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spk00: Thank you, everybody, for joining us, and welcome to NSO Green Realty's Corp. Fourth Quarter 2021 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. You should not rely on forward-looking statements as predictions of future events, as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risk uncertainties and other factors that could cause such differences to appear are set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The gap financial measure most directly comparable to each non-gap financial measure discuss and a reconciliation of the differences between each non-gap financial measure and the comparable gap financial measure can be found on both the company's website at www.slgreen.com. By selecting the press release regarding the company's fourth quarter 2021 earnings, and in our supplemental information filed with our current report on Form 8K relating to our fourth quarter 2021 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. I will now turn the call over to Mark Holliday. Please go ahead, Mark.
spk13: Thank you, and good afternoon, everyone. Before we begin, I want to express our sincere condolences and deep sympathies to the families of Officers Rivera and Mora, who gave their lives in the line of duty. At SL Green, we work hand-in-hand with the NYPD, FDNY, and other first responders, and we support their efforts in every way we can, day after day. There's an outpouring of support at St. Patrick's Cathedral right now, and there will be more in the coming days and weeks as the new administration works with the state to make public safety the number one priority in the city. Everyone has a role to play, and I'm confident we can and will move forward from this. Now we appreciate the opportunity to discuss with you our company performance and financial results for the fourth quarter and full year 2021. After a solid December, in the office market. We had a bit of a reset in January, which is not atypical after the holidays, but most businesses in our portfolio expressed their intentions to return to the office in February, and by March, we expect to be back at the same levels we saw in December, if not beyond that. The Omicron virus seems to be dissipating as fast as it arrived, and we are hopeful that February, we will begin to return to normal. Those questioning the ability of New York City to rebound need look no further than the resurgence in 2021 of the residential markets, which saw record high-end condo sales and 1% vacancy in rental apartments as young people returned to the city. Our newly completed rental project at 7 Day Street supports this thesis, as we have now signed leases for over 100 units at average rents just shy of $100 per square foot. On the employment front, New York City added another 8,000 office-using jobs in December, bringing the total December to December job gain to 61,000 new jobs. We have now regained just over half of all office-using jobs lost during the early days of the pandemic, and there are approximately 50,000 additional jobs forecasted to be created in 2022, which should help to begin to reduce office vacancy rates in Manhattan. And in some of the submarkets, we've already started to see those contraction. We remain optimistic about hitting our ambitious leasing goals for 2022 on the heels of signing 250,000 square feet of office leases after our December investor conference. And notwithstanding, having grown our pipeline to almost 1.3 million square feet today from just about 1,050,000 square feet in the beginning of December. Positive takeaway is that companies continue to see the office as the central and necessary hub of business activity and are making long-term commitments and expansions within the portfolio that vastly outnumber contractions. It will take some more time to work through the system and get past the disruption of the pandemic, but with the new mayor, the new governor, and the business community all coming together and playing significant roles in the recovery of the city, We have every expectation of a rapid recovery and another demonstration of New York's extraordinary resiliency. Seven weeks ago, we hosted our December investor conference at One Vanderbilt, and we did a deep dive into our goals, objectives, and expectations for 22, which we reaffirm as we sit here today. As usual, we covered a lot of our 2021 accomplishments. which I think we're a sector leading in New York in many different respects of leasing, transactions, operational performance, and contribution to the city in the form of openings of the summit, Le Pavillon, and other things that turned out to be extraordinary successes and I think demonstrated the leadership we have and commitment we have to this market. And, you know, accordingly, as is our custom for the January call, we're going to go right into the Q&A and get questions as everything we talked about in December is still relatively fresh and happy to address anything we covered then or anything new as a result of the release we put out last night. So with that, we'll turn it over for some Q&A.
spk00: Ladies and gentlemen, to ask a question, you will need to press the start and the one key on your touchdown telephone. To withdraw your question, press the pound key. In the consideration of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Now, first question coming from the line of Michael Lewis with True Securities. Your line is open.
spk06: Great. Thank you. My first question I wanted to ask about flight to quality. And so, you know, yesterday on Boston Properties Call, they used San Francisco as an example with market vacancy well over 20%. But when you look at the top 25% of buildings, it's more like 5%. Another example, I was in Atlanta recently where the office vacancy is above 20%, but the REITs there are, you know, below 10%. So I wanted to ask it, you know, about New York and about SL Green, you know, your competitive set, how you think about, you know, maybe your investable universe used to be the top half of buildings in New York and now it's the top quarter or something like that. You know, do you think differently about any of the assets you own or about how you want to concentrate the portfolio now?
spk10: You know, I would start off by reminding you that when people talk about the that's not unique to just new construction or the very, very top 1% of the marketplace. What we're seeing is throughout our portfolio, given the fact that our portfolio is highly improved throughout all of the buildings, with the exception of a couple of buildings that we have in redevelopment, we're seeing a migration of tenants coming into the building. Of that 1.3 million square feet that Mark spoke of, of pipeline, probably 85% to 90% of that are new tenant deals. So, you know, I think sometimes people get confused that we've had such great success at one Vanderbilt, and therefore that's the whole show. But in truth, we're already seeing the benefit of a redevelopment plan at the Lipstick building where we have two full floor leases out, and we haven't even picked up a hammer yet to start the work. but off of the plan that we've got, tenants are coming to the building. We're seeing increased activity throughout our other very high-end buildings like 100 Park Avenue, 461 Fifth, 1350 Out of the Americas. So you can go down the list of the portfolio, and the better quality buildings, particularly midtown transportation-centric located buildings, is seeing a lot of the activity in the marketplace. And the last point I'll drive home is to say, you know, we said at our investor conference we had more gas in the tank between then and the end of the year to get to our target of 93% occupancy. And, in fact, we signed those leases to hit that bogey.
spk13: Yeah, and on that point, I think the statistic you mentioned in San Francisco, 20% vacancy, 5% for the top, you know, the same statistic is right in front of us here at SL Green, that this market – Manhattan market has a vacancy rate of 16 to 18%, depending on what source you use. And our portfolio is only 7% vacant and shrinking. So, you know, that same story is there, but that, that 7% vacancy rate isn't just our top buildings. That's every building combined on average.
spk06: Okay, great. Thanks. And then my second question, I wanted to ask about the risk reward in the DPE book, you know, the, the rising interest rates have been a theme to start the year. What do you think about, are you seeing investment yields start to creep up and maybe there's some opportunity there? And then on the flip side of that, how do you think about the value of your current holdings and the value of what you own?
spk12: Well, our portfolio is mostly floating rates. So I think the value of the portfolio is very much intact. There's not much as the 10-year rises, if at all. And we are seeing more structured finance opportunities, but that's mostly based on just increased transaction volume in Manhattan, more so than, you know, sort of as a result of rates rising. Okay, thanks.
spk00: Our next question coming from the line of Alexander Goldfarb with Piper Sandler, Yolanda Salton.
spk03: Hey, good afternoon. Mark, I just want to go back to your opening comments on the new governor, new mayor, and obviously Albany. New mayor is awesome. There definitely seems to be some tension with Albany as far as bail reform, but one of the items that came out late last year was a proposal to do a billionaire's tax and tax billionaire capital gains at normal income, which I'm guessing would lead to other taxes that perhaps Albany would like to pass. So in your discussions in the business community in New York, crime and street safety is one element, but there's also the regulatory and tax element as well. what's your sense of what Albany may do, and are they listening to the business community and what really drives the city as far as the companies that take residence versus migrating to Florida or elsewhere?
spk13: Yeah, I mean, I do think so. This year, uniquely among years, the state is flush with cash. I mean, that's the good news. It came out with a budget in excess of $200 billion, so the highest budget it's ever proposed, and we'll see as it gets negotiated and finalized. But it was able to be proposed in a way with very little in the way of any new revenue enhancements because the combination of surging business profits in New York State and also personal income taxes in New York State as a result of rising compensation bonuses is leaving state and city coffers relatively flush going into 22, and I think that will carry into 23, and that's something I talked about, you know, in December about the... And the stimulus, you know, and ongoing. So, you know, there was the stimulus plan that Chuck Schumer was able to bring, the $100 billion stimulus plan, And now the infrastructure, you know, on top of that, which I think will be multiples, and again, all of that which we sort of reviewed in December, I think that, you know, the tax, the business activity, the tax collections, the stimulus dollars is all pointing to a moment where there's not a lot of discussion on the table or need, more importantly, for any kind of regressive revenue enhancements. And so I don't think we'll see that. I think the state of the state that Governor Hochul gave two weeks ago, you know, hit on many of the right issues in terms of wanting to work with the city and this new administration on the topics that we talk so much about, making investment in infrastructure, I think there's a lot of common ground there, no matter where you stand, on what side of any political or social leanings. Affordable housing mandate to come up with new and creative ways to modify 421A in a way that will create more and better affordable housing while also creating an economic framework that developers can help, the private sector can help deliver that. you know, in public safety. I think, again, I put it right there as priority one, working, um, with the mayor in a very concerted way to put, uh, higher presence, uh, of boots on the street, in the subways, in mass transit to, uh, you know, just to reinforce and get, you know, right back to where New York was not, not long ago and where we will be again very soon, uh, because we know how to get it done. And now I think there's a will to get it done. So I'm pretty optimistic, Alex, you know, that, uh, the soundings coming out of both City Hall and Albany are in line with the kinds of things we want to see in here.
spk03: From your lips to Albany's ears. Andrew, on the Mez book, on the DPE, you guys had a four-cent write-down. These were prior positions, I think, or maybe not, but what was the composition of these write-downs, and then in general, The DPE book has been, you know, hugely successful over time. And at the Investor Day, you spoke about first mortgage hunger that was sort of cashing out a lot of positions, you know, so workouts or write-downs weren't required. So maybe just a little bit more color on what's driving these write-downs and if these are new write-downs or positions previously written down.
spk12: Well, I mean, they're on previous positions. You know, the book had an enormously profitable year, and, you know, we take a conservative approach when we think there's, you know, any type of potential for a future write-down. You know, we like to make sure that it's covered and reflected and, you know, the income that you're looking at for the year is sort of net of any potential offset. But the book, you know, had a very good year. We had some very large payoffs. We had a large payoff after the investor conference on a development position we had on 72nd Street. And, you know, as I said on the call previously, we're seeing very good new opportunities, and we'd expect to be able to hit our target we laid out to you in December or exceed it for originations for the year.
spk03: Okay, thanks.
spk00: Our next question coming from the line of Caitlin Burrows with Goldman Sachs. Your line is now open.
spk11: Hi. Good afternoon, everyone. Maybe just a question first on the return to office. I know you mentioned how companies that were planning to return in February where March could be back to December levels or possibly higher. I guess what's your outlook for further improvement of physical utilization and what have recent conversations with tenants who maybe weren't yet back in December been like? And then more importantly, how important do you think that kind of near- to medium-term return is to Ethel Green's business long-term?
spk13: Well, you know, it's hard to get a barometer on the pre-pandemic levels because I think people have in their mind this notion of 100% benchmark, which is, you know, far, far from the reality of what space utilization is. And as best I can tell, anecdotally speaking with – all of our tenants, which isn't a bad sample because we have, you know, 900 plus or minus tenants, is that between PTO and holidays, sick days, traveling, you know, people travel for their work and, you know, did and still will. You know, and there was an element of remote work even before a pandemic. It's not, you know, it's not a completely new science that, an average day would be somewhere in the 70% occupancy range. We can't, you know, I don't have hard statistics on that, but I can tell you that I'd say everything I hear is either right at that level or in the 70 to 75% level at max. Some companies are different. They have higher capacities and some are less. But I think that's a good average. So, When we talk about, you know, approaching 50 percent occupancy, physical occupancy in the near term, that's a good ways back. And, you know, what it'll take and how long it'll take to get from that 50 to that last 75, you know, I think that's just, as I said earlier, it's just going to be a matter of working through the disruptions of the system and a recognition that many firms will, at least for the time being, work some increased element of flexible remote work into their program. But we're still hearing almost across the board that the majority of days will be in the office. So whether a company is going to go to a three-day work week in office, four-day work week in office, or five-day, averaging maybe four days or so, everybody has a desk. Everyone's got a landing station. And these same companies that are talking about some element of a hybrid work model are the same ones who are signing 10, 15, 20-year leases and generally expanding. I think our expansions outnumber our contractions by like five to one. That's in terms of square footage and maybe four to one in terms of number of deals. So The larger deals, it's even more pronounced that the expansions are outnumbering contractions in our portfolio, 4 to 1 or 5 to 1. And we looked at over 200 transactions. We did 200 and some odd leases in 2021. That's just office leases. And so, you know, that's a very good sample set. And I think that this year the confidence factor is going to be even higher. And, you know, we – have a rising occupancy. So, you know, it will, I don't know if it's going to have an impact on our portfolio. It is going to have an impact on the way companies work. And I think it's an impact for the better. It's part of this whole shift in what we deliver to tenants being not just a deliverer of commodity space. We never approached it like that. But now more than ever, we are, you know, going to make every effort possible to demonstrate leadership in this industry by giving workers every reason to want to be in the office. Maximum efficiency, health, safety, wellness, food and beverage amenities, lounges, town halls, some fun recreational items, workout, spa, wellness. It's all part of this new package of delivery we're working into every one of the buildings we own And the feedback from tenants and tenant employees is that they love it. You know, the vibe is great. People have more incentive. They feel better. And, you know, I think we will, over time, you know, get back roughly to pre-pandemic levels, but for whatever kind of shifts there are that might, you know, insert more remote flexibility. But I don't think there's any question in my mind. about the office as the central hub of everything that, you know, that takes place in the workplace. And, you know, the sense of community mentorship, training, and business generation, I don't see that being degraded. But, you know, time will tell, and we'll see the results. But the early indicator for me is the leasing. And the leasing right now, both in terms of the 1.9 million square feet we signed last year and the 2 million square feet we're projecting for this year, you know, we think says it all.
spk11: Got it. And maybe then a follow-up question on a different topic, other income. It looks like that came in materially higher than expected in 4Q. So just wondering what that might have been driven by. And as you look out to 2022, it seems like you're expecting that to be significantly less than 21 and 2020. So just wondering why you think that may change.
spk14: It's Matt. So, you know, the other income line, I think, was roughly $7 million better than we expected. In the fourth quarter, meaning most of the other $19 million was expected significant contribution from the fees and income we got from the JV at 1 Madison. And the increment was some incremental leasing commissions and fees we received and also better performance at the summit than we had expected, which flows through, in large part, other income.
spk11: And so when you think about 2022, is it that part of that, I guess, was just one time and it could be lower, perhaps there's upside opportunities?
spk14: No, comfortable with the guidance we put out for 2022 and other income.
spk00: Okay, got it. Thanks. Our next question coming from the line of Manny Kortman with Citi. Your line is open.
spk08: Hey, good afternoon. Thanks. Mark, if we want to spend a couple more minutes on this utilization or census question, a couple questions there. One, have you seen a difference in utilization actually of people coming in from the companies that have signed new leases more recently? Are they signing new leases and then trying to bring people in, especially on the ones that have expansions? Are you still in those lower building census numbers there? And then secondly, as you sign new leases, and this might be one for Darrell, are they thinking about that same 70% on average, or are they trying to boost that number? And so you might have the same number of people, and you might have the same number of same square footage, a lot of the people, but you're actually taking less space because you're just driving that utilization up. Thanks.
spk13: Well, you know, in trying to answer the first part of that question, I would just say that the space plans, that we've been presented with and what's being built new, you know, is very, it's well-amenated space, it's highly efficient space, you know, and it's space that I think they intend will be fully utilized. I don't think these companies are building with the intent that they're building with the expectation that all of that space and all of those desks won't be utilized. In fact, I just, I want to caution that everything is an average. We have many tenants in front of us right now, part of that 1.3 million square feet of pipeline, who are at their limits in terms of whether who's back in the office. A company like us, we're 100 percent back. There are others that are predominantly back. And there are some that have such enormous expansion needs that even when they're underutilized, they're still in the market. We've got deals over at, you know, I'll just say in the Grand Central Park Avenue area, Steve, where we were talking the other day, two tenants both expanding, competing for the same space.
spk12: Both of those... 30% to 50% expansion.
spk13: I was going to say, those were, you know, I thought they were both 50%, but Andrew notes 30% to 50% expansions per tenant, and we can only accommodate one of those two, just given the nature of the building where that's coming from. And it's not one Vanderbilt. So, you know, I do go back to what I said, which is when these tenants are very sophisticated, with sophisticated real estate groups, and they do a lot of planning, and when they sign these 10-, 15-, 20-year commitments, and they lay out their full floor plans with desks they expect to be occupied, and they come and they say they've got these significant expansion goals, Yeah, I think they have every intention of bringing people back and populating those work areas because they would not be acting that way otherwise. And in terms of who we see doing it, we absolutely saw that. The vibe in the city in December was great. Like I said, we had a reset in January, confluence of events. But We'll get past that quick, I believe, in Feb, March, April. We will be there. So, you know, on the next call, give me the same question again.
spk04: Hey, Mark. It's Michael Billiman here with Manny. I just wanted to ask a question just about the sort of transaction market and investors. You know, last year when we talked about this subject, you talked about maybe a limit of maybe a $500 million check from an individual investor to go into a office transactions. We've certainly seen the upper end of the market, just like on the leasing front, that the investors are more looking at higher quality buildings, newer buildings, environmentally friendly buildings, and those deals are getting done. Where do you think we are in terms of investors maybe enlarging the scope of office assets that they're looking at, and maybe even looking at portfolio-type transactions that And just comparing it to some of the other property sectors, like whether it's single family or multifamily or industrial and data centers and infrastructure where we're seeing multi-billion dollar commitments almost on a weekly basis, it just doesn't feel like the office market has turned to that same scope. And so I want them to sort of get a little bit of the color that you're seeing from the institutional world.
spk13: Okay. So, I mean, let's switch to a discussion about, you know, what we're seeing on the – things we've, uh, recently transacted on the money raising efforts, uh, that we're undertaking right now, both, you know, for, uh, pipeline activity and just general future activity. Uh, Andrew, why don't you sort of cover as much as you can.
spk12: I think we have an active market for, you know, non-trophy properties as well as evidenced by one tennis 42nd street, which we closed in December. Um, and, uh, you know, 1080 Amsterdam and, and many of the other sales that we closed last year, you saw the, uh, Columbia property trust portfolio, which, you know, many of those buildings are certainly not, uh, they're masonry type buildings and not all glass and steel buildings. Um, and, you know, I think there's, there's a thriving market right now for, for large assets and small assets. Um, And across the property types we have here in New York City, obviously it doesn't speak to data centers and single-family homes, but there's a lot of liquidity out there for transactions large and small. You saw H. Spruce, a large multifamily asset, trade to Blackstone. You see One Manhattan West, which is going to get recapitalized. There's 452 Fifth Avenue, the HSBC headquarters. So there's a tremendous amount of capital markets activity out there, you know, on development deals, on cash flowing deals, on partially vacant deals. So we see a very active investment sales market. You know, in terms of the multi, multi-billion dollar portfolio deals, you know, I guess Columbia Property Trust would be the closest thing we've had to that. There just hasn't been that type of offering out there.
spk04: Right. I mean, you'd want to point to more than one. That was sort of the framing of my question of whether that's starting to open up and whether you're starting to have more serious discussions on finding that investors want to get more appetite. But I'll turn it over to the other questions, and I'll see you down in Florida. Great. See you there.
spk00: Our next question coming from the line up, Thanks.
spk09: A lot of questions on leasing have been answered, asked and answered. But, you know, Mark, maybe just on the summit, you know, I didn't know exactly what you were planning to do from a disclosure standpoint going forward. I don't know what you can share with us about the activity levels in the fourth quarter. And what is your expectation, if any, or what's embedded in guidance for 22 for the contribution from the summit?
spk13: Sure. Well, what I can share on the summit is it's unbelievable. It's fantastic. We opened it October 21st. It exceeded every lofty expectation I communicated to you in the prior years, not just in terms of the financial performance. This is as successful as it will be financially, you know, it's an important addition to New York and the destination entertainment sector because of its uniqueness. It's very out of the box. It was a little bit risky, but now obviously, you know, we look back and, you know, we think we hit it exactly right in terms of The customer experience and the journey and the uniqueness of what we've created, and everybody experiences it a different way, and that's kind of the beauty of it. Some people come individuals. They come in groups. There's people lying on the floor, and they'll video themselves and everything going on for hours, the dwell time period. for some people might exceed two hours, depending on how they want to experience Summit, which is everything about the view outside but being brought inside and the way that is all curated and amplified with the artistic input and creation of Kenzo with the various mirrored transcendence rooms and the air at night light show and the soundtrack curation. It really is wonderful, and it's something people are coming back to again and again, which is very atypical for this market to have people coming back two, three, four times in a very limited period. We only opened this October 21st. Our average capacity sellout was about 95%. on average, from October 21st through the end of December. Most of December was even higher. It was probably like 97%, 98%. And this industry typically has a very significant drop-off in the first quarter after the holidays, and yet we are still experiencing great numbers for January. We sit here today already beyond our January projections, which were already increased when we sat with you guys for the December investor conference. So, you know, that's just a little bit about the summit and, you know, more to come. But you should also note that that capacity I mentioned is kind of self-limited because we are only open right now about five days a week, and we've curtailed the hours on a We have demand. We can and will extend hours and add a day probably at the end of the first quarter. I would expect sometime in April for us to do that. I think it's the right time for that. And, you know, we want to lean into this very gradually. This is not the summit's going to be here for a long, long time. It's going to get better and better over time. And we want to make sure that experience is as good as it can be. In terms of numbers, you know, Matt, I don't know what you want to – I mean, there are 22 guidance. Most of the numbers are embedded in the lease payment. That's the way this deal is structured. The operating company has some contribution to FFO, but probably just a few cents a share on the OPCO. And the lease itself, you know, in the projections we've shown you guys previously and over the years, some at bottom line FFO contribution – was always about in the range of 20 to maybe 20, you know, 4% of the bottom line for OVA. And so, you know, it should meet, you know, we over, we exceeded on our rental assumptions, and we're exceeding on our summit assumptions, and hence that 20 to 22, 3, 4% contribution to bottom line should be holding up, but Matt, I'll...
spk14: Yeah, that's spot on. In our 22 number, we had expected around $100 million of GAAP NOI off one Vanderbilt, our share. And, you know, 20%, 25% comes from Summit. And the operator has, you know, a modest contribution of, you know, two, three cents in our 22 guidance.
spk13: Right. And that will be increased in 23 and beyond as we add hours, add days, and dial this in even further?
spk09: Great. Thanks. My follow-up, I guess, is just on the transaction market. And I don't think in the press release, you know, you detailed a lot of deals that had previously been announced that either closed or were going to close. Just curious sort of what you're, you know, looking at in terms of bringing to the market or thoughts are on the first half of the year and, you know, just what should we be looking for on the transaction side and mirror that up obviously with the buyback.
spk12: Well, we have active discussions on quite a few assets. You know, we're putting 609-5th on the market. That'll be, you know, as an alternative to lease, but we've received some unsolicited inquiries to purchase that asset. And we're remarketing 110 Green Street as well. Those two are sort of active in the market right now, and we're entertaining discussions on other assets that are not on the market. So, you know, I'd look for a very active transaction, you know, sort of book for ourselves in the first half of 22.
spk13: I would also just add to that that the activity and expressions of interest we're receiving on assets mentioned and assets discussed that we're working on that Warren mentioned, in almost every case, exceed our own internal NAV and, you know, accordingly really give us confidence as we execute our business plan throughout this year to continue to acquire our own stock with proceeds of some of these capital transactions as well as investment in new development debt repayment in order to capitalize on what we see still as an attractive and wide arbitrage.
spk09: Great. That's it for me. Thanks.
spk00: Our next question coming from the lineup, Jamie Feltman with Bank of America. Great.
spk15: Thank you. Mark, in an answer to a prior question, you talked a lot about the types of amenities and just what your tenants are going to want in their spaces to bring people back to the office and make it a great experience. How should we think about the CapEx for the company? I mean, do you think there's going to be a good number of, you know, major CapEx projects across the portfolio going forward? Or is this more capital that's going to look a lot more like traditional TI capital over the next several years?
spk13: No, you know, it's – I mean, for this year, I think we highlighted in December. I don't exactly remember. But, you know, we talked about 885, third, 750, third – Well, and there's one other, 919 to a certain extent, right? So three buildings on third where we think the investment is not, you know, don't think of it as redevelopment capital the way we've redeveloped every building in this portfolio, which get down to systems and windows and, you know, big heavy infrastructure and mechanicals. You know, this is, This is usually very targeted, surgical, programmatic upgrades, usually of space that's underutilized. So a lot of times it's subgrade space or it's some grade space that wasn't fully built out. All the capital for those projects are in our 2022 capital plan. they're not, you know, they're not disabling in any way. And the return on those dollars in terms of the lease velocity and rental, you know, uptick, we think more than pays for itself. I think we spent about three and a half million dollars at a hundred park for a 10,000 square foot. But the name of the facility is a park club, park club. And, you know, tenants love it. I mean, it's, it's a lot of bang for the buck. Now, We're doing, you know, a larger project at 885, but we're leasing about 600,000 feet of space. So, you know, this to me is not, I wouldn't look at it, to me it's not like TI capital. This is real permanent building improvement and permanent value add. This is taking a building from one level up. TI's commission, that's a cost of leasing, you know, for us, because the improvements into tenant space is not the building space. But this is improvement to fundamental building. You know, everything we spend here at One Vanderbilt, I mean, is part of this $5 billion, you know, appraised valuation. And everything we're doing at One Vanderbilt will be part of what we hope will be another significant – I'm sorry, One Madison. One Madison will be a part of a significant valuation. And, you know, the same for 885 and 750. So I look at them differently. They're more manageable. We've planned it throughout the portfolio. We're internally financing it with sale proceeds of assets, and we're getting lease velocity and rental uptick as the reward for that delivery of excellence.
spk15: Okay, that's helpful. I guess just as a follow-up, just thinking longer term, I mean, it sounds like the opportunity to do this is when you have vacancy. As you just think about your, you know, your expiration schedule or just the portfolio overall, I mean, how long do you think this goes on in terms of years that you'll be putting kind of excess capital into building? Or is there a way to quantify how much you need?
spk13: You've got to go building. Look, for us, it's a very granular process. You've got to go building by building. I mean, you know, Graybar is done. You know, we have our conference center there that actually was the former SL Green Conference Center that we put like a million bucks into. and have now turned it into, I think, one of the... I mean, a dominant... Within that world of buildings, small tenant building, it's probably the best amenity of any building. And we just opened it. It wasn't dramatic cost. And, you know, that's done. And one Vanderbilt is done, and 1515 is fully tenanted. And, you know, so... You know, in some of these smaller buildings... Either they don't require the same investment or, you know, or we've sold some of the buildings. We just sold 110 East 42nd Street. So, no, it's not this sort of endless pipeline of improvement. It's very targeted, you know, and very manageable. So I hear what you're saying, but it's, you know, we don't – it doesn't feel like that to us. By the way, there's also a little silver lining in a deal like at 810.7. We just, you know, as part of, I guess, last year or two years ago, I'm not even sure, but as part of the pandemic, we took back a fully improved conference center that was a third-party conference center with full back of house and kitchen and furniture. I mean, you know, with a little bit of investment ready to go, and we're lining up operators and or leases for that facility. which will serve as an amazing amenity for 810.7. So, you know, it's underway, and, you know, the portfolio occupancy level, I think, reflects the great state of our product.
spk15: All right, great. Thank you.
spk00: Our next question coming from the line of John Kim with BMO Capital Markets. Your line is open. Thank you, Ben.
spk05: Thank you. Good afternoon. I just wanted to follow up on your commentary on the summit. It sounds like you're expecting 20 to 25 million of NOI this year to be contributed, and I'm comparing that versus the 2.1 million of intercompany rents that you provided, so I was just wondering what that mismatch was. And then, Mark, you mentioned 95% capacity. What does that mean as far as visitors? Because I think you last provided guidance of 2 million visitors per year.
spk14: John, I'll take the first one. I don't know what the 2.1 million of intercompany rent is. Yeah, we have leases between SL Green and One Vanderbilt that's separate aside from Summit. So I think that's what you might be looking at. And then there's also, remember, cash payment, you know, base rent on our leasing schedule that is separate and aside from the Percentage rent, the bulk of the lease here between Summit and One Vanderbilt is percentage of sales. That's obviously not in the leasing schedule, the ground lease schedule that you're looking at, I think. The 20% to 25% of NOI is based on a projection of attendance and sales and a lease that has rents based on that. What was your second question?
spk13: A question about... Attendance, you know, we had, you know, previously talked about, you know, stabilized, underwritten, stabilized projections of about 2 or 2.1 million. I think for this year, 2022, we're expecting to be about 70 to 75 percent of that number. I'd say, you know, our underwritten numbers probably have us at about 70 percent of that total capacity. So that's our expectation for the year. Obviously, we hope to exceed it. But, you know, remember, it's kind of hard to go by that next where we're only open five days a week. And two of those days fairly limited hour, you know, like half days. Okay. We had a very long ramp. That's the part I think you're that's left out of that question, which is, we had not expected to ramp into to 2.1 million. until I think it was like 2024 is my recollection. And we had everything, numbers we gave you guys in December bleeding in. It was roughly 25%, 50%, 75%, then 100% over a four-year period. I think that was actually our 2020 guidance. We upped that because obviously as we sit here in 22, we're not talking about 50% capacity, which would have been the original guidance. We're talking close to 70% capacity so far. in excess of underwriting and still well within the expected ramp to stabilize this facility, which would have been like a 24 metric. Does that make sense?
spk05: Yeah, I mean, is it fair to say that ramp is shortened, so it's going to be more like a 23 stabilization?
spk13: Yeah, I think that's reasonably fair to say. Like I said, I'd rather go with a number like between 70% and 75%, but whatever it is, it's so vastly in excess of 22 projection, we're in good shape. Okay.
spk05: And then on your same-store occupancy, it looks like it dipped to 92.1%, which is versus the 92.8 that you provided in December as far as the update, so it's come down a little bit. And I was wondering how that impacts your guidance. I know you didn't change it, but you had occupancy guidance of 94.3, so it's just a further ramp-up to get there.
spk14: Yeah, I'll start with you're picking up the wrong number. We ended at 93 as against 92.8 that we guided to in December. So we actually beat our year-end same-store occupancy projection, which includes leases signed. So it's a signed occupancy number. So exceeded the expectation and puts us on a great ramp to our number of 94.3 for 2022. So beat our expectations. So that 94.3.
spk05: The 94.3 is occupancy including sign leases?
spk14: That's the only way we quote it, and the only way we've ever quoted it, and the only way we will continue to quote it.
spk05: Okay. That's clear. Thank you.
spk00: Our next question coming from the line of Anthony Powell with Barclays.
spk02: Hi. Good afternoon. Question on, I guess, expiration and renewal. It seems like a lot of leasing is with new tenants. which is positive at good rates, but that means that there's a lot of churn. So in terms of who's leaving the portfolio, why are they leaving? Are they working fewer days in the office? Are they relocating to either new cities or new buildings? What's kind of driving some of that churn on that side of the business?
spk10: We did a lot of early renewals, if you'll recall, during the depth of the pandemic. We were extremely proactive about going and making outreach to tenants in order to, quite frankly, to lock down our rent roll. So that pays dividends to us because it helps us stabilize the occupancy level. And so it's not so much that we're losing a lot of tenants. I would say there's very few tenants who are departing who we haven't – didn't already identify as likely to leave probably 12 to 18 months ago. And the majority of those are typically because they want to rebuild their space, they've outgrown their space, and they want to make an investment to create a different work environment for themselves. And the reality is it's tough to do around yourself unless we can provide swing space and When we're so well-occupied, we don't have a lot of excess space in order to make that happen. We accommodate it where we can. But I would say if I was going to broad stroke it, the majority of the tenants that if they're losing them now is because they've outgrown their space and they want to create an entirely different work environment, which, oh, by the way, I think is a good thing throughout the broader marketplace because a lot of those tenants that are coming into our portfolio are doing the exact same thing.
spk02: Right, so you're not seeing tenants leave because you know that they're going to downsize and don't need their space. It's more of a reconfiguration. So you're not really seeing a broader just retreat from ops space. It's more of a reconfiguring and switching out where they want to be.
spk10: Yeah, I think they're using their space differently. They're not necessarily downsizing. And if I answer it a different way by saying, you know, some of the tenants that we see coming into our portfolio, you know, there's a good – There's a good percentage of the square footage that are being driven by new tenants coming in that are doing consolidations, which is a pretty interesting phenomenon where we're seeing these companies that want to consolidate where they used to split their operations and go to a campus-top environment. Now they want to put everybody under one roof. And it's all driven by what Mark was saying earlier, which is a desire by the tenants to really create a work environment that gives their employees – a reason to want to be in the office, and as a recruitment tool because it's become and has remained for quite some time highly competitive in order to recruit new talent.
spk14: Go ahead. It's Matt. I just want to add one thing again because we keep hearing the contraction, contraction. We said it earlier, and I think it's worth saying again. In the 1.9 million square feet of leasing we did in 21, expansions were five times – larger than the contractions. Almost 400,000 feet of leases were expansions and less than 70,000 feet were contractions.
spk02: Yep, understood. Yep. I think on your veteran day, I think you mentioned that you hired or were starting a hospitality, I guess arm or hospitality, I guess segment. Maybe go into more detail about that. What do you expect to kind of drive there and what's the opportunity for you there?
spk13: Yeah, well, we introduced in December the team, the hospitality team, headed up by Laura Valai, Gerald Farrar, and Mariana Herzog, and now Jelena has also been promoted within that group. So it's a growing and very solid group that is taking responsibility, operational and marketing responsibility, for all these locations, not just at – One Vanderbilt, but one Vanderbilt, soon to be one Madison, 100 Park that Steve mentioned earlier, the Graybar Conference Center, the one over at A10. And, you know, this is proving to be really not only a great source of satisfaction with tenants, but there's an ability for us to drive some revenues that are not, you know, after-hour rentals and events that tenants like to throw, because we're doing this F&B at a very high level and generally with Dynex, Daniel Balloud's company, that is delivering extraordinary culinary experiences into these spaces, and we have an arrangement with Dynex. There's a lot of symmetry there. There's a lot of compatibility. It's a win-win situation where the tenants are getting access to great spaces and great service and great food and beverage. Dynex is about as good as it comes in the city at providing that. And for us, it's a great way to get a return on all this amenity space that's really amenity during business hours and then doubles down as a function space after business hours and on weekends. So we're going to keep growing that business and growing the team. And, you know, eventually it should become, you know, a line item on the budget, you know, I mean, in terms of its relevance. I could see it growing substantially. Le Pavillon alone, you know, just our one restaurant is, you know, is going to be meaningfully, is expected to be meaningfully profitable in 2022, which in less than a year of open is quite a statement.
spk02: All right, thanks a lot for that. Appreciate it.
spk00: Our next question coming from the lineup, Derek Johnston with Deutsche Bank. Your line is open. Derek?
spk13: All right, we're going to try and pick up the pace here because it's after 3, and I think we still have one or two more questions. Operator.
spk14: Operator, you can go to the next, and Derek, you can jump back in if you get asked. Or call me direct.
spk00: Our next question, coming from the line of Arnold Camden, Morgan Stanley, your line is open.
spk16: Hey, two quick ones for me. Just an update on OneMadison and sort of the leasing activity, trying to get an anchor there, and any update there would be great.
spk10: Well, as we said at investor conference, we've had a lot of very, very strong discussions interest from prospective tenants we're in advanced dialogue with uh with a couple and you know we'll see how it unfolds but uh we're you know i would say i think mark would agree that the pace of our discussions with tenants um at this point in time of that development far exceeds the level of activity that we were experiencing at one vanderbilt you know at a similar moment in time So we're emboldened by that and optimistic, and, you know, there's nothing really specific that we're ready to report yet, but, you know, hope to have more to talk about later this year.
spk16: Great. And then sort of the second question is just related to co-working space. Just given the experience we've had over the past two years and talking to clients, talking to tenants, has the company's views changed on that business model, and is this something that you would consider?
spk12: Well, we have a division called Emerge 212 that's been operating for about 20 years in the co-working environment. So we introduced the Altus suites at One Vanderbilt. That's been a huge success. That's fully furnished. Shorter-term occupancy suites upstairs. We've leased two, and we've leased out on the third, and there'll be one remaining shortly. So Altus has been a huge success. I think we're fans of co-working where we build it, we operate it, we manage it, which we do a lot of. And third-party co-working was never a big priority for us, and I would say that sentiment exists and continues.
spk16: Great. Thank you.
spk00: Our next question coming from the line of Nick Yuleka with Scotiabank. Your line is open. Thank you.
spk07: Thanks. So I was just hoping to get some more info on, you know, on page 29 of the SUP where you give the occupancy versus the least occupancy. Is it possible to get the least occupancy number for the consolidated same-store portfolio where, you know, it is showing up here that you have more vacancy than the rest of the portfolio?
spk14: It probably is, but I haven't done that math, so no.
spk07: Okay. Okay. I mean, I guess I'm just trying to figure out here, I mean, if the bulk of your vacancy is in the consolidated portfolio and, you know, certain assets that look, you know, under-occupied versus history, I mean, 8th, 10th, 7th, Graybar, Avenue of the Americas, right, where your overall vacancy showing up here is very similar to the overall market, just kind of how you're thinking about those buildings competing and how much occupancy uplift for those lower buildings occupancy buildings is built into your guidance for the year?
spk14: I'll say, you know, with specificity to those buildings, I can't tell you, but, you know, they're obviously part of the 100-plus basis point occupancy pickup. I think it's 130 basis point occupancy pickup we're expecting for 22. Those are traditionally, you know, buildings that operate at a much higher occupancy level, and they are headed that direction. So, you know, we...
spk07: I guess what I'm asking is if you're saying they're heading in that direction, it's not showing up on the occupancy page. So that's why I'm asking for the lead number if you had that. If there was any embedded occupancy lift up in those buildings that we can't see because it's not on that page. Right.
spk13: Nick, it's hard to generalize amongst buildings. Every building has its own DNA. Graybar, you mentioned, has a high occupancy building. Well, guess what? We moved out of Graybar.
spk12: You know that.
spk13: We were 100,000-foot tenant in a building that's made up of 2,500 square-foot tenants. So, yes, we moved out this year. I think we left the space – or, you know, in 2021. We left in March, I think, if I recall. So we left a gaping hole in Graybar. But don't extrapolate. Graybar is a wonderful building with a lot of activity. and we're back filling our space and, and, you know, and other space and it'll be back into the 90s. I assume they don't have another, like Matt said, I don't have a number in front. I got to believe that buildings back in the 90s this year. Great building. You know, it's a little bit more specific to things happening in the property at that point in time. I certainly couldn't generalize well consolidated properties have high vacancy, JV properties have low vacancy. It ebbs and flows. You know, we had JV properties last year. One Vanderbilt was a JV property that was bone empty, as is one Madison, and those will go to fully leased, one now, one in the future. What were some of the other ones you mentioned besides Graybar? 810-7th. Well, 810-7th, we had that, you know, I mentioned we had a conference center, we had a full floor conference center that blew out during pandemic because pandemic was very tough. on conference centers because there was nobody to convene in the conference center. So we took it back, and now we're in the process of doing some very modest upgrades to that and then re-turning around and either re-letting it or putting it under a management contract, and it'll become profitable. So, you know, this portfolio, the properties we own, are all excellent buildings, leaseable buildings that we're making better through, in some cases, through targeted amenity improvement. And we're going to increase our occupancy overall to, we think, what was the projection? 94.3%. 130 basis points. So that would certainly be a lot better than the market. The market is nowhere near 5% to 6%. If the market was 5% to 6% vacancy, I mean, wow, we'd be in an unbelievable position. So this portfolio will be. That's our, you know... a goal for our investors this year. We wouldn't put it out there if we didn't think we'd get there. And we'll get there. But I wouldn't draw broad brush conclusions based on any moment in time vacancy in any particular asset.
spk07: I mean, I guess my point was just that if you had activity in those buildings, it would be helpful to know kind of what the least number is in those buildings, because if you look at this page, you just see a lot of occupancy loss in those buildings in the last year.
spk13: When you say the least number, what do you mean by the least?
spk07: The least number that is the only number you like talking about, which is the least occupancy number, rather than you show a commenced occupancy number for these buildings. And my point was that if there was any way to give a least number for these buildings, it would be interesting, and we'd understand sort of how much leasing activity there's been in that's embedded already, right, in those buildings that's not showing up in those pages.
spk14: I don't think it would matter much, which is why we don't put it out there. So never heard it before.
spk13: I didn't say what you're saying. If it's the lag time between lease and commencement, you know, let us look at it. But when we give that lease number, know that they will all commence. So we are 93% leases. We sit here today, period. Your point is, well, I don't know which buildings those leases are in, I guess, but they haven't commenced. So let us digest that. I hear that.
spk07: All right. Thanks, everyone. Appreciate it.
spk13: Okay. All right. Okay. Any more questions, operator? Terrific. We will, you know, get right back to work and look forward to speaking to everybody in three months. Thank you.
spk00: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
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