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spk34: Your call will begin momentarily. Thank you for your patience.
spk35: Thank you, everybody, for joining us, and welcome to SL Green Realty Corp's second quarter 2024 earning 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 and 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 under the Securities Act. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on both the company's website at www.slgreen.com. By selecting the press release regarding the company's second quarter 2024 earnings and our supplemental information included our current report on form 8K relating to our second quarter 2024 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Reality Corp, I ask that those of you participating in the Q&A portion of the call to please let me know your questions to two per person. Thank you. I'll now turn the call over to Mark Holliday. Please go ahead, Mark.
spk25: Thank you. Good afternoon and appreciate everybody joining in today. I think this was, by all measures, a great quarter for SL Green, even by our own lofty standards. I want to lead off by expressing my sincere appreciation for the SL Green team who have massively contributed to our company's impressive results for this quarter and throughout the most challenging times of recent. The extremely talented men and women of SL Green work seven days a week, believe in New York City, care deeply about what we are doing, and are simply the best in the business. We could not print these results against the tide of negativity and defeatism without the dedication and loyalty of the 300 plus SL Green corporate employees and another thousand plus who work in the buildings day, night, weekends, and holidays. We are extremely lucky to have such a diverse and talented team of professionals, and it's the biggest reason for our performance in the office sector over the past one, three, and five years. And it should be the deciding factor in making an investment in SL Green the knowledge that we can outperform in good markets and bad, and that we will always put the shareholders first in making strategic decisions. This year-to-date achievement illustrates something far greater than simply a market in recovery because we are vastly outperforming a still unsettled commercial real estate market. It is the result of a deliberate plan we laid out years ago to improve the quality of our portfolio by physically improving and amenitizing our properties, focusing our efforts along the Park Avenue spine in East Midtown, selling assets that didn't fit that profile, and then monetizing our best assets to fund our new development activity. What you are now seeing is the positive consequence of the execution of that plan, and I believe we are now on a path to seeing sequential quarterly improvement in our operating and financial metrics into the foreseeable future. When others gave up on New York, we believed. People said that the financial sector was picking up and moving to Florida, but what we've seen is significant sector growth right here in our hometown, fueled in part by the $12 billion of Wall Street profits in just the first quarter of 2024, and that's as compared to $26 billion for all of last year. Growth in South Florida and elsewhere doesn't mean contraction here in New York. In fact, it's been the opposite. Companies like Blackstone, Citadel, Wells Fargo, and Bloomberg are all expanding their footprint here, and it appears that JP Morgan is buying the neighboring building at 250 Park Avenue as they continue to report extremely strong profits. But the demand for space goes far beyond Park Avenue. And I think the best illustration of that is looking at our current pipeline of office leasing, which is 1.2 million square feet. This is after all the activity we announced yesterday, totaling 1.4 million square feet of leases signed to date. There's another 1.2 million square feet of identifiable leases pending, term sheets out for signature that we have in our sites. after that activity and interestingly more than 80 percent of that activity is not on park avenue but rather it's on you know radiating outwards through east midtown everywhere from sixth avenue on over to third avenue fairly evenly dispersed lots of mid-market deals lots of strength in the middle not just the big deals and uh i think it's you know one of the more exciting elements of what we have to look forward to for the balance of this year. You know, everyone wrote off retail in New York City, but you saw our release yesterday, and it very clearly is back. Retail is back. Yesterday, we announced that One Madison retail is now 100% leased, curated in a way that brings real value to our tenants at the building and to the residents of the Flatiron neighborhood. And naysayers wrote off New York as a global destination. But tourism is beating expectations again. Well over 60 million tourists expected this year in New York. Hotel average daily rates up 3% year over year. Occupancy is approaching 90% in Manhattan. And the result of this is because of limits on Airbnbs and conversion of some hotel properties to supportive housing. If this trend continues, Midtown is likely going to be under-hoteled again soon. There is no better evidence of this surge of tourism than right upstairs from us at Summit, where attendance numbers are up again this year over the outperformance attendance we had last year. It's just proving again and again that this has become one of New York City's most compelling destination experiences and was a contributor to our quarterly results and, you know, more to come on that. But I want to end on an even higher note. Today, I'm excited to announce that we have secured our first new summit global location and we are expanding to Paris. More details to come on that in the fall today. But today I can say to everyone listening in in Paris, a bientot. And see you soon. And thank you all for listening. And we'll take questions.
spk35: Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to 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 limit your questions to two per person. Please stand by while we compile the Q&A roster.
spk34: Our first question comes from the line of John Kim of BMO Capital Markets.
spk35: Your line is now open.
spk15: Through a curveball with the Paris announcement, so I have to ask about that. Can you talk anything more about the location of Summit in Paris, the timing of it, and anything else you could describe on it?
spk25: Yeah. No, we're going to leave that. Stay tuned. More formal rollout in the coming months. Lots to talk about, very exciting, but just wanted everyone to know we're coming.
spk15: Maybe if I could focus then on Summit New York. You had a 16% growth in revenue this quarter, year-over-year. How much of that was visitor count versus average ticket price? And can you also remind us on the mechanics of how the rent is paid to the JV? How much of the OPEX is that rent figure?
spk25: I got the first part of the question. It's mostly attendance. I think the attendance which we had up for the year was up another $100,000 for the first half of the year above our budgeted numbers. The ticket prices are fixed. My goal is and the goal at Summit is to really keep Summit as an affordable price point as possible so people can come and enjoy it both within the city and around the you know, the world. We have programs for New York residents where they get discounts. We have discounted programs that I think are best in class for active duty personnel and veterans. And the prices are fixed. We don't surge price. We set those prices at the beginning of the year. We hold them fixed and evaluate at the end of every year. So So almost all of what you see is attendance. What was that second part that you asked, if I can ask you, John, again?
spk15: The intercompany rent or the rent that you pay to the JV, is that how much of that is in the operating expense? And also on the revenue or visitor accounts, when do you start opening up on Mondays or expanding the hours?
spk25: Well, why don't you answer the rent part?
spk07: Yeah, rent schedules in the supplemental, John, the base rent. We don't get into how much percentage rent. Summit pays to the building. Okay, and then hours. Hours of operation? Yeah, hours and days.
spk25: You know, those are, I think right now we're typically opening from around 9 in the morning, last ticket sale 10.30 at night, facility closes at midnight. We could go longer. The night experience at Summit is every bit as good as daytime and sunset, something better. because of the city lights and the air at night feature we have that we've curated in the evening. So it's possible that in the second half of the year, maybe after the summer, we'll go later on the closing hours. We're open seven days a week now. Portions of the first half of the year, we were closed on Tuesdays, I believe, down days. But right now, the Facility is in excellent condition. The demand is strong. We're going seven days, and I imagine we'll be going seven days almost right up until the end of the season.
spk21: Right up until the end of the year.
spk29: Thank you.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Connor Mitchell of Piper Sandler.
spk35: Your line is now open.
spk17: Hey, good afternoon. Thanks for taking my question. Mark, you touched on it in your opening remarks, but just as Park Avenue leases up at higher rents with the recent quarter and activity as an example, could you just expand on how you guys are seeing the dynamic of the neighboring sub markets changing in terms of pricing, concessions, Tory activity, any other color you might be able to give?
spk25: Yeah. I don't have the average starting rent for the pipeline, but you know, just to give you a sense for the leases done in the second quarter, the average rent, which was about $93 in the first quarter, was up over 10% to over $100 in the second quarter. So, you know, a lot of that is influenced by Park, but not all of it. It's really, it's as much Park Avenue as it is tops of buildings because, you know, I think Steve will sort of run you through the dynamic, in the dearth if you will of big block availability particularly in tops of buildings whether it's old or new and regardless if it's on park or off a park and uh it's definitely driving rents and as it relates to concessions steve you know your thoughts well a couple points uh you know mark's spot on with regards to the you know migration to better quality space and
spk32: Don't confuse that to mean just new construction or heavily renovated buildings. What we're seeing is that even in the mid-price point buildings where we've got a tremendous amount of activity in our portfolio, but a lot of that is skewed towards the upper half of the floors, so the tower floors in particular. If you look overall in the market, beyond just our portfolio, there's a stat out there that would tell you that 57% of the current direct availability in the marketplace is located in the base floors of buildings. So you're seeing price appreciation on Park Avenue, you're seeing price appreciation in the heavily renovated buildings irrespective of location, and you're seeing price appreciation in heavy and strong leasing velocity in the tower floors of of both the high-quality buildings and the mid-price point buildings. Concessions, I think, as we've said for a while now, remain pretty static. I haven't seen any change in concessions, irrespective of the building you're in. And we're seeing the prices get pushed on the better portions of buildings and better quality buildings. And I think we had commented earlier in the year, when asked that same question, that's exactly how we expected things to unfold as the market continues to improve.
spk28: Okay.
spk17: Appreciate that. And then maybe just a quick question on the JV debt fund as well. I'm just wondering if there's any update on if the focus is still primarily on Manhattan or maybe any, any opportunities outside of the company's primary focus, sub markets may surprise you. And you're kind of taking a look at any, any, any opportunities for the debt fund outside of Manhattan?
spk26: Manhattan. The focus is Manhattan. I will add to that, you know, as you'll start to see us or continue to see us grow the special servicing and asset management business, which is not a principal investment business, you'll continue to see us pick up assignments outside of Manhattan, but that's purely a fee business for us.
spk20: Okay. Thanks very much.
spk35: Thank you. One moment for our next question. Our next question comes from the line of Michael Lewis of Tourist Securities. Your line is now open.
spk19: Thank you. My first question is about the leasing in Manhattan so far year to date. You know, your full year guidance, as you know, for Manhattan office sign lease is 2 million square feet for the year. I don't know if you expected that to be, you know, first half weighted or not. So I guess the question is, you know, is your volume here today, are you running ahead of what you expected in your guidance? And if you are, you know, is there a reason or is it just, you know, broad strength that you're seeing in the market?
spk25: Well, I mean, we're definitely running ahead of guidance. The year has been, you know, first half of the year was really strong for us and occupancy heading in the right direction and, Not just volume for volume's sake, but really good leases on, you know, terms where we're satisfied with. And, you know, I think you saw, you know, you're seeing that in our guidance as well as in other ways. So, yeah, we should exceed our goal for the year. And that's, you know, that's good by how much we'll see. I'd like to see Steve and his team blow it away, you know, and end up with some really – know sort of fantastic results but look it's uh there's a lot of work to do on that million two pipeline i guess you know steve you could sort of give some you know parameters around what's driving that pipeline uh and you know where that strength is coming from yeah um so as we mentioned earlier the pipe is currently it stands at about a million two hundred thousand square feet in that number we have leases out
spk32: in negotiation as opposed to just term sheets being negotiated, covering over 760,000 square feet. And of that number, of the overall pipeline of Million Two, 62% of the square footage that's in the pipeline is for deals or pending deals for current vacancy in the building. So you're seeing a lot of new tenants come into the into the portfolio filling current vacancy um we're seeing the financial service sector which it makes up 50 of our pipeline uh continue to add bodies and add square footage and see dramatic expansions some of the bigger deals that you've seen us announced recently this year with both pjt at 280 park avenue and harry's at 245 park avenue Those were very large transactions, and each of them were for tenants that were doubling in size. So I think those were some big drivers of our success to date, and we're seeing that in our pipeline. So no expectation that's slowing down for the rest of the year.
spk19: I agree. We'll look for that green thumbs up on that slide in the deck in December. My second question is about the fee income, and I talked to Matt a little bit about this. The other revenue line item was $33 million this quarter. It was $13 million in the first quarter. If I look at the guidance, it appears to me it's somewhere in the mid-teens quarterly run rate the next couple of quarters. Can you maybe talk about the recurring fees? And I don't want to call the rest of them non-recurring because I realize they're just lumpy and more transaction-driven, but it might help kind of frame not only modeling but what multiples to put on revenue streams you know, to talk about the servicing fee versus some of the lumpier transaction fees in that line item?
spk07: Yeah, it's Matt. So, you know, I think this quarter finally illuminates to people, you know, the fee-generating machine that this platform can be, which we've, you know, telegraphed to people over the last few years, and it's really, you know, showing its strength now. These fees come in various forms, and they can be lumpy. So last quarter was, you know, a fairly – muted quarter in ancillary fee income this was big and those fees can come in many forms we talked about the special servicing business that business is you know basic modest fees on a monthly basis until you resolve the situation then you get a resolution success fee those are unpredictable but they're sizable when they come in we often get fees from partners buyers of assets of restructuring debt those can be lumpy those can be time you know the function of the timing of the closing of those deals uh that's part of you know what what flowed through in the quarter so when you say you know what's recurring well all of those as categories are return are recurring uh the timing of of those things is what is most challenging by the way even for us it's the the the blessing of not putting out quarterly guidance i don't have to guess when these fees come in uh every three months we can do it over the course of 12 months but even that can move from quarter to quarter but as categories you will see special servicing fees, ancillary fees, asset management fees continue to be a bigger and bigger part of our recurring income. And that's a very high margin business, much higher margin than the real estate, and therefore requires a much higher multiple.
spk19: Well, I have to continue to do quarter to quarter, so I'll do my best. But thank you for that.
spk34: Thank you for our next question. Our next question comes from the line of Nick Ulico of Scotia Bank.
spk35: Your line is now open.
spk14: Thanks. First question is for the ARIES renewal and expansion. I think that was done in July. Is it possible to get a feel for the mark-to-market on that?
spk07: It's a... Sizable number. I don't want to get into specific mark-to-markets on leases, but it's, you know, the leases in 245 Park, as a general statement, are being marked up significantly from prior vintage.
spk25: Yeah, I mean, you got to understand, the asset was owned by H&A for a period of time, and, you know, it was probably not receiving the amount of capital commitment it deserved in order to be responsive to a building that's in an unbelievable location and should be a market leader, you know, really in terms of Park Avenue address. So, you know, we're obviously addressing that through a significant capital program we've launched. It's already underway. We hope to be done by end of 25, first quarter of 26. And you know, we're marketing the building off of the commitment to do that, uh, you know, very robust repositioning of the property, everything from a plaza to lobby, uh, amenities, new rooftop, et cetera. I mean, it's, it's going to be a, it's gonna be a phenomenal building when it's done. So, you know, when you, when you look at mark to markets, it's kind of, it's a bit unfair to compare, uh, you know, apples and oranges because this building is, uh, is completely different than its current state or predecessor building, the rents are reflective of that and all the rents in the building from bottom to top are decidedly triple digits, maxing out at as much as $150 a foot or thereabouts. And we're probably raising rents as we go forward because there's a diminishing supply of what's left. We had forecasted a longer lease-up period, but given both the demand for renewal space and expansion space and new leases we've signed, you've seen a bunch of them over the past few quarters, I expect we'll be able to achieve even higher mark-to-markets as we go forward to full lease-up of the building.
spk14: Okay, thanks for that. I guess, Mark, just to follow up then is that I know um you've gotten a lot of leasing done in the building as you mentioned uh and and sounds like rents have gone higher you know can you then just give us a feel for how you're thinking about then what the asset valuation could be like versus the the interest sale that was done last year i realize you're still you know i think focused on that um just any feel for whether it's a an noi number or something else how that may have changed based on the underwriting a year ago versus what you're trying to achieve now?
spk25: Well, I don't have those numbers in front of me, but I mean, you know, just looking at it intuitively where like over a year forward, I think in terms of time elapsed, we've leased up a lot of space. We've done it, you know, on budget. So time value alone, you know, would warrant, you know, some type of premium. On the one hand, You could say, well, you know, that's great progress. On the other hand, we budgeted this progress. That's the progress our partner bought into when they did the deal. When was it, Harry? 13 months ago. 13 months ago. And, you know, one of the things our partners rely on is we put numbers on a piece of paper. They're not shy. They're not, you know, unobtainable, obviously, but they're not shy. We test ourselves just like we do with you guys every December with our scorecard. We do the same with our partners. and put down what we think we can achieve both timing and rents and concession packages. We've been achieving that. So the good news is we're executing the plan. The costs for the development are coming in right on the nose of where we expected them to come in. In fact, we increased the scope a bit to include a more dramatically improved rooftop like we did at One Madison. And by the way, the rooftop at One Madison is spectacular. And I think it's going to be one of the one of the real icons down in that area for venue space going forward. And so on the one hand, you pick up the time value. On the other hand, we're dead on our numbers. So that's the good news. And I would expect there'll be some premium to where we transacted.
spk11: All right. Thanks.
spk25: Appreciate it.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Steve Sakwa of Evercore ASI.
spk35: Your line is now open.
spk05: Thanks. You guys have had a lot of success leasing up, you know, 280 Park, 245 Park. Obviously, one Vanderbilt is filled. You know, one Madison on the office side maybe hasn't made as much traction, Mark. I know you kind of leased up all the retail there, but maybe you or Steve, just kind of speak to the demand within that 1.2 million square foot pipeline that you're seeing for... for one, Madison, and maybe what's been holding the leasing back at that asset?
spk25: Steve, I just want to... First of all, somebody restrained this guy. Second of all, Steve Sockwood, that's quite a statement, given that we're 65% leased, over 70% economically leased, right on our original budget, which was a pre-COVID budget, right on our numbers. And The building doesn't even really open until I think like, you know, November or something. So to say the building is behind schedule or whatever words you use or, you know, not leasing or anything. No chance, my friend. I mean, we don't think that mark, but we lease that building. That retail is 100 percent leased. The tower is 100 percent leased. And we are, I think, three eighths leased in the podium or something like that. It is dead on the numbers. So we could talk about the leasing status. That's fine. But no notion of any challenge or any underperformance on that asset. No way. Now, Steve, he's calmed down a bit so he can go.
spk32: Steve, isn't it good when your boss has your back that way?
spk04: I'm glad he's passionate about the project.
spk32: Well, I think Mark hit all the highlights. You know, it's it's. The building is 65% leased. The tower portion of the building is fully leased. We just signed the top floor with an expansion to FanDuel. So they now have two floors in the building, rents that exceeded our underwrite for that last floor. What we have remaining in the building are five floors in the podium of the building. Those are 92,000 square foot floor plates. without a doubt it is the best building in the midtown south sub markets um and everybody we tour through there uh loves the loves the the project uh the challenge are you know what we have available right now are those five large floor plates and as no doubt you've read some of the market reports in the brokerage houses there's been a dearth of large tenants in the Midtown South market, as opposed to large tenants actively transacting in Midtown, where we've done more than our fair share of very large deals in the Midtown market. It's a matter of time before the large tenants sort of come back into the Midtown South market. And when they do, the building is well positioned and will have great success.
spk05: Okay, thanks. And then is there any update on the potential stake in One Vanderbilt? I know that was something that was actively marketed and part of your plan for 2024. I'm just curious if there's any updates you can share.
spk26: Yeah, sure. You know, One Vanderbilt, you know, continues to set the standard for the market and it continues to receive recognition nationally and globally. No matter what meeting we're in throughout the world, the first thing investors want to talk about is one Vanderbilt. It's fully leased. The debt is locked in through 2031, sub 3%. Summit continues to outperform as a globally recognized tourist destination. We just added our second Michelin star restaurant. Architecturally, Jamie Von Klemper and the KPF team just received, I think it was like last month, the prestigious AIA National Architecture Award for their work at the building. And by my estimation, we have an excess of $30 a foot of average embedded rent growth, really which I look at as demonstrating the scarcity and really no comparable supply on the horizon due to a bunch of factors. Sourcing the right location, long lead time, lack of affordable construction financing. Some of the big anchors needed for any comparable project to this recently signed up commitments. I think you have Blackstone, Bloomberg, Citadel. And I think all of these factors, they really create a moat for One Vanderbilt. And so for all these reasons, of course, we have very strong investor appetite and multiple offers from investors. And I know everyone on this call wants speed, but I think most important is the right investor on the right terms and not really looking at it quarter by quarter. With that said, we are working on transaction documents, and I do expect news to share later this quarter.
spk03: Great. Thanks.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Camille Bonnell of Bank of America.
spk35: Your line is now open.
spk30: Hi. It seems like the financing and transaction market is starting to open up this year. So more broadly, can you talk to how investors are underwriting lease up timelines and returns for office in New York City?
spk26: So just repeat, do you mind repeating the question?
spk30: Just wondering if you could provide more color on the underwriting that investors are looking for when looking at office buildings.
spk26: Yeah, look, I would say on the fundamental side for the right assets, I think, as we've always said, you can't generalize the market. But for the types of deals we own, for the types of deals we're investing in, looking at whether it be through the fund or through our balance sheet, the fundamentals of the real estate, investors are very easily wrapping their head around today. There isn't a lot of question about rents, downtime, or even concessions at this point. Investors, again, whether it be through the fund or on specific deals, they have a lot of confidence in our ability to underwrite assets. We talked about 245 Park. As Mark said, we're dead on the underwrite that we presented to our partner a year ago, and that is over 500,000 square feet of leasing just in 13 months. So there's a lot of ability for investors as we sit with them to wrap their head around those fundamentals. With respect to the overall transaction market, the reason we're not seeing significant number of investor transactions is really just the lack of debt liquidity today. And a lot of that is what is driving us to want to launch the fund and the efforts that we're putting in there is to to be that source of liquidity but you know right now the reason we're not seeing significant investor activity uh is really because investors are still trying to wrap their head around um where the liquidity will come from in the debt capital markets okay and for the benefit for those who've only started to follow your company more recently curious to understand the kind of involvement
spk30: your teams engage in when you have active assignments on the special servicing side? How much capacity do they have to take on more?
spk26: Yeah, look, special servicing and asset management for us is really an exponentially growing opportunity. You know, we have a subsidiary entity, Green Loan Services, run by Andrew Falk. and capital providers continue to come to us for real estate services, whether that be on the special servicing side or asset management side. Right now, we have over $3 billion of active special servicing and asset management, and another $6 billion where we're named special servicer, which I just look at as future opportunities for the special servicing business. In addition to that, I expect that to grow pretty exponentially over the coming quarters. We have a pipeline right now of over $2 billion of additional opportunities, not all in New York. And I would expect very shortly to land most, if not all of those. Those figures are going to continue to grow. And as I think Matt alluded to earlier, that almost entirely goes right to the bottom line. So that's a big focus of ours. In terms of staff, You know, which I think was the second part of your question, you know, Andrew and his team, you know, continue to have the ability to take on new opportunities and use the resources within the firm. But we're constantly monitoring if we need to staff additional people on it. But again, I would expect most, if not all, of the revenues to go right to bottom line.
spk30: And so to clarify, is the timing of that $6 billion that you're designated as factored into the updated guidance you provided last night?
spk07: The $6 billion is not at all factored into the guidance we put out last night. None of it.
spk30: Okay. Thank you.
spk07: Yeah.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Blaine Heck of Wells Fargo.
spk35: Your line is now open.
spk13: Great. Thanks. rent spreads on signed leases increased really nicely for you guys this quarter. Can you just try to characterize kind of how much of that you think might have been more of a mixed issue and lower rents on expirations this quarter versus how much of that is kind of a reflection of market rent growth that you guys have seen recently? Really just trying to get at whether the mid-teens level seen this quarter is kind of a blip or a level that could be more sustainable.
spk07: Yeah, I mean, the mark to market, when we put out our guidance and then reported first quarter, people questioned, you know, how do you correlate down in the first quarter to a positive two and a half to five for the full year? You know, the mix and the quarter quarterly activity is going to bounce all over the place. So to date, yeah, we had a good quarter. We expected the quarter, second, third quarter to be relatively strong just based on the mix of leases that we expected to do in those periods. I think we're still on a trajectory on a full year basis to hit our targets. That'll be a function of the mix that happens for the back half of the year. But I wouldn't read too much market movement or anything like that into what we've achieved thus far. Volume, yeah, you could do that, but mark to market, no.
spk13: Great. That's helpful. And then just second question, any update on the casino bid that you can provide?
spk25: No, I don't think anything, I mean, you know, if you're asking about casino timing, then no, I think everything is out there in terms of the decision that's in front of the governor right now as to whether to expedite the process by calling for the submissions, forming the CAC, and getting past the first stage of the process, which is the hyperlocal stage. We, of course, are strong advocates of expediting. We think there's a number of reasons not to want to see the process drag out indefinitely, really because of the jobs that will be produced in the aggregate by three casino licenses will be extraordinary and impactful on the construction trades and the industry in order to get what will undoubtedly be tens of billions of dollars of construction underway. And in addition, after they're built, there's significant number of operating jobs, good paying, excellent newly formed jobs that New York City hopefully will be the beneficiary of not just one, but hopefully two licenses. And I think there's a lot of reasons also on the taxation front because there's certainly upfront monies that the state stands to benefit from for the upfront license fees. And then obviously the significant ongoing taxes that'll be projected to be earned by the gaming operations. So a lot of good reasons to expedite We're certainly ready. We have our building. The building is built. There's really no displacement issues or interruption issues. We have a great bid that will uplift all of Times Square and also the city as a whole because of the way in which we're working with Caesars Rewards to solicit hundreds of coalition supporters into the bid who will all benefit from the fact that The Times Square, Caesars Palace Casino will be really outward facing when it comes to things like retail, restaurants, hotels and entertainment. It's like one of the most compelling community development, economic development projects I can think of in New York City. So we're hopeful to prevail and we'd like to see the process get going. With that said, I think that there's still a decision pending up in Albany as to when exactly the bids will be called for, and when they are, we'll be ready.
spk09: Great. Thanks, guys.
spk35: Thank you.
spk34: One more for our next question. Our next question comes from the line of Anthony Pallone of JP Morgan.
spk35: Your line is now open.
spk16: Thanks. I'd like to go back to the transaction market and understand the lack of debt out there. But as you mentioned, you are the balance sheet partners and have been able to get debt. So what would levered and unlevered IRRs have to be for you all to put capital out there to do something on assets that you find attractive?
spk25: Tractive unlevered in order to, well, for what kind of business? For which type of, I mean, everything's got, you know, there's, obviously we're doing a lot of, we intend to be doing a lot of debt and preferred equity. I think you talked about the growing pipeline, most of which is intended, or all of which is intended for the fund. You know, and, you know, those returns, I think we've talked about in the past in terms of, well, you know, I think the market, for that product can range anywhere from low teens to high teens on average, depending on the type of asset, the location, the credit. It's very hard to extrapolate from that because every deal is so different, has its own nuances. But I think for subordinate lending, I'd feel safe in saying low teens to high teens is a good spread. And, you know, in other activity, obviously all the fee-based activity that Harry spoke of, that's, you know, it's almost, you know, it's very capital light. So the returns there are extremely strong. And, you know, we'll be committing some dollars in that, you know, towards building out the platform with additional resources and in some cases taking some capital positions, but that's very high margin business. You know, the expansion of Summit, you know, is a very... uh you know relatively high margin business which is return for having spent years and years building a brand and you know so therefore it's a higher return activity and in terms of you know new property acquisitions um you know we've we're really development focused right now um because we see that as being strength in the market and we are looking at uh doing residential um conversion, conversion of office to residential, 753rd being the first of that program that we're intending to roll out. We're already in design development. We've retained our professionals and our team. We're making headway on the design and programming of that building. We intend to be in physical construction sometime in early 2025. I think it's going to be sort of a it's going to set the standard, if you will, in terms of conversions of that vintage of office building in Midtown to something that I think will be a real destination. And, you know, the levered returns on a project like that will be, you know, mid to high teens levered. And that's, I think, you know, for residential, which is very in vogue and attractive these days, I think that's a very compelling opportunity. And that's because, you know, we're going the affordable route in order to be able to do something really good for the city and produce, you know, you know, what could be 100 units or more of affordable housing in just one project. And, you know, at the same time, being able to generate returns that we think we'll be able to attract that equity capital that we can go forward with. We'll be working on that capitalization throughout the balance of this year. So probably in December. at investor meeting, we could shed more light to exactly what those returns look like, and I would think those would be prototypical returns.
spk16: Okay. And then just, excuse me, my second question, maybe just a detail one for Matt. Matt, if my notes are right, I think in investor data, guidance for other income for the year was, I think, $84.5 million, and I think it included $17.5 million for Summit, if I got this right. And so just wondering what that new number might be? Because it sounds like part of the guidance bump was, you know, change there.
spk07: No, well, a little part of the guidance bump was other income. You know, we increased guidance by 10 cents. I'd say, you know, half of that is fee income. The rest is summit and NOI. So, you know, that's five cents is roughly three and a half million dollars or so. That's the incremental fee income. So, you know, we're not running that far ahead of our anticipated other income levels overall. But, you know, there's the potential to do better than that, depending on how special servicing assignments play out over the balance of the year. But, you know, I think we're trending exactly where we expected to be, maybe slightly ahead, and we'll expect to see similar levels, you know, as we head into next year.
spk16: Okay, so just make sure I got that right, about a nickel from the other income running a little ahead, two, three cents from Summit and the rest from the core?
spk00: Correct.
spk16: Okay, got it. Thank you.
spk35: Thank you. One moment for our next question.
spk34: Our next question comes from the line of Michael Griffin of Citi.
spk35: Your line is now open.
spk10: Great, thanks. I wanted to go back and touch on leasing for a minute. Steve, I think you mentioned earlier in the call that some of the vacancy you're seeing in the market is those bottom level, not the power floors. But if we're led to believe that particularly Park Avenue is as strong as it's been, wouldn't you expect kind of greater leasing demand to come from those lower levels? lower place floors and then you know you mentioned concessions as well i'm curious if you've seen any change in net effective rents given it seems like face rents have been uh increasing particularly a lot of properties in in that sub market well when i referred to the vacancy in the you know being heavily weighted towards the bottoms of the buildings i was i was speaking to the overall market so that that was not limited to park avenue that was you know all buildings
spk32: you know, in the Class A sector. Park Avenue overall, that's what you're really asking. I mean, that has a, you know, current vacancy of less than 9%. So that is a landlord favorable sub-market, which is why you've seen us raise rents in our Park Avenue buildings at 280 Park, at 245 Park, at 450 Park. And I don't see any let up as far as tenant demand for um for those for those quality buildings on park avenue irrespective of whether those spaces are located at the top or bottom of the building concession wise as i spoke to earlier i haven't seen any change um i you know i just i'm of a believer that right now um there's an ability to push rents as opposed to tighten concessions with the passage of time you'll see concessions you know get reeled in a little bit. But first thing that will come off the table will be some of the free rent. But I think because build-out costs for tenants is still very expensive. That's why the tenants are leaning heavily on their landlords and expect to get TI allowances while they sort of cover it in the form of the higher rent.
spk10: Great. That makes sense. And then maybe one, Matt, for you just on the capital plan, given I think where the equity is currently trading, could you look at maybe issuing equity as kind of an arrow in your quiver or is the plan to kind of maintain the outlook for your capital needs laid out at Investor Day?
spk07: I like the analogy to an arrow in the quiver. Part of the beauty of being a public company is that it's available to us. We don't see, as we play out over the course of 24, on our base case plan, the need for any equity because our balance sheet is in good place, our liquidity is in good place, the plan that we laid out in December is playing out as expected. I think where we might see an opportunity to top up liquidity is if we saw additional investment opportunities. We always keep eyes out for stuff like that, but that's You know, that's what it would take for us to really look at, you know, the equity as a source because it is still relatively expensive.
spk33: Great. That's it for me. Thanks for the time.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Ronald Gendon of Morgan Stanley.
spk35: Your line is now open.
spk02: Great. Hey, just one quick one for me, just on the same store NOI, just thinking about the guidance at the investor day and comparing where you're trending sort of year to date, that suggests there's sort of a big acceleration in the second half of the year. Just my thinking about that, right, that the same store is sort of could be two, three in the second half and any sort of, puts and takes as we're thinking about the second half and going into 2025. Thanks.
spk07: Yeah, let's clarify that. And I'm sitting next to him, so he can reach me if he needs to. So our guidance for Samster NOI was down 1% to 2%. A certain CEO next to me said for goals and objectives, kind of tongue in cheek, that we would be up 1% to 2%. Now, we are trending ahead first half of the year. So that's good. I think to reach the goal would be, I'd love to see it. It'd be outstanding. But as we sit today, we're trending a little bit closer to our original guidance as opposed to the objective.
spk25: Yeah, look, those are stretch goals. We never hit all of them, nor should we, although we'd like to. But the goal is to hit as many as we can. And I believe in having a target that is an ambitious target on all levels. When I look at those goals and objectives for the year, midway through the year, we're tracking really well on many of them, most of them, certainly. Not all. There was a scenario where we could have been in that one to two range. There still is a scenario where we can be in that one to two range with a big second half a year. But, you know, it's going to be pretty tough. And, you know, we may or may not hit that particular goal, but I'm confident we're going to hit the vast majority of those goals. And, you know, the important thing on this end is to, you know, is to try and, you know, shoot lights out on all these, you know, leases that we do. We do, you know, dozens and dozens a year, probably over 100 a year, actually. And, you know, let's see how the second half of the market second half of the year shapes up. and we're gonna try and push the bottom line as much as we can and squeeze down our expenses as much as we can in the second half of the year without sacrificing any quality in order to try and make the goal. But it's too early to say one way or the other, but we said it in December, this one was gonna be a push.
spk02: Right, and then my second one was just, you guys have a lot of properties, where you've been looking to do JVs or redevelopment, right, from 1 Vanderbilt to 45 Park to Herald Square. Maybe could you just talk about what the sort of level of demand interest from, you know, local U.S. buyers, international buyers, and sort of your conviction in getting a lot of those deals through the finish line? Are you building conviction? Just any comments there would be helpful.
spk26: Yeah, look, the demand from foreign buyers today is very strong. It hits on what I said earlier. The assets we own today, investors believe heavily in the fundamentals of those assets. And the good news for us is in many cases, as you know, we're working through our plan to extend our debt across all the assets, and that makes assets more attractive for investors to invest. So there's a lot of belief from the foreign market that in the fundamentals of our real estate, and we'll continue to see new joint ventures over the next few years.
spk08: Thanks so much.
spk35: Thank you. This concludes the question and answer session. I'd now like to turn it back to Mark Holliday for closing remarks.
spk25: Okay. Well, for those still on, thank you for participating and listening in. We appreciate it. We like the questions. We love the constructive feedback. We'll take it to heart. Everyone have a great summer, and we'll speak again in Q3. Thank you.
spk35: Thank you for your participation in today's conference. This does conclude the program, and we now disconnect. you Thank you. Bye. Thank you, everybody, for joining us, and welcome to SL Green Realty Corp's second quarter 2024 earning 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 and 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 under the Securities Act. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on both the company's website at www.slgreen.com. By selecting the press release regarding the company's second quarter 2024 earnings and our supplemental information included our current report on form 8K relating to our second quarter 2024 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Reality 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'll now turn the call over to Mark Holliday. Please go ahead, Mark.
spk25: Thank you. Good afternoon and appreciate everybody joining in today. I think this was, by all measures, a great quarter for SL Green, even by our own lofty standards. I want to lead off by expressing my sincere appreciation for the SL Green team who have massively contributed to our company's impressive results for this quarter and throughout the most challenging times of recent. The extremely talented men and women of SL Green work seven days a week, believe in New York City, care deeply about what we are doing, and are simply the best in the business. We could not print these results against the tide of negativity and defeatism without the dedication and loyalty of the 300-plus SL Green corporate employees and another thousand-plus who work in the buildings day, night, weekends, and holidays. We are extremely lucky to have such a diverse and talented team of professionals, and it's the biggest reason for our performance in the office sector over the past one, three, and five years. And it should be the deciding factor in making an investment in SL Green the knowledge that we can outperform in good markets and bad, and that we will always put the shareholders first in making strategic decisions. This year-to-date achievement illustrates something far greater than simply a market in recovery because we are vastly outperforming a still unsettled commercial real estate market. It is the result of a deliberate plan we laid out years ago to improve the quality of our portfolio by physically improving and amenitizing our properties, focusing our efforts along the Park Avenue spine in East Midtown, selling assets that didn't fit that profile, and then monetizing our best assets to fund our new development activity. What you are now seeing is the positive consequence of the execution of that plan, and I believe we are now on a path to seeing sequential quarterly improvement in our operating and financial metrics into the foreseeable future when others gave up on new york we believed people said that the financial sector was picking up and moving to florida but what we've seen is significant sector growth right here in our hometown fueled in part by the 12 billion dollars of wall street profits in just the first quarter of 2024 and that's as compared to 26 billion dollars for all of last year Growth in South Florida and elsewhere doesn't mean contraction here in New York. In fact, it's been the opposite. Companies like Blackstone, Citadel, Wells Fargo, and Bloomberg are all expanding their footprint here, and it appears that JP Morgan is buying the neighboring building at 250 Park Avenue as they continue to report extremely strong profits. But the demand for space goes far beyond Park Avenue. And I think the best illustration of that is looking at our current pipeline of office leasing, which is 1.2 million square feet. This is after all the activity we announced yesterday, totaling 1.4 million square feet of leases signed to date. There's another 1.2 million square feet of identifiable leases pending, term sheets out for signature that we have in our sites. after that activity. And interestingly, more than 80% of that activity is not on Park Avenue, but rather it's on radiating outwards through East Midtown, everywhere from 6th Avenue on over to 3rd Avenue, fairly evenly dispersed, lots of mid-market deals, lots of strength in the middle, not just the big deals. And I think it's one of the more exciting moments elements of what we have to look forward to for the balance of this year. You know, everyone wrote off retail in New York City, but you saw our release yesterday, and it very clearly is back. Retail is back. Yesterday, we announced that One Madison retail is now 100% leased, curated in a way that brings real value to our tenants at the building and to the residents of the Flatiron neighborhood. And naysayers wrote off New York as a global destination. But tourism is beating expectations again. Well over 60 million tourists expected this year in New York. Hotel average daily rates up 3% year over year. Occupancy is approaching 90% in Manhattan. And the result of this is because of limits on Airbnbs and conversion of some hotel properties to supportive housing. If this trend continues, Midtown is likely going to be under-hoteled again soon. There is no better evidence of this surge of tourism than right upstairs from us at Summit, where attendance numbers are up again this year over the outperformance attendance we had last year. It's just proving again and again that this has become one of New York City's most compelling destination experiences and was a contributor to our quarterly results and, you know, more to come on that. But I want to end on an even higher note. Today, I'm excited to announce that we have secured our first new summit global location and we are expanding to Paris. More details to come on that in the fall today. But today I can say to everyone listening in in Paris, a bientot. And see you soon. And thank you all for listening. And we'll take questions.
spk35: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to 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 limit your questions to two per person. Please stand by while we compile the Q&A roster.
spk34: Our first question comes from the line of John Kim of BMO Capital Markets.
spk35: Your line is now open.
spk15: Through a curveball with the Paris announcement, so I have to ask about that. Can you talk anything more about the location of Summit in Paris, the timing of it, and anything else you could describe on it?
spk25: Yeah. No, we're going to leave that. Stay tuned. More formal rollout in the coming months. Lots to talk about, very exciting, but just wanted everyone to know we're coming.
spk15: Maybe if I could focus in on Summit, New York. You had a 16% growth in revenue this quarter, year-over-year. How much of that was visitor count versus average ticket price? And can you also remind us on the mechanics of how the rent is paid to the JV? How much of the OPEX is that rent figure?
spk25: I got the first part of the question. It's mostly attendance. I think the attendance which we had up for the year was up another $100,000 for the first half of the year above our budgeted numbers. The ticket prices are fixed. My goal is and the goal at Summit is to really keep Summit as an affordable price point as possible so people can come and enjoy it both within the city and around the you know, the world. We have programs for New York residents where they get discounts. We have discounted programs that I think are best in class for active duty personnel and veterans. And the prices are fixed. We don't surge price. We set those prices at the beginning of the year. We hold them fixed and evaluate at the end of every year. So So almost all of what you see is attendance. What was that second part that you asked, if I can ask you, John, again?
spk15: The intercompany rent or the rent that you pay to the JV, is that how much of that is in the operating expense? And also on the revenue or visitor accounts, when do you start opening up on Mondays or expanding the hours?
spk25: Well, why don't you answer the rent part?
spk07: Yeah, rent schedules in the supplemental, John, the base rent. We don't get into how much percentage rent the – Summit pays to the building.
spk25: Okay.
spk07: And then hours. Hours of operation? Yeah, hours and days.
spk25: You know, those are, I think right now we're typically opening from around 9 in the morning, last ticket sale 10.30 at night, facility closes at midnight. We could go longer. The night experience at Summit is every bit as good as daytime and sunset, something better. um because of the city lights and the air at night feature we have um with uh that we've curated in the evening so it's possible that in the second half of the year maybe after the summer we'll we'll go later on the closing hours we're open seven days a week now uh portions of the first half of the year we were closed on tuesdays i believe uh down days but right now the Facility is in excellent condition. The demand is strong. We're going seven days, and I imagine we'll be going seven days almost right up until the end of the season.
spk21: Right up until the end of the year.
spk29: Thank you.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Connor Mitchell of Piper Sandler.
spk35: Your line is now open.
spk17: Hey, good afternoon. Thanks for taking my question. Mark, you touched on it in your opening remarks, but just as Park Avenue leases up at higher rents with the recent quarter and activity as an example, could you just expand on how you guys are seeing the dynamic of the neighboring sub markets changing in terms of pricing, concessions, Tory activity, any other color you might be able to give?
spk25: Yeah. I don't have the average starting rent for the pipeline, but You know, just to give you a sense for the leases done in the second quarter, the average rent, which was about $93 in the first quarter, was up over 10% to over $100 in the second quarter. So, you know, a lot of that is influenced by park, but not all of it. It's really, it's as much Park Avenue as it is tops of buildings because, you know, I think Steve will sort of run you through the dynamic, in the dearth if you will of big block availability particularly in tops of buildings whether it's old or new and regardless if it's on park or off a park and uh it's definitely driving rents and as it relates to concessions steve you know your thoughts well a couple points uh you know mark's spot on with regards to the you know migration to better quality space and
spk32: Don't confuse that to mean just new construction or heavily renovated buildings. What we're seeing is that even in the mid-price point buildings, where we've got a tremendous amount of activity in our portfolio, but a lot of that is skewed towards the upper half of the floors, so the tower floors in particular. If you look overall in the market, beyond just our portfolio, there's a stat out there that would tell you that 57% of the current direct availability in the marketplace is located in the base floors of buildings. So you're seeing price appreciation on Park Avenue. You're seeing price appreciation in the heavily renovated buildings, irrespective of location. And you're seeing price appreciation and heavy and strong leasing velocity in the tower floors of of both the high quality buildings and the mid price point buildings concessions i think as we've said for a while now remain pretty static static i haven't seen any change in concessions irrespective of uh of the building you're in and you know we're seeing the prices get pushed on the better portions of buildings and better and better quality buildings and i think we had commented earlier in the year when asked that same question that's exactly how we expected things to unfold as the market continues to improve.
spk28: Okay.
spk17: Appreciate that. And then maybe just a quick question on the JV debt fund as well. I'm just wondering if there's any update on if the focus is still primarily on Manhattan or maybe any, any opportunities outside of the company's primary focus, some markets may surprise you and you're kind of taking a look at any, uh, any opportunities for the debt fund outside of Manhattan?
spk26: Manhattan. The focus is Manhattan. I will add to that, you know, as you'll start to see us or continue to see us grow the special servicing and asset management business, which is not a principal investment business, you'll continue to see us pick up assignments outside of Manhattan, but that's purely a fee business for us.
spk20: Okay. Thanks very much.
spk35: Thank you. One moment for our next question. Our next question comes from the line of Michael Lewis of Tourist Securities. Your line is now open.
spk19: Thank you. My first question is about the leasing in Manhattan so far year to date. You know, your full year guidance, as you know, for Manhattan office sign lease is 2 million square feet for the year. I don't know if you expected that to be, you know, first half weighted or not. So I guess the question is, you know, is your volume here today, are you running ahead of what you expected in your guidance? And if you are, you know, is there a reason or is it just, you know, broad strength that you're seeing in the market?
spk25: Well, I mean, we're definitely running ahead of guidance. The year has been, you know, first half of the year was really strong for us and occupancy heading in the right direction and Not just volume for volume's sake, but really good leases on, you know, terms where we're satisfied with. And, you know, I think you saw, you know, you're seeing that in our guidance as well as in other ways. So, yeah, we should exceed our goal for the year. And that's, you know, that's good by how much we'll see. I'd like to see Steve and his team blow it away, you know, and end up with some really – know sort of fantastic results but look it's uh there's a lot of work to do on that million two pipeline i guess you know steve you could sort of give some you know parameters around what's driving that pipeline uh and you know where that strength is coming from yeah um so as we mentioned earlier the pipe is currently it stands at about a million two hundred thousand square feet um in that number we have leases out
spk32: in negotiation as opposed to just term sheets being negotiated, covering over 760,000 square feet. And of that number, of the overall pipeline of Million Two, 62% of the square footage that's in the pipeline is for deals or pending deals for current vacancy in the building. So you're seeing a lot of new tenants come into the into the portfolio filling current vacancy um we're seeing the financial service sector which it makes up 50 of our pipeline uh continue to add bodies and add square footage and see dramatic expansions some of the bigger deals that you've seen us announced recently this year with both pjt at 280 park avenue and harry's at 245 park avenue Those were very large transactions, and each of them were for tenants that were doubling in size. So I think those were some big drivers of our success to date, and we're seeing that in our pipeline. So no expectation that's slowing down for the rest of the year.
spk19: I agree. We'll look for that green thumbs up on that slide in the deck in December. My second question is about the fee income, and I talked to Matt a little bit about this. The other revenue line item was $33 million this quarter. It was $13 million in the first quarter. If I look at the guidance, it appears to me it's somewhere in the mid-teens quarterly run rate the next couple of quarters. Can you maybe talk about the recurring fees? And I don't want to call the rest of them non-recurring because I realize they're just lumpy and more transaction-driven. But it might help kind of frame not only modeling but what multiples to put on revenue streams you know, to talk about the servicing fee versus some of the lumpier transaction fees in that line item?
spk07: Yeah, it's Matt. So, you know, I think this quarter finally illuminates to people, you know, the fee generating machine that this platform can be, which we've, you know, telegraphed to people over the last few years, and it's really, you know, showing its strength now. These fees come in various forms, and they can be lumpy. So last quarter was, you know, a fairly... muted quarter in ancillary fee income this was big and those fees can come in many forms we talked about the special servicing business that business is you know basic modest fees on a monthly basis until you resolve the situation then you get a resolution success fee those are unpredictable but they're sizable when they come in we often get fees from partners buyers of assets of restructuring debt those can be lumpy those can be time you know the function of the timing of the closing of those deals uh that's part of you know what what flowed through in the quarter so when you say you know what's recurring well all of those as categories are return are recurring uh the timing of of those things is what is most challenging by the way even for us it's the the the blessing of not putting out quarterly guidance i don't have to guess when these fees come in uh every three months we can do it over the course of 12 months but even that can move from quarter to quarter but as categories you will see special servicing fees, ancillary fees, asset management fees continue to be a bigger and bigger part of our recurring income. And that's a very high margin business, much higher margin than the real estate, and therefore requires a much higher multiple.
spk19: Well, I have to continue to do quarter to quarter, so I'll do my best. But thank you for that.
spk35: Thank you.
spk34: One moment for our next question. Our next question comes from the line of Nick Ulico of Scotia Bank.
spk35: Your line is now open.
spk14: Thanks. First question is for the Aries renewal and expansion. I think that was done in July. Is it possible to get a feel for the mark-to-market on that?
spk07: It's a... Sizable number. I don't want to get into specific mark-to-markets on leases, but it's, you know, the leases in 245 Park, as a general statement, are being marked up significantly from prior vintage.
spk25: Yeah, I mean, you got to understand, the asset was owned by H&A for a period of time, and, you know, it was probably not receiving the amount of capital commitment it deserved in order to be responsive to a building that's in an unbelievable location and should be a market leader, you know, really in terms of Park Avenue address. So, you know, we're obviously addressing that through a significant capital program we've launched. It's already underway. We hope to be done by end of 25, first quarter of 26. And you know, we're marketing the building off of the commitment to do that, uh, you know, very robust repositioning of the property, everything from a plaza to lobby, uh, amenities, new rooftop, et cetera. I mean, it's, it's going to be a, it's gonna be a phenomenal building when it's done. So, you know, when you, when you look at mark to markets, it's kind of, it's a bit unfair to compare, uh, you know, apples and oranges because this building is, uh, is completely different than its current state or predecessor building, the rents are reflective of that and all the rents in the building from bottom to top are decidedly triple digits, maxing out at as much as $150 a foot or thereabouts. And we're probably raising rents as we go forward because there's a diminishing supply of what's left. We had forecasted a longer lease-up period, but given both the demand for renewal space and expansion space and new leases we've signed, you've seen a bunch of them over the past few quarters, I expect we'll be able to achieve even higher mark-to-markets as we go forward to full lease-up of the building.
spk14: Okay, thanks for that. I guess, Mark, just to follow up then is that I know um you've gotten a lot of leasing done in the building as you mentioned uh and and sounds like rents have gone higher you know can you then just give us a feel for how you're thinking about then what the asset valuation could be like versus the the interest sale that was done last year i realize you're still you know i think focused on that um just any feel for whether it's a an noi number or something else how that may have changed based on the underwriting a year ago versus what you're trying to achieve now?
spk25: Well, I don't have those numbers in front of me, but I mean, you know, just looking at it intuitively where like over a year forward, I think in terms of time elapsed, we've leased up a lot of space. We've done it, you know, on budget. So time value alone, you know, would warrant, you know, some type of premium. On the one hand, You could say, well, you know, that's great progress. On the other hand, we budgeted this progress. That's the progress our partner bought into when they did the deal. When was it, Harry? 13 months ago. 13 months ago. And, you know, one of the things our partners rely on is we put numbers on a piece of paper. They're not shy. They're not, you know, unobtainable, obviously, but they're not shy. We test ourselves just like we do with you guys every December with our scorecard. We do the same with our partners. and put down what we think we can achieve both timing and rents and concession packages. We've been achieving that. So the good news is we're executing the plan. The costs for the development are coming in right on the nose of where we expected them to come in. In fact, we increased the scope a bit to include a more dramatically improved rooftop like we did at One Madison. And by the way, the rooftop at One Madison is spectacular. And I think it's going to be one of the one of the real icons down in that area for venue space going forward. And so on the one hand, you pick up the time value. On the other hand, we're dead on our numbers. So that's the good news. And I would expect there'll be some premium to where we transacted.
spk11: All right. Thanks. Appreciate it.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Steve Sakwa of Evercore ASI.
spk35: Your line is now open.
spk05: Thanks. You guys have had a lot of success leasing up, you know, 280 Park, 245 Park. Obviously, one Vanderbilt is filled. You know, one Madison on the office side maybe hasn't made as much traction, Mark. I know you kind of leased up all the retail there, but maybe you or Steve, just kind of speak to the demand within that 1.2 million square foot pipeline that you're seeing for... for one, Madison, and maybe what's been holding the leasing back at that asset?
spk25: Steve, I just want to... First of all, somebody restrained this guy. Second of all, Steve Sockwood, that's quite a statement, given that we're 65% leased, over 70% economically leased, right on our original budget, which was a pre-COVID budget, right on our numbers. And The building doesn't even really open until I think like, you know, November or something. So to say the building is behind schedule or whatever words you use or, you know, not leasing or anything. No chance, my friend. I mean, we don't think that mark, but we lease that building. That retail is 100 percent leased. The tower is 100 percent leased. And we are, I think, three eighths leased in the podium or something like that. It is dead on the numbers. So we could talk about the leasing status. That's fine. But no notion of any challenge or any underperformance on that asset. No way. Now, Steve, he's calmed down a bit so he can go.
spk32: Steve, isn't it good when your boss has your back that way?
spk04: I'm glad he's passionate about the project.
spk32: Well, I think Mark hit all the highlights. You know, it's it's. The building is 65% leased. The tower portion of the building is fully leased. We just signed the top floor with an expansion to FanDuel. So they now have two floors in the building, rents that exceeded our underwrite for that last floor. What we have remaining in the building are five floors in the podium of the building. Those are 92,000 square foot floor plates. without a doubt it is the best building in the midtown south sub markets um and everybody we tour through there uh loves the loves the the project uh the challenge are you know what we have available right now are those five large floor plates and as no doubt you've read some of the market reports in the brokerage houses there's been a dearth of large tenants in the Midtown South market, as opposed to large tenants actively transacting in Midtown, where we've done more than our fair share of very large deals in the Midtown market. It's a matter of time before the large tenants sort of come back into the Midtown South market. And when they do, the building is well positioned and will have great success.
spk05: Okay, thanks. And then is there any update on the potential stake in One Vanderbilt? I know that was something that was actively marketed and part of your plan for 2024. I'm just curious if there's any updates you can share.
spk26: Yeah, sure. You know, One Vanderbilt, you know, continues to set the standard for the market and it continues to receive recognition nationally and globally. No matter what meeting we're in throughout the world, the first thing investors want to talk about is One Vanderbilt. It's fully leased. The debt is locked in through 2031, sub 3%. Summit continues to outperform as a globally recognized tourist destination. We just added our second Michelin star restaurant. Architecturally, Jamie Von Klemper and the KPF team just received, I think it was like last month, the prestigious AIA National Architecture Award for their work at the building. And by my estimation, we have an excess of $30 a foot of average embedded rent growth, really which I look at as demonstrating the scarcity and really no comparable supply on the horizon due to a bunch of factors. Sourcing the right location, long lead time, lack of affordable construction financing. Some of the big anchors needed for any comparable project to this recently signed up commitments. I think you have Blackstone, Bloomberg, Citadel. And I think all of these factors, they really create a moat for One Vanderbilt. And so for all these reasons, of course, we have very strong investor appetite and multiple offers from investors. And I know everyone on this call wants speed, but I think most important is the right investor on the right terms and not really looking at it quarter by quarter. With that said, we are working on transaction documents, and I do expect news to share later this quarter.
spk03: Great. Thanks.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Camille Bonnell of Bank of America.
spk35: Your line is now open.
spk30: Hi. It seems like the financing and transaction market is starting to open up this year. So more broadly, can you talk to how investors are underwriting lease up timelines and returns for office in New York City?
spk26: So just repeat, do you mind repeating the question?
spk30: Just wondering if you could provide more color on the underwriting that investors are looking for when looking at office buildings.
spk26: Yeah, look, I would say on the fundamental side for the right assets, I think, as we've always said, you can't generalize the market. But for the types of deals we own, for the types of deals we're investing in, looking at whether it be through the fund or through our balance sheet, the fundamentals of the real estate, investors are very easily wrapping their head around today. There isn't a lot of question about rents, downtime, or even concessions at this point. Investors, again, whether it be through the fund or on specific deals, they have a lot of confidence in our ability to underwrite assets. We talked about 245 Park. As Mark said, we're dead on the underwrite that we presented to our partner a year ago, and that is over 500,000 square feet of leasing just in 13 months. So there's a lot of ability for investors as we sit with them to wrap their head around those fundamentals. With respect to the overall transaction market, the reason we're not seeing significant number of investor transactions is really just the lack of debt liquidity today. And a lot of that is what is driving us to want to launch the fund and the efforts that we're putting in there is to to be that source of liquidity but you know right now the reason we're not seeing significant investor activity uh is really because investors are still trying to wrap their head around um where the liquidity will come from in the debt capital markets okay and for the benefit for those who've only started to follow your company more recently curious to understand the kind of involvement
spk30: your teams engage in when you have active assignments on the special servicing side? How much capacity do they have to take on more?
spk26: Yeah, look, special servicing and asset management for us is really an exponentially growing opportunity. You know, we have a subsidiary entity, Green Loan Services, run by Andrew Falk. and capital providers continue to come to us for real estate services, whether that be on the special servicing side or asset management side. Right now, we have over $3 billion of active special servicing and asset management, and another $6 billion where we're named special servicer, which I just look at as future opportunities for the special servicing business. In addition to that, I expect that to grow pretty exponentially over the coming quarters. We have a pipeline right now of over $2 billion of additional opportunities, not all in New York. And I would expect very shortly to land most, if not all of those. Those figures are going to continue to grow. And as I think Matt alluded to earlier, that almost entirely goes right to the bottom line. So that's a big focus of ours. In terms of staff, You know, which I think was the second part of your question, you know, Andrew and his team, you know, continue to have the ability to take on new opportunities and use the resources within the firm. But we're constantly monitoring if we need to staff additional people on it. But again, I would expect most, if not all, of the revenues to go right to bottom line.
spk30: And so to clarify, is the timing of that $6 billion that you're designated as factored into the updated guidance you provided last night?
spk07: The $6 billion is not at all factored into the guidance we put out last night. None of it.
spk30: Okay. Thank you.
spk07: Yeah.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Blaine Heck of Wells Fargo.
spk35: Your line is now open.
spk13: Great. Thanks. rent spreads on signed leases increased really nicely for you guys this quarter. Can you just try to characterize kind of how much of that you think might have been more of a mixed issue and lower rents on expirations this quarter versus how much of that is kind of a reflection of market rent growth that you guys have seen recently? Really just trying to get at whether the mid-teens level seen this quarter is kind of a blip or a level that could be more sustainable.
spk07: Yeah, I mean, the mark to market, when we put out our guidance and then reported first quarter, people questioned, you know, how do you correlate down in the first quarter to a positive two and a half to five for the full year? You know, the mix and the quarter quarterly activity is going to bounce all over the place. So to date, yeah, we had a good quarter. We expected the quarter, second, third quarter to be relatively strong just based on the mix of leases that we expected to do in those periods. I think we're still on a trajectory on a full year basis to hit our targets. That'll be a function of the mix that happens for the back half of the year. But I wouldn't read too much market movement or anything like that into what we've achieved thus far. Volume, yeah, you could do that, but mark to market, no.
spk13: Great. That's helpful. And then just second question, any update on the casino bid that you can provide?
spk25: No, I don't think anything, I mean, you know, if you're asking about casino timing, then no, I think everything is out there in terms of the decision that's in front of the governor right now as to whether to expedite the process by calling for the submissions, forming the CAC, and getting past the first stage of the process, which is the hyperlocal stage. We, of course, are strong advocates of expediting. We think there's a number of reasons not to want to see the process drag out indefinitely, really because of the jobs that will be produced in the aggregate by three casino licenses will be extraordinary and impactful on the construction trades and the industry in order to get what will undoubtedly be tens of billions of dollars of construction underway. And in addition, after they're built, there's significant number of operating jobs, good paying, excellent newly formed jobs that New York City hopefully will be the beneficiary of not just one, but hopefully two licenses. And I think there's a lot of reasons also on the taxation front because there's certainly upfront monies that the state stands to benefit from for the upfront license fees. And then obviously the significant ongoing taxes that'll be projected to be earned by the gaming operations. So a lot of good reasons to expedite We're certainly ready. We have our building. The building is built. There's really no displacement issues or interruption issues. We have a great bid that will uplift all of Times Square and also the city as a whole because of the way in which we're working with Caesars Rewards to solicit hundreds of coalition supporters into the bid who will all benefit from the fact that The Times Square, Caesars Palace Casino will be really outward facing when it comes to things like retail, restaurants, hotels and entertainment. It's like one of the most compelling community development, economic development projects I can think of in New York City. So we're hopeful to prevail and we'd like to see the process get going. With that said, I think that there's still a decision pending up in Albany as to when exactly the bids will be called for and when they are, we'll be ready.
spk09: Great. Thanks, guys.
spk35: Thank you.
spk34: One more for our next question. Our next question comes from the line of Anthony Pallone of JP Morgan.
spk35: Your line is now open.
spk16: Thanks. I'd like to go back to the transaction market and understand the lack of debt out there. But as you mentioned, you all have a balance sheet, partners, and have been able to get debt. So what would levered and unlevered IRRs have to be for you all to put capital out there to do something on assets that you find attractive?
spk25: Tractive unlevered in order to, well, for what kind of business? For which type of, I mean, everything's got, you know, there's, obviously we're doing a lot of, we intend to be doing a lot of debt and preferred equity. I think you talked about the growing pipeline, most of which is intended, or all of which is intended for the fund. You know, and, you know, those returns, I think we've talked about in the past in terms of, well, you know, I think the market, for that product can range anywhere from low teens to high teens on average, depending on the type of asset, the location, the credit. It's very hard to extrapolate from that because every deal is so different, has its own nuances. But I think for subordinate lending, I'd feel safe in saying low teens to high teens is a good spread. And, um, you know, in other activity, obviously all the fee-based activity that Harry spoke of, that's, you know, it's almost, you know, it's very capital light. So the returns there are extremely strong and, you know, we'll be committing some dollars in that, you know, towards building out the platform, uh, with additional resources and in some cases taking some, uh, capital positions, but that's very high margin business. Um, you know, the, the expansion of summit, you know, is a very, uh, uh you know relatively high margin business which is return for having spent years and years building a brand and you know so therefore it's a higher return activity and in terms of you know new property acquisitions um you know we've we're really development focused right now um because we see that as being strength in the market and we are looking at uh doing residential um conversion, conversion of office to residential, 753rd being the first of that program that we're intending to roll out. We're already in design development. We've retained our professionals and our team. We're making headway on the design and programming of that building. We intend to be in physical construction sometime in early 2025. I think it's going to be sort of a it's going to set the standard, if you will, in terms of conversions of that vintage of office building in Midtown to something that I think will be a real destination. And, you know, the levered returns on a project like that will be, you know, mid to high teens levered. And that's, I think, you know, for residential, which is very in vogue and attractive these days, I think that's a very compelling opportunity. And that's because, you know, we're going the affordable route in order to be able to do something really good for the city and produce, you know, you know, what could be 100 units or more of affordable housing in just one project. And, you know, at the same time, being able to generate returns that we think we'll be able to attract that equity capital that we can go forward with. We'll be working on that capitalization throughout the balance of this year. So probably in December. at investor meeting, we could shed more light to exactly what those returns look like, and I would think those would be prototypical returns.
spk16: Okay. And then just, excuse me, my second question, maybe just a detail one for Matt. Matt, if my notes are right, I think in investor data, guidance for other income for the year was, I think, $84.5 million, and I think it included $17.5 million for Summit, if I got this right. And so just wondering what that new number might be? Because it sounds like part of the guidance bump was, you know, change there.
spk07: No, well, a little part of the guidance bump was other income. You know, we increased guidance by 10 cents. I'd say, you know, half of that is fee income. The rest is summit and NOI. So, you know, that's five cents is roughly three and a half million dollars or so. That's the incremental fee income. So, you know, we're not running that far ahead of our anticipated other income levels overall. But, you know, there's the potential to do better than that, depending on how special servicing assignments play out over the balance of the year. But, you know, I think we're trending exactly where we expected to be, maybe slightly ahead, and we'll expect to see similar levels, you know, as we head into next year.
spk16: Okay, so just make sure I got that right about a nickel from the other income running a little ahead, two, three cents from Summit and the rest from the core?
spk00: Correct.
spk16: Okay, got it. Thank you.
spk35: Thank you.
spk34: One moment for our next question. Our next question comes from the line of Michael Griffin of Citi.
spk35: Your line is now open.
spk10: Great, thanks. I wanted to go back and touch on leasing for a minute. Steve, I think you mentioned earlier in the call that some of the vacancy you're seeing in the market is those bottom level, not the power floors. But if we're led to believe that particularly Park Avenue is as strong as it's been, wouldn't you expect kind of greater leasing demand to come from those lower levels? lower place floors and then you know you mentioned concessions as well i'm curious if you've seen any change in net effective rents given it seems like face rents have been uh increasing particularly a lot of properties in in that sub market well when i referred to the vacancy in the you know being heavily weighted towards the bottoms of the buildings i was i was speaking to the overall market so that that was not limited to park avenue that was you know all buildings
spk32: you know, in the Class A sector. Park Avenue overall, that's what you're really asking. I mean, that has a, you know, current vacancy of less than 9%. So that is a landlord favorable sub-market, which is why you've seen us raise rents in our Park Avenue buildings at 280 Park, at 245 Park, at 450 Park. And I don't see any let up as far as tenant demand for um for those for those quality buildings on park avenue irrespective of whether those spaces are located at the top or bottom of the building concession wise as i spoke to earlier i haven't seen any change um i you know i just i'm of a believer that right now um there's an ability to push rents as opposed to tighten concessions with the passage of time you'll see concessions you know get reeled in a little bit. But first thing that will come off the table will be some of the free rent. But I think because build-out costs for tenants is still very expensive. That's why the tenants are leaning heavily on their landlords and expect to get TI allowances while they sort of cover it in the form of the higher rent.
spk10: Great. Um, that makes sense. And then maybe one, Matt, for you just on the capital plan, um, given, I think where the equity is, is currently trading, you know, could you look at maybe issuing equity as kind of an arrow in your quiver or is the plan to kind of maintain the, the outlook for your capital needs laid out at investor day?
spk07: Uh, I like the analogy to an arrow in the quiver, you know, part of the beauty of being in public companies that it's available to us. Um, you know, we don't see as we play out over the course of 24, on our base case plan, the need for any equity because, you know, our balance sheet is in good place, our liquidity is in good place, you know, the plan that we laid out in December is playing out as expected. I think where we might see an opportunity to top up liquidity is if we saw additional investment opportunities. So, you know, we'll keep, we always keep eyes out for stuff like that. But that's, You know, that's what it would take for us to really look at, you know, the equity as a source because it is still relatively expensive.
spk33: Great. That's it for me. Thanks for the time.
spk34: Thank you. One moment for our next question. Our next question comes from the line of Ronald Gendon of Morgan Stanley.
spk35: Your line is now open.
spk02: Great. Hey, just one quick one for me, just on the same store NOI, just thinking about the guidance at the investor day and comparing where you're trending sort of year to date, that suggests there's sort of a big acceleration in the second half of the year. Just my thinking about that, right, that the same store is sort of could be two, three in the second half and any sort of, puts and takes as we're thinking about the second half and going into 2025. Thanks.
spk07: Yeah, let's clarify that. And I'm sitting next to him, so he can reach me if he needs to. So our guidance for SAMHSA NOI was down 1% to 2%. A certain CEO next to me said for goals and objectives, kind of tongue in cheek, that we would be up 1% to 2%. Now, we are trending ahead first half of the year. So that's good. I think to reach the goal would be, I'd love to see it. It'd be outstanding. But as we sit today, we're trending a little bit closer to our original guidance as opposed to the objective.
spk25: Yeah, look, those are stretch goals. We never hit all of them, nor should we, although we'd like to. But the goal is to hit as many as we can. And I believe in having a target that is an ambitious target on all levels. When I look at those goals and objectives for the year, midway through the year, we're tracking really well on many of them, most of them, certainly. Not all. There was a scenario where we could have been in that one to two range. There still is a scenario where we can be in that one to two range with a big second half a year. But, you know, it's going to be pretty tough. And, you know, we may or may not hit that particular goal, but I'm confident we're going to hit the vast majority of those goals. And, you know, the important thing on this end is to, you know, is to try and, you know, shoot lights out on all these, you know, leases that we do. We do, you know, dozens and dozens a year, probably over 100 a year, actually. And, you know, let's see how the second half of the market second half of the year shapes up. and we're gonna try and push the bottom line as much as we can and squeeze down our expenses as much as we can in the second half of the year without sacrificing any quality in order to try and make the goal. But it's too early to say one way or the other, but we said it in December, this one was gonna be a push.
spk02: Right, and then my second one was just, you guys have a lot of properties, where you've been looking to do JVs or redevelopment, right, from one Vanderbilt, 245 Park to Herald Square. Maybe could you just talk about what the sort of level of demand interest from, you know, local U.S. buyers, international buyers, and sort of your conviction and getting a lot of those deals through the finish line? Are you building conviction? Just any comments there would be helpful.
spk26: Yeah, look, the demand from foreign buyers today is very strong. It hits on what I said earlier. The assets we own today, investors believe heavily in the fundamentals of those assets. And the good news for us is in many cases, as you know, we're working through our plan to extend our debt across all the assets, and that makes assets more attractive for investors to invest. So there's a lot of belief from the foreign market that in the fundamentals of our real estate, and we'll continue to see new joint ventures over the next few years.
spk08: Thanks so much.
spk35: Thank you. This concludes the question and answer session. I'd now like to turn it back to Mark Holliday for closing remarks.
spk25: Okay. Well, for those still on, thank you for participating and listening in. We appreciate it. We like the questions. We love the constructive feedback. We'll take it to heart. Everyone have a great summer, and we'll speak again in Q3. Thank you.
spk35: Thank you for your participation in today's conference. This does conclude the program, and we now disconnect.
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