baked that. We fine-tuned that in our re-forecast and caused us to update the numbers now. And we'll continue to pay close attention to that and update you on the progress when we speak next time.
spk05: Okay. Okay. Thank you. And then as you think about San Francisco versus New York and the return, I mean, do you think there's going to be a meaningful lag in San Francisco for San Francisco tenants versus New York tenants?
spk02: There is a meaningful lag already now, Jamie. In San Francisco, it's currently about 7% to 10%, the occupancy of tenants in our space. And even so, the vaccination rates are substantially higher even than New York. I think it's a different kind of culture that you have in California and maybe some of the technology tenants being more used to working from home. I mean, even before the pandemic hit, many financial institutions had, and nobody talked about work from home that much, but they had a policy that people could take the work from home a day per week. But we see in San Francisco that they're picking up steadily, very quickly. And so I think they will be behind New York this time, but I think they will come the same way to pretty much to the same occupancy levels.
spk05: Okay. And are you seeing any real difference in how tenants are approaching their space usage, whether it's, you know, space per employee or? you know, more flexibility on hybrid or just, you know, just thinking about the demand side of things as we get out of this.
spk02: I think it's too early to say, Jamie. We have, I mean, you saw our tenant, you saw that Centerview took another floor and then that's a tenant who approaches it and they want to give their employees a very, you know, very vibrant and flexible space, and they want to make sure that there's enough space to collaborate and meet, but also have privacy. And I think that will be more important in the future. I think benching will be more limited. So I think companies will be more focused on giving their employees space and flexibility. And I think that will combat that some tenants might think about reducing their space. You have other tenants who increase their space. So I think it's too early to say how this all plays out. We are optimistic about the ultimate outcome.
spk05: Okay. And then I guess, Wilbur, any early metrics you can provide on the refinancing? Sure.
spk09: We are, Jamie, as we speak, we're in the process of dotting our I's and crossing our T's I think we'll have news to report on that by the early part of next week. I will tell you this, as you've seen through the guidance, obviously we've factored the impact of that refinancing in our guidance. It will be a full dollar-for-dollar refi, so there's going to be no cash utilized from balance sheet to pay down that debt, and we receive tremendous interest in the market. Pricing is was very tight. And so we're very, very happy with where the deal has shaken out. And, you know, like I said, we will report on this by the early part of next week.
spk05: Okay. All right. Thank you very much. Thank you, Jamie.
spk08: Our next question is from Blaine Heck with Wells Fargo. Please proceed with your question.
spk06: Great, thanks. Good morning. Wilbur, just to follow up on that last question, just want to confirm, it seems like there are no contingencies related to leasing at 1301 associated with that refinancing. Is that correct?
spk09: Yeah, there's no contingencies, as I said, Blaine. I mean, it's an $850 million loan that just became freely preparable earlier this month. It's going to be a full dollar for dollar, maybe a slight up refi to account for some of the transaction and closing costs. And that's it. No other contingencies.
spk06: Great. That sounds good. And then, Peter, we talk a lot about 1301 and 31 West 52nd on these calls for good reasons. But there are also a couple of other assets that you guys have an opportunity to move the needle through leasing. Can you just touch on any interest you're seeing at 903rd and 111 Sutter?
spk00: Sure. 903rd, you saw we completed more deals during the quarter than any other building, seven deals in excess of 85,000 square feet. So we were very active at 903rd in the most recent quarter. And we're trading paper with other tenants that are seeking full floors at the building. So you are right. It represents an opportunity for us to increase occupancy, and we're heavily focused on that. I would throw in another building at 1325 where we've got some really nice activity and our couple of vacant full floors at the top of that building. So while we always talk about the fact that we're hyper-focused, of course, on 1301 and 31 West, which you know we are, There are other opportunities at other buildings to increase occupancy. They show exceptionally well, as you would expect, and we have some really nice activity on them. Same goes for 712, where, as I mentioned earlier, financial services are leading the charge. 712 has really seen a huge, I would say, increase in the amount of activity by way of tours and exchanging of proposals that we've had there. 111 Sutter, of course, has an occupancy well below our expectation for the building. We did suffer some move-outs most recently. I will say that activity is coming back slowly in San Francisco, but is increasing, I will say, over the last several weeks. And we have some real interest at the property on a couple of full floors. So we're working very hard to convert and increase the occupancy level at 111. It's a building that appeals to tech companies. It's ornate. It has a wonderful history. and it certainly has a real presence in the market. So our expectation is that as this funding continues to fuel these especially younger technology companies that will be the beneficiaries of that.
spk09: Blaine, let me just say this, you know, to put it in perspective, you're absolutely right, 111 Serta is sitting at well below occupancy rate that we are accustomed and we would like. That said, it is the smallest building in our portfolio, and it's a building that, you know, we own a part of. So when you look at an $8.5 billion company or so, that building and that share is less than 1% of our gross asset value. So as much as we're focused on this, you know, not to lose perspective of the impact, what that means to our bottom line. I think it's important to dimension that.
spk06: Yeah, sure. That's fair. Okay. And then last one for me, Albert, can you just talk about what you're seeing on the fund side of things? As you said, the core deals are getting, you know, relatively strong bids, but you know, there haven't been too many value-add type opportunities yet or, you know, commodity type buildings that have traded. Is that really hindering your ability to put capital to work? And what do you see on that front going forward?
spk02: Yeah, I mean, you're correct. I mean, we wouldn't be interested in buying a core asset through the fund business. The funds are focused on value-add or opportunistic investments. there hasn't been much opportunities in that segment. So that might change because some of the B buildings seem to be suffering more than the class A buildings. But for the time being, there haven't been that many opportunities there.
spk06: Great.
spk02: Thanks, guys. Thank you.
spk08: And we have reached the end of the question and answer session. I'll now turn the call over to Albert Beller, Chairman and Chief Executive Officer and President, for closing remarks.
spk02: Thank you all very much for joining us today here. We look forward to providing an update of our continued progress when we report our third quarter results during the fall. Goodbye.
spk08: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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