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spk06: Thank you everybody for joining us and welcome to SL Green Realty Corp's third quarter 2023 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 risks, uncertainties, and other factors that could cause such differences to appear are set forth in the risk factors and MDA sections of the company's latest form, 10-K, and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's third quarter 2023 earnings and in our supplemental information included in our current report on Form 8K relating to our third quarter 2023 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: Okay, thank you. Good afternoon, everyone. We're obviously holding this call at a moment of great global stress, but we will do our best today to focus in on the company's third quarter performance and what we're seeing in the markets. While the current market remains challenging, we did have a number of very positive developments and milestones that I'll summarize for you right now because they were hard fought and we're proud of them. First, we celebrated completion of One Madison Avenue with the receipt of our temporary certificate of occupancy, marking the completion of the building construction three months ahead of schedule and well under budget. Importantly, this milestone triggered the final $577 million equity payment from our joint venture partners, which we already received and used to repay an equivalent amount of unsecured debt. Earlier this month, we launched sales at 760 Madison Avenue, the beautifully designed and executed Giorgio Armani residences, with half of the 10 units already spoken for and negotiations pending on additional units. We have also substantially completed the Armani retail store and restaurant and are in the process of turning the space over to Armani to commence the lease. Building off our positive experience and sales momentum at 760 Madison, I'm now happy to report that we have successfully acquired the fee interest in 625 Madison Avenue through a UCC foreclosure of our mezzanine loan and we are now in control of the fee. All litigation with the previous fee owner has been resolved and we are finalizing our business plan, which we intend to unveil in December. With JV Partners, we closed on two extremely well-executed loan extensions at 719 7th Avenue and 115 Spring Street, bringing our total refinancing of extensions and modifications to $3.2 billion for the year, reducing our combined debt by $1 billion, and additional extensions and paydowns are planned for the near future. And yesterday, we announced the sale of our interests alongside our partners in 21 E 66th Street for a gross total value of $40 million, demonstrating the resiliency of demand for Upper Madison Avenue boutique and retail properties. Perhaps, and most significantly for the first time in the last 16 quarters, you got to go all the way back to December of 2019, I can report that same store occupancy trended up in this past quarter with projections of a slow but steady climb that should continue into the next quarter and on into 2024. This is an important moment that signifies the stabilizing of the operating portfolio assets. The trend is in our favor as companies continue calling people back to work with news this past week of another 500,000 workers being called back and expected back this January. It's important to note we are sitting in a good position at 1.1 million square feet of pipeline leasing activity with nearly half of that amount represented by 20 leases that are either in negotiation or out for signature, indicating a high probability of closure of those particular transactions. Those leases are split about evenly by square footage between new and renewal leases. Decision timelines for tenants are lengthier than average, which has delayed some of the occupancy gains we had hoped to achieve this year. But directionally, it appears that predictions of an existential crisis for New York City office buildings is way, way overblown. And in fact, more and more of New York City's leading businesses are championing physical presence in the workplace as the best and most meaningful way of building community, promoting teamwork, establishing relationships, and maximizing productivity. We will continue to enhance and amenitize our core properties to provide maximum convenience and benefits to a workforce today that is looking for elevated workplace experiences. We, along with the rest of the real estate industry, are impacted by the sharp and rapid rate increase experienced over just the past 18 months, but we are implementing our strategic plan to complete our development projects, lease up the portfolio, sell in JV certain assets, pay down indebtedness, refinance and extend debt maturities, and hedge our exposure to future increasing interest rates. And we are going to succeed. We will talk at greater length about our 2024 strategic plan at our upcoming investor conference, but rest assured that we are ready for this moment of great opportunity and we intend to take advantage of market repricing and the liquid borrower dislocation through growth in our asset management business. So as we look into 2024, we see reasons for real optimism. We have a plan to execute and a new generation of leaders to help execute it. That last part is bittersweet for me and for the company as we prepare to say farewell to Andrew Mathias. After 26 years of and over, on my estimation, 100 earnings calls, Today will be his last earnings call for the company. While this was an extraordinarily hard decision, it's the right time for the company and probably the right time for Andrew as well. He can speak to that, but one thing that's for certain is that he's made an invaluable contribution from the time we first embarked on a new trajectory to become the biggest and best real estate company in New York City, and the rest is history. Andrew is a partner and a friend and I'm happy that he will continue in his role as a director of the company and as an advisor to me. Andrew will undoubtedly have the opportunity to move on to other things, and we will have the opportunity to bring up some of the younger talent we've been mentoring to assume positions of leadership as we're ready for incredible opportunities that will be before us in the new year. I want to take this opportunity to thank Andrew on behalf of the entire company. Andrew's dedication and loyalty have been essential in accomplishing things for this company. that were unimaginable 25 years ago. On a personal note, Andrew and I have been side by side for nearly 30 years in work and in friendship. What an incredible ride it's been. Now I'd like to hand it off to Andrew to say a few words.
spk11: Thank you, Mark. It has truly been a long and amazing run for a kid from Buffalo who never expected anything like this kind of experience in his life. I appreciate all the relationships with shareholders and analysts I've formed over the years. I've seen many come, many go, many stay, and kept in touch with them in their new positions. It's quite an industry, quite a business, and we've ridden a lot of ups and downs together. I would just say we have a great and deep bench of talent at this company, some young, some not so young anymore. But I'm confident that SL Green will be the best positioned company by far for a recovery when it comes, and it will inevitably come. And I look forward to continued involvement in the company's success as a board member as long as they'll have me and as an advisor to Mark. And, you know, all the words and kind reach out I've gotten over the last couple weeks is greatly appreciated. So thank you.
spk06: great thank you Andrew and I guess we'll end on that note and open it up for four questions operator thank you as a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again Please stand by while we compile the Q&A roster. Our first question comes on the line of John Kim from BMO Capital Markets.
spk03: Thank you. Congratulations and best wishes to Andrew. Can you talk more or elaborate more on the decision at this time for him to leave the company? Who's going to take over his day-to-day responsibilities if he's got to non-compete? and what the GNA savings will be going forward.
spk13: Okay. So, I think, John, it was a little muffled, but if I heard you correctly, first question was, you know, about timing or why now. And, you know, it's a very hard decision and, you know, I guess you never really know, you know, none of us know, you know, when it's time and when it's the right time. But I think there's a recognition that we are starting a new chapter here. at SL Green starting in 2024 with extraordinary new opportunity. And we have this unbelievable talent of younger professionals that in and of themselves have been here 10, 15, in some cases 20 years. And we just felt that this was the right time and the best time for this restructuring, if you will, to allow for that talent to step up at a moment in time where we can maximize their relationships with kind of a new generation of lenders and partners and co-investors out there that we think is just, you know, in the interest of the company and, you know, knowing that Andrew's still on the board and still an advisor to me, you know, serves a critical role for me that I don't feel this is a loss, but I feel it's additive overall to something that I think is a good move for the company and probably a good move for Andrew because I'm sure he's going to have a limitless amount of great opportunities in front of him. In terms of, I think you mentioned division of responsibility or something to that effect, as we always do, we don't like to be reactive. I like to be measured. The board and I are going to take the next several months. We'll meet. We'll talk. about, you know, how we want to, you know, work on that division and successorship role going forward. And, you know, I would imagine sometime in 24, we'll have some additional announcements to make. But for the time being, you know, we're just going to, Andrew's still here through year end. There's a lot to do. As you know, in SL Green style, we'll be doing it right to the last day of December 31st of the year. And then we'll, you know, take stock and, you know, make sure that we're extremely well positioned. You know, nothing will be unattended to no stone will be unturned when we get to 24, we'll be off and running. The last piece, I think, dealt with some of the numerical issues, which Matt, you want to address?
spk14: Yeah. G&A savings on a run rate basis between 10 and 11 million dollars.
spk03: Okay, I wanted to ask about condo sales at 760 Madison. You report narrowed FFO, not a core number. So is it fair to assume that condo sale gains will be included in earnings next year?
spk14: Condo sales, well, proceeds from condo sales to the extent they close in 24 would have an earnings benefit. The gains on those sales themselves are not FFO though.
spk03: But this is a new development, correct?
spk14: This is 760 Madison was a retail condo, long-term lease to Armani at the base. That's been turned over to Armani. Condos, 10 units up top, half of which are spoken for. They said the proceeds we would hope come in in late 24. Those will be utilized. But the gains from those are not FFO, which I think was the genesis of your question.
spk03: Okay. Thank you very much.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Steve Sacqua from Evercore ISI.
spk08: Thanks. Good afternoon and congrats to Andrew. Best wishes. I guess maybe on the leasing front, Mark or Steve, could you maybe just break down the pipeline a little bit and just maybe talk about the types of buildings that you see the most demand for and the types of tenants, whether they be financial services, law firms, any big tech that's kind of tearing its head out of its kind of hibernation.
spk10: Sure. So as Mark said, we've got 1.1 million square feet in the current pipeline. There's a big long list of other prospects behind that that are premature to include in our pipeline number. Of the pipeline that we've got out right now, 67% of those leases are from the fire tenants. The balance is a mixed bag between healthcare, government, nonprofits, business services, things like that. So financial services clearly, as you might expect, is driving the boat right now. A lot of the big deals, a lot of the larger leases that we have out are in the better quality buildings. Park Avenue in particular is very busy. 280 Park, 245 Park, 100 Park are all very active with leases or deals pending. The good news behind that is, as we said, the last earnings call is we continue to see increased foot traffic and proposals in the rest of the portfolio in the buildings that are more price sensitive type of product. And I think that's a positive note. The next step is that needs now to convert over to leases. And I think we're going to continue to see traction on that as we come to the end of the year and going into early next year.
spk08: Okay, thanks. And then second question, I don't know, maybe Mark or Andrew, you guys had talked about doing some additional asset sales and dispositions, one Vanderbilt possibly, maybe even selling down a little bit more of 245 Can you maybe just talk about the disposition market and what you're seeing just in light of where interest rates are and the economic uncertainty? How are you thinking about that and the impact to maybe leverage moving forward over the next year?
spk11: Sure, Steve. It's Andrew. We're still actively out there. As you saw, Mark mentioned the sale of the retail condo on Madison. We're talking to groups now. really from around the world regarding some of the other interests, either a further interest in 245, which we haven't really made a decision on yet, and certainly the interest in 1 Vanderbilt. And it's just trying to balance the right timing and matching up with the requirements that a lot of these firms have. So I'd like to turn it over to Harry to have him speak a little further. He just got back from Asia. about what he's seeing from investor demand out there.
spk12: Sure. Thanks, Andrew. So as Andrew mentioned, we just returned from our quarterly roadshow in Asia. We're continuing to hear from foreign investors that they're interested in making select new office investments, and they really do believe in the fundamentals for quality office. More specific to us, they believe in our ability to underwrite business plans, execute in this market, and get stuff done. You know, the one variable that foreign investors are still very focused on are U.S. interest rates, and in some cases the impact that has on Forex rates, specifically as it relates to the U.S. dollar to certain Asian currencies. You know, we're helping push back against that with the fact in some of these countries they have very low borrowing rates. You saw us successfully navigate through that last quarter at 245 Park. We're very focused on OVA. It's a high priority of ours. we're going to be putting a lot of pressure to get that done, and I would expect to see good momentum for that in the next few months.
spk03: Great.
spk13: Thank you. I've been very happy with the response we're getting. Obviously, we got on 245 Park, Premier Asset, Premier Location, and that we're getting on one Vanderbilt, multiple locations, party, counterparties, highly interested, different parts of not only Asia but around the world, and, you know, working hard to try and get something done by year end, and we'll see how that comes up.
spk08: Great. Thank you.
spk06: Thank you.
spk07: One moment for our next question. I'm sorry, next question.
spk06: Our next question comes from the line of Alexander Goldfarb from Piper Sandler.
spk15: Hey, good afternoon. And Andrew, congrats. Mazel tov. I guess this is it for you having to do the earnings call. So congrats and look forward to where the New York Gossip columns have your next real estate deals. Two questions here. The first question, Matt, capitalized interest, always sort of the bane of modeling. You guys, you know, you did the one Madison delivery. You got the $577 million. You also closed on 625 Madison. So maybe you could just put some framework about how we should think about interest expense next year, the impact of capitalized interest, just given those moving pieces.
spk14: Yeah, you know, capitalized interest is a tough thing to model even here. It's a complicated exercise, particularly when you have joint venture interests and multiple redevelopment projects. But specific to your question, you know, something like the proceeds at One Madison, which is a fully capitalized property because it's in full development, you know, when you get $577 million in, that reduces our investment in the asset by $577 million, and therefore you can't capitalize interest on that $577 million. Use whatever interest rate you want. It's based on our consolidated weighted average interest rate, so call that 4.5%. 4.5% times 577 is a big number that's lower capitalized interest. Other assets like 625 or anything else for that matter that gets leased up as leasing comes on, uh, capitalized interest goes down. So there's an offset to NOI coming on, uh, from, from interest capitalization. So yeah, there will be some, some, you know, significant changes as you roll through 2024 and into maybe even 2025 as, as one Madison, uh, comes online, NOI benefit, capitalized interest, uh, reduction. Um, and so, you know, I, I, optimistic that people will start to flow those through their models. I haven't seen it flow through just yet, but I'm sure as people tune up their forward-looking models, that'll appear.
spk15: But it sounds like the big ones, obviously the one Madison, that's helpful. And then 625, just for clarity, because you just brought that on, that would reduce interest because now that building is on your books and you're capitalizing it, or were you sort of already running it through? I just want to make sure that we by bringing 625 on that we account for that correctly.
spk14: We, we had a leasehold investment previously, right? We wrote it off back in the second quarter prior to it being written off. There would have been capitalized interest against that investment. Now there will be a capitalized, there will be capitalized interest against the new investment. So there will be capitalized interest, but on a different investment amount.
spk15: Okay. And then second question is, With Andrew's departure, Mark, you mentioned bringing up the younger, the bench and having other people step forward. On the Mez and preferred business that you guys have that you've long held, you know, Andrew was big into that. But should we take the comments as other people will step into that and you will regrow this Mez business once, you know, interest rate and transaction market start to normalize? Or is this sort of a wind down? Does this Andrew's departure signal a wind down of the Mez business?
spk13: Yeah, it's a good question. Andrew sort of presided over the whole company, which included an investments bench, probably 20 investment professionals led by Harry Satoma, Brett Hershenfeld, Rob Schiffer, all of whom have worked on, I don't know, countless billions and billions of debt and equity investments, you know, under Andrew's and my tutelage, uh, you know, over the years, remember we've been doing this business for, well, since 1998 or 99, I forget. Uh, so it's always been core to us. I would say on average, anywhere between one to $3 billion a year gross originations. Um, and you know, backing up that team, we have Andrew Falk, who's a head of special servicing and, uh, runs that business and has a team under him helping him. There are other young guys behind that that Harry can elaborate on, but the bench is deep. The bench is very experienced. We are very much going to stay in that business, like no illusion whatsoever that we're not going to be in that business in what I hope will be a very, very big way in 2024, 5, and 6, I think there's gonna be three years of very solid opportunities. A year ago I said 12 months, six months ago I said six months. What you're gonna hear in December I think is the opportunities now and where you should expect that as we have settled out the other aspects of our business plan with respect to paying down debt, hedging, monetizing assets, then full focus is gonna pivot to new investments, and assume that we are in deep conversations with many capital partners about putting the capital together both in a discretionary and in a managed account situation for various ways of taking advantage of this market opportunity that I think is going to be nothing like what we've seen in probably 30 years. I'd have to dial it back to My first experience is in the late 80s and early 90s to sort of get a comparable benchmark. So, yeah, I mean, active or continuing with the program, I'd say, is an understatement.
spk03: Thank you.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Camille Bonnell from Bank of America.
spk09: Hello. Can you talk about the drivers behind the update to full year guidance, which applies your midpoint has changed excluding one-time items? And with only one more quarter to go, can you talk to the big swing factors that we should consider given you kept the range so wide?
spk14: Yeah, Camille, it's Matt. You're a little muffled, so I think the first question was just talking about the details, a little bit more of the details behind our guidance revision. um you know we have to take a 25 cent i'm sorry 25 27 cent total non-recurring charge related to andrew that's uh 10 cents of severance and 17 cents uh that's accelerated stock-based comp that would have been recognized over you know the coming years uh that in part contributes to the 10 to 11 million dollars of gna savings uh on a run rate basis um offsetting that though performance And the rest of the company has been, you know, modestly better than expected. So were it not for the charges, we would, you know, be taking up the rest of the range by, you know, a few pennies. And, you know, we still leave a fairly wide range because even with three months left to go, we do have a significant amount of execution left. And in part, you know, depending on where the one Vanderbilt JB interest sale falls, whether it be in 23 or 24, that has an impact on FFO. So we had to leave the range at the same 30 cent level it was previously while adjusting primarily for Andrew's charges.
spk09: Got it. And thinking about your operating model and continued transition to asset-like strategy, are there any further cost-saving programs you're considering to implement from an operating or G&A standpoint?
spk14: Are there any cost saving or G&A?
spk13: Well, let me, I mean, you know, generally, we as a team are meeting, I would say almost like daily, or the operational and construction members of the team are meeting daily, scrubbing through property level operational expense budgets for next year, where appropriate, looking for areas of savings, trying to keep our expenses as close to like net zero increase in an otherwise inflationary environment, but making sure that we're still delivering best-of-class service so we're never going to, you know, do anything to jeopardize the reputation and, you know, excellence that we are delivering through that program now. But we're, you know, hyper-focused on that. And looking at our capital programs, we've We benefited by investing so much in the buildings over the years that, you know, we can go a little capital light in 24, maybe 24 and 25, not to the detriment of any building, simply because most of the buildings have been completely repositioned, amenitized, new lobbies, security system, local law 11 work, and roof replacement's out of the way. And it's not to say there's, you know, 30 million feet, there's always something more to do, but I feel like we'll be able to really enter the market in 24 with a strong hand in terms of operating expense control and capital cost control. As it relates to G&A, if that was a specific question or item, I'd say we are one of the leaders in our peer group, if you will, in terms of not only controlling gna or maintaining it but reducing it uh you know we had gna i wouldn't say at its peak of 100 million or so 110 you know 110 million so and this year it will bring in at around 90 million and i would expect next year through all sorts of uh you know uh smart planning austerity measures etc um to come in below that you know we haven't done yet we'll know in december but I'd say it's safe to say below 90. So that's a trend that I think is unusual or unequaled in our industry and sector, and yet we're able to do more with less, and the building performance and I think level of service is as high as it's ever been. So I don't know if that answers the question, but that's what we're working on between now and December, and maybe in December I can elaborate further on that. But yes, operating expense, conservation, capital costs, efficiency and reduction in G&A are all things we're going to be focused on going into next year.
spk09: That's helpful. And final question for Matt on the balance sheet. I know you've managed to swap your exposure to your swap expiries to its respective debt maturities, but how are you thinking about cap maturities? For instance, 10 East 53rd Street and 220 East 42nd Street have final debt maturities in 2025, but the caps are maturing next year.
spk14: Sure, happy to answer it. And I'll save the operator the trouble of reminding people two questions only, please. But Camille, I'll give you a free one. We do hedge when we swap as far out as the debt to which those swaps are associated goes. As it relates to caps, caps are often a requirement of the underlying financing, and specific to the two instances you referenced, we have JV partners. So we are not able to make a unilateral decision to put a cap in place without the sign-off of our partner. We agree with our partners on the terms. With regard to those two, we agreed at the time to a one-year cap, and those caps need to be put back as is required by the financing.
spk06: Thank you. One moment for our next question. Our next question comes in the line of Blaine Heck from Wells Fargo.
spk04: Great, thanks. Can you just talk about the lending environment and maybe touch on where interest rates stand for high-quality office buildings now, how the pool of lenders that are actively lending to office may have changed? and what they're looking for with respect to loan to value and debt service coverage ratio?
spk12: Sure. This is Harry. So we're continuing to navigate through the current debt capital markets environment. Given the prominence of who we are and what we mean to this market, we're working with our depth of relationships, modifying, extending existing secure debt, We're seeing a capitulation in the market from the lenders. And, you know, we think we're really well positioned right now to work with these lenders on terms that make sense given their confidence in us to be the right steward of this portfolio. We're getting very well ahead of our existing debt maturities. In most cases, we're looking three years out at this point. As Mark mentioned earlier, we already executed two deals in this quarter. And I would expect to see us do some larger ones over the course of the next few months leading to the end of the year. You know, in each refinancing that we're looking at, we're assessing prudently putting in new capital and trying to very conservatively underwrite any money that's going in as we think about these refinancings.
spk04: All right, that's helpful. For my second question, Matt, you talked about the fixed charge coverage ratio on the last call and your expectation for it to tighten relative to your covenant before expanding. Can you just comment on the movement quarter over quarter and whether that magnitude was in line with your expectation, whether we should see the third quarter as likely to be the bottom for the metric? And I guess, you know, any stress testing you've done relative to kind of where rates would have to go to trip that covenant?
spk14: Yeah, you're right. On the last call, I did say I would expect to trend down into Q3. I'll remind people how this calc works. It's a consolidated-only calculation, so there's only a handful of properties that flow through it. Layered on top of that is our preferred equity income offset by G&A, and then essentially corporate debt and any consolidated debt on the other side of the equation. So that metric, and it's done on a trailing 12-month basis. So that metric has been and will continue to be for several more quarters weighed down by 245 and a higher corporate debt load. So we got $577 million of proceeds from our partners at One Madison. We got that towards the tail end of the quarter. That had no effect on the quarter, but will obviously benefit the forward quarters as that flows through over the next 12 months. Same effect as 245 Park, which was a consolidated property for the better part of a year before we sold the JV interest. It comes out. of the consolidated calc, but does so over a 12-month period. So it has to roll through over time. The trajectory we're on was third quarters. We would trend lower into third quarter and then bounce off of that. Obviously, the timing of things could affect that. I referenced one Vanderbilt that has an effect because that is an income generator for the fourth quarter. If we did that in the fourth versus the first, that might have an effect, but the trajectory on this is to be naturally higher through EBITDA growth and also through lower interest expense as a result of consolidated interest expense, as a result of reduced corporate debt and reduced consolidated property debt.
spk04: Great, thanks. And Andrew, thanks for the help over the years and best of luck with everything.
spk11: Thanks very much.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Peter Abramowitz from Jefferies.
spk05: Thank you. Yeah, I just first wanted to ask, within that leasing pipeline, kind of what's the interest in the remaining space at One Madison? What sort of coverage do you have on that? And how are kind of the rents there trending relative to your expectations?
spk10: We're in active term sheet negotiation with four different tenants right now, covering, let's see, about 200,000 square feet of space. It's a mix between tech, fintech type tenants, I would say is sort of the dominant theme there. All of the rents that are being discussed are at or above underwrite. And, you know, I'm not going to get too far out of them, but other than to say that I feel really positive about our prospects on at least two or three of those tenants. And hopefully we'll have more to report if not by the end of the year, then very shortly thereafter.
spk05: Got it. Thanks, Steve. And then one other, just as we kind of look forward in our model thinking about 24, just a reminder in terms of the moving parts, any large expirations to think about in the portfolio or known move-outs?
spk10: Well, two things. I would say that We have, I think, absolute transparency on all of the expirations in 24 and probably even into 25, quite frankly, as to whether or not tenants are staying or going, certainly tenants of size. All of those are built into our current projections in the budgets that we're currently building for next year. that may be new news to people is, you know, CBS downside. They renewed and then downsized a little bit of 555, but it's not really moving the needle anywhere.
spk05: All right. That's helpful. Thank you.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Ronald Camden from Morgan Stanley.
spk00: Hey, congrats, Matt, on a great job. Just really quickly, my two quick ones is, so 7 Day and 185 Broadway, I think were previous planned sales. I know the loan's maturing this quarter. What's the update there? Are you most likely to extend the loan on those two assets?
spk12: With respect to the debt, we are very close to finalizing a multi-year extension there on very favorable terms. So we'll be wrapping that up hopefully shortly. And then with respect to the joint venture partnership, we're in active negotiations and discussions with groups that, you know, they're very interested in Renzi product. There's a lot of interest we're seeing, you know, throughout the globe on that.
spk00: uh and we'll be looking to get something done there soon after we wrap up today great and then just coming back to the um you know i think last quarter talked a lot about the potential jv at one vanderbilt just was wondering if you know we've had obviously a pretty big rate move maybe can you provide just a little bit more sort of color on your your thinking Uh, there, is it still the same size? You know, have you investors come in, you know, investors dropped out just what sort of happened in the past sort of month or two with the rate move and how that's impacting the conversations and your thinking there on one Vanderbilt. Thanks.
spk13: I, you know, I, I think, you know, for, for foreign investors have an appetite for core product. Uh, it, it almost makes the assets stand out as one of one, if you will. in terms of you know two or three attributes that are almost unequaled like anywhere in the country it's got size it's got very long weighted average lease term it has incredibly uh favorable locked in and low rate debt for i think another eight or eight and a half years um it's obviously uh you know it's a great building and you know I think as the rates are moving up, it's differentiated as I'm going to say one of, I don't want to say the only, but certainly one of the best core investments that people with core money can put to work, uh, you know, either remainder of this year, early 24, whenever we get that deal done, we're working hard on it. And we have not seen any diminution in interest. Um, as rates rise, obviously the embedded debt becomes more valuable. on a mark-to-market basis. And the leaf stream is unaffected, and I don't think you can make any extrapolations as to interest rates or cap rates 10 or 15 years out. I guess you could, but it would be conjecture. So in that way, the building's as well insulated as any, and, you know, we've had great reception, and, you know, we're hoping to be able to conclude something there.
spk00: Thanks so much.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Caitlin Burrows from Goldman Sachs.
spk01: Hi. Good afternoon, everyone. Maybe just on the occupancy front, you mentioned earlier in response to the guidance question that various parts of the business are going better than expected. It does seem like to meet the occupancy target for the same sort of Manhattan portfolio, you'd need a
spk14: significant pickup in the fourth quarter so just wondering based on where we are today and the visibility that you have kind of the outlook for occupancy increasing materially in the near term yeah so we had a very heady goal north of 92% we will not make that goal Mark alluded to in his comments that you know we have a good pipeline you know we've already done 1.3 million square feet of leasing we have 1.1 million square feet of pipeline but deals are taking longer to get done, and therefore the occupancy is picking up but at a slower trajectory than we had anticipated. So we do expect it to pick up into 23 and into 24 as we, you know, close on the pipeline, but we will be short of the 92% that we had laid out at the beginning of the year.
spk13: Yeah, and I just want to be clear on that, that I know maybe it's too nuanced, but what we have internally projected versus what our goal is that we set for ourselves and what I call stretch goals is the 92 point whatever was the was a Ambitious goal, you know to get to seven and a half percent Occupancy in a market that's eighteen percent vacant. I'm sorry seven percent vacant in the market. It's eighteen percent vacant I mean obviously, you know in doing that where We're trying to be realistic, but we're trying to push ourselves. I said anywhere from I don't know 18 to 20 to 21 goals a year and If they were all projected or tap-ins, we'd meet them all every year. And in fact, we generally meet anywhere from about 60% to 75% of those goals. That's by design. So the fact that I think as we sit here this year, our occupancy is trending up and will be in the 90s. We'll have to see where we cross the finish line at a point in time on December 31st is an important is an amazing achievement in a market that otherwise has been relatively flat on vacancy at around 18% throughout the year. I do think the pipeline is more telling than where we are exactly at December 31 because what it's saying is we're going to have a big December, January, and February because we have a 1.1 million square foot pipeline. And, you know, typically those deals take three to five months to close from the time they're in that pipeline. so uh it sets up really well for next year so you know i know how it works and the headlines are going to be you know well sl green goal 92 and they come in at you know uh 90 point something or 91 who knows um but the reality is it's all about the trend it's about the pipeline and it's about our confidence that you know we bottomed out in vacancy in uh second quarter third quarter turned the tide fourth quarter i think we're going to do the same on into 24 and kind of march our way back, you know, hopefully to 92 and above next year. We don't have those numbers until December, investor, you know, and we'll see. But, you know, that's where it is, you know, no more or less relevant than saying we set a stretch goal of 1.7 million square feet of lease signed. Today we sit at almost 1.3 million signed. Actually, how much if you add in post-quarter? About $1.3 million. So there's a good chance we'll be over when our lease is signed, which also sets up well for 24. But we're dancing on the heads of tens of basis points, and I'm not throwing in the towel yet. Let's try and make 92, and let's keep at it. The pipeline's there. We've just got to close those deals quick.
spk01: Got it. And, yeah, I appreciate that you guys have mentioned that those goals can be stretch goals. Maybe then separately on the dividend, I know last call you mentioned you want to keep the dividend as close to the current levels as possible. So just wanted to see if you thought the G&A savings you're pursuing could help you maintain the dividend next year or any updated thoughts to share.
spk13: Yeah. You know, my comments, I think, on the last call as it related to dividend where there were some companies that were in the process of cutting or eliminating dividends, was along the lines of we think the dividend is a important and almost fundamental reason that people invest in REIT stocks. I still believe that to be the case, and we're gonna work hard to maintain that dividend as best we can, always in light of where our FFO and FAD is for the year. So that's the one thing, we don't have next year's numbers publish it so we couldn't, you know, on this call begin to give you a sense of where that is. You know, it's about FFO, it's about feds, about taxable income. But our goal and everything we do, when I mentioned earlier about, you know, cutting our capital to, you know, only that we need to spend next year, cutting our expenses is all, you know, for the basic reason of meeting our obligations and paying a dividend. and we'll do everything possible. But you've got to wait until December, or maybe it's just before December when we announce. We meet as a board. We'll set the level for next year. It will be based off of taxable income, and we recognize the importance. We're all aligned with shareholders, and we'll try to maintain it as best we can.
spk06: Thank you. One moment for our next question. Our next question comes from the line of Michael Griffin from Citi.
spk02: Great, thanks. Maybe getting back to the potential asset sales, I'm curious if you can give some color around return hurdles or IRR that potential investment partners are looking for in order to get interested.
spk13: Well, yeah, that's, Michael, that's broad because, you know, the market coming up there's going to be so many ways to play it, and therefore the return hurdles will be a lot different. I mean, there'll be people trying to take position in first lien positions. That'll be more debt and credit-like in there. There'll be mezzanine positions. There'll be equity positions. I think it's fair to say whatever the return hurdles were sort of before the rate increases, if you will, that the return hurdles – sort of generally across the board are probably up 250 and 300 over, you know, for various positions, you know, in that range. So maybe what was low teams might be mid-teens, mid-teens, high-teens, whatever, you know, what might have been a seven and a half unlevered discount might be a 10. I mean, in that range is kind of the level of movement, but it just, it depends on, What's the asset class? Where is it? Where are you investing in that asset class? And is it from an ownership perspective or from a mezzanine origination perspective, et cetera? But I think $250,000 to $300,000 up in return requirements is probably a good number. I don't know. Andrew, you think? I would agree. What you're saying? I think that's probably a good number.
spk02: Great, thanks. And then, Mark, I know you mentioned in your prepared remarks the time that it's been taking to sign leases has increased. Should we take this as maybe the new normal for signing leases going forward, or was there something specific about these leases this year getting signed in terms of being elongated that kind of put more of the drag on occupancy?
spk13: Yeah, I don't know. You know, it's a good question, and, you know, for that, you've got to kind of have an economic forecast for what next year will be like. I think the decision, the timeline... is less about uncertainty and more at the moment about having more choice. So people are just, you know, more so than in past they're exploring all their choices because they have more choices. And, you know, there's no sense in my mind that the people who are out there that are serious, that are in the inventory of tenants that we would say are real tenants that will be signing leases, whether it's this year or next year, will cross the finish line and sign leases at, you know, plus or minus the amount they're looking at. I think they just have more opportunities and they're taking more time to vet those opportunities before they narrow in on the one they want. And, you know, so what, you know, might have been a, you know, what might have been a six-month exercise might be eight or nine months now, something like that. But I don't think, I think as the as the better space becomes more fully leased, and it will, because we're seeing that already, and a lot of the vacant overhang pre-pandemic in terms of planned development is leased, then I think the options become fewer and then the timeline comes in again.
spk06: Thank you. I would now like to turn the conference back over to Mark Holliday for closing remarks.
spk13: Okay. Only closing remark after today is, you know, special day for us coming up in December. I think it's December 4th. December 4th, 9 a.m. 9 a.m.
spk14: here at One Vanderbilt. In person is invitation only, but the entire presentation will be webcast and available via our website.
spk13: And, you know, safe... Safe to say we are busy at work preparing, you know, a lot of good information and strategic visioning for that session to make it meaningful for people. So hope everyone has a chance to call in or, you know, accept invites and come. And we look forward to it every year. And for those that are coming or listening in, look forward to speaking with you then.
spk06: this concludes today's conference call thank you for participating you may now disconnect
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