SL Green Realty Corp

Thank you everybody for joining us and welcome to the SL Green Realty Corp's third quarter 2024 earnings results conference call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. You should not rely on forward-looking statements as predictions of future events as actual results and events may differ from any forward-looking statements that management may make today. All four statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risk, uncertainties, and other factors that could cause such differences to appear are set forth in the risk factors and MD&A sections of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the company may report discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www.sogreen.com by selecting the press release regarding the company's third quarter 2024 earnings and in our supplemental information included in our current report on Form 8K relating to our third quarter 2024 earnings. Before turning the call over to Mark Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. I will now turn the call over to Mark Holliday. Please go ahead, Mark.

Okay, good afternoon, and thank you for joining us at SL Green's third quarter earnings call. By now, you will have seen the exciting news that we put out last night, which was the culmination of another great quarter of activity since we last spoke. We called the pivot in the market about one year ago, and since then, we've seen four consecutive quarters of of positive market momentum that reinforces our belief that New York City has turned the corner and we are now meeting or exceeding many of our goals. Since we were last together, and that was just three short months ago, a lot has happened. Last month, IBM cut the ribbon and took occupancy of their incredible new space at 1 Madison Avenue, effectively christening the building that rightly takes its place alongside 1 Vanderbilt as a shining example of the new model for modern and innovative office buildings. One Madison, now fully complete, has come alive as other tenants are moving in, such as the Franklin Templeton Companies, the opening of Chelsea Piers, the activation of the fabulous rooftop, which is already hosting many, many special events, and proof positive that the city is thriving for demand of space for this kind and punctuated by Danielle Balloud's new steakhouse, La Tete d'Or, designed by David Rockwell, completed construction this month and will open to the public in November. Be sure to get your reservations and be among the first to be there over the holidays. Special place and a great new addition to the Flatiron area and just another great step in the right direction for New York City. On Monday... We will celebrate the third anniversary of Summit One Vanderbilt. We are now closing in on six million guests. I think in November we will host our six millionth guest through the turnstiles at Summit. And I think that just really speaks volume to what an enormous attraction Summit has turned out to be. Many days sellouts, most days sellouts. It has been named, you know, accolades as a special bucket list destination for New York City, and everyone comes out of there with a smile. We're very proud of it, and we're even more excited to begin the global expansion as we bring the unique summit experience to other cities around the world, with Paris being first up in the queue. Expect an announcement with further details on our Paris initiative sometime later this quarter. Also, earlier this week, many of you may have seen the press yesterday and this morning, Mr. Giorgio Armani made a rare trip to New York to celebrate the opening of his new boutique and residences on Madison Avenue developed in conjunction with S.L. Green. As you know, the residences are completely sold out, and Armani's flagship store has anchored a complete revival of luxury retailing and elevated experiences on Madison Avenue in as many of the world's prominent luxury retailers have relocated or recommitted to Madison Avenue after the announcement of the Armani project. If you're in the area, please be sure to come by, check it out, pick out something special with the profits those of you have made on SL Greenstock. After nearly a four-year hiatus, we are now fully back in the DPE business, lending on and investing in mortgage and MES loans and debt securities. This quarter, we invested nearly $110 million in various debt and debt-like investments, and that's on top of the other DPE investment activity we did earlier this year. This marks the return to an extremely profitable business where we typically have achieved outsized market share and market returns. The debt investments we've closed thus far, combined with our extensive pipeline that we've been building throughout the year, will serve to seed our debt fund that we anticipate having an initial closing on in the fourth quarter. The fund will provide additional capital resources, enabling us to reestablish ourselves as the dominant provider of subordinate capital for New York City commercial assets. And I guess the highlight of highlights was something we announced after business closed yesterday. Further evidence of what I would say is really incredible leasing momentum, some of the best I can recall seeing in my 26 years here at the company. We achieved a 925,000 square foot renewal and expansion of Bloomberg over at 919 3rd. This was not really within the expectations at the beginning of this year, so it was a very pleasant surprise and I'd say It was even more telling about the strength of this market, Bloomberg being one of the great worldwide media companies, not only renewing upwards of 725, 750,000 feet, but they expanded by almost 25% within 919 for a total of 925,000 square foot footprint. which speaks volumes, I think, to the amazing partnership we have with Bloomberg, who started out as a relatively small tenant in the building some years ago, Steve, you recall? 200,000 foot tenant, how long ago? 2015, less than 10 years later, now closing in on a million square feet. So I think it's a great story about you know, partnership about, you know, complimentary businesses, us being able to serve Bloomberg's growth needs and Bloomberg, you know, being there to help us fill the space in the building. And it's, I think, further proof positive about the radiation of demand away from what we have traditionally referred to as the Park Avenue spine. You know, the story goes that the demand is limited to trophy buildings on Park Avenue. You've heard us say it's just not the case, particularly not this year when we have consummated 2.8 million square feet of leasing year to date. And this being example, as well as other examples in the portfolio of that demand, you know, not being so much geographically focused as it is generally within East Midtown in renovated Class A buildings. with strong sponsorship, and that's where we're having our success, such that we now expect to have leasing achievement this year eclipsing 3 million feet and achieving a projected occupancy at year end in same store Manhattan of 92.5%. So those are some pretty good stats. We're proud of them. Great job by the team. Again, That's a good three months in my book. I think it illustrates what we've been saying now for a while, that business is back in New York. The worst is, without question, behind us. This is now, in our eyes, a market for being affirmative and offensive, and our portfolio is well-positioned to capitalize on that market as there is a scarcity of well-located and amenitized Class A assets in the East Midtown market, which is where we call home. So with that, I'd like to open it up for some questions on the quarter.

Thank you. And at this time, we'll conduct the question and answer session. To ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To draw your question, please press star 1-1 again. Again, please submit yourself to two questions. Please sign by. We compile the Q&A roster. One moment for our first question. Our first question will come from John Kim from BMO Capital Markets. Your line is open.

Thank you. Congrats on the Bloomberg transaction. I just wanted to confirm that it was not in your pipeline that you last described at 1.2 million square feet, just given the size of this lease. And I think you described the pipeline as being pretty diversified. And also, if you could share with us any of the economics on the rent versus the in-place of 66 bucks. and how much you offered in concessions?

So it was not in our reported pipeline. The deal came together very quickly, so it's not something that we were including in our pipeline because, one, because it was so large, and two, it was so unanticipated, and three, it happened so rapidly. With regards to the economics, we're under an NDA, so we can't really share specific details other than to say that, obviously, the size of the lease, it's a 15-year lease from today, so it's a 10-year extension, 15-year term on the expansion. There is substantial positive mark-to-market, and the concessions are appropriate for renewal, but significantly below what they would have been if we had to replace the tenant for vacant space. And with regards to, I think you asked about diversity on the pipeline. Like in past quarters, it's heavily weighted towards financial services. I think that's a reflection of where we have vacancy, not just because it's the only industry that's in the market right now. We're seeing law firms, TAMI tenants, business services, and financial services, but specific to our current pipeline, a lot of it is weighted towards financial services.

Okay, and my second question is on OneBannerBuilds. We didn't get an update on the joint venture sale. So I wanted to ask if it's still on track and also if you really need to sell a stake in the asset at this point in time, just given the fundamentals and sentiment on New York has shifted positively over the last few months. Your cost of capital has improved, so there's other access to or sources of capital that you could tap. So just wanted an update on that and whether or not you're contemplating not selling a stake.

Yeah, it's going great at One Vanderbilt. And we're confident that we'll be able to close a transaction in the fourth quarter. You know, the transaction really will be the culmination or conclusion of a process that affirms in our mind, you know, One Vanderbilt's position as not only the premier office tower in New York, but also a global icon of modern development. So, you know, two Michelin star restaurants, the continued success at Summit, a fully leased rent roll and long-term fixed rate debt. And the story here keeps getting better. And we're looking forward to expanding the partnership at the building. The second piece of your question, I'll leave to Mark.

Yeah. You know, on the question of, you know, do we have to sell? We don't have to do anything. I mean, we're in great shape. We have lots of tools at our disposal to generate capital organically, monetizing assets, third-party money, debt fund, et cetera. And I would not look at anything related to One Vanderbilt as a has-to-do. We do it because it was part of our original business plan to sell down to somewhere between 50% and 60%. maybe 55% and 60%. That was the original business plan. That's where we think the asset is optimized for the perspective of shareholders between return and enhanced fee generation off the asset. One Vanderbilt is transformational for this market. It's now the building block of this company. We expect to hold and own it for quite some time, but we welcome the opportunity to to bring in some of the great international partners from around the world. And we expect, as Harry said, to conclude that in the fourth quarter. But that will just be one component of what we expect to close from this point forward through the remainder of the year by monetizing certain assets of the company that should yield to us in excess of $500 million of net proceeds which we will use in the interim to pay down the line to bring it into the levels that we had projected in December of last year. So we're on track or possibly a little ahead on that. And it will set us up, I think, quite well leading into 2025, which I think is going to be a big, big year for this company.

Thank you.

Thank you. One moment for our next question. Our next question comes from Steve Sacqua from Evercore ISI. Your line is open.

Yes, thanks. Good afternoon. Mark, I just wanted to see if you could comment a little bit more on the transaction market. Obviously, you guys are back in the DPE business. I'm just curious what you're seeing on the direct side of things and are the opportunities more pronounced in the DPE side than the direct purchase side?

Well, I think, you know, Steve, it's kind of both. And it's really a function in my mind of debt and equity liquidity coming back to this market. And when it comes, it comes, you know, pretty fast and pretty strong. And, you know, as a case in point, last year there was – I think there was $0 of New York Manhattan SASB loan origination, zero, which is quite unusual. This year, including the Rock Center deal, which is pricing today, and 299 Park, which is pending pricing next week, is going to be $5.3 billion of SASB deal, illuminating Spreads, levels, values, demand, et cetera. And that's quite a different picture along with we're seeing now balance sheet lenders quoting deals. And the conduit market is firming up and spreads are coming in irrespective of where underlying SOFR and treasuries are headed. Spreads themselves are compressing. And You know, the equity follows the debt. And, you know, we've seen some deals trade, some, you know, known 250 Park. Was it trade, Harry, a couple others off the top of your head? 980 Madison. 980 Madison. That was to a user, Bloomberg Philanthropies. You know, obviously there have been a lot of user trades. There have been some investor trades. And there's deals in the market that we're tracking that Our focus isn't really on the direct equity side at the moment. It's more development oriented and longer term. But there are a couple of deals that we are paying particular attention to. But, you know, if you want to look at just dollars allocated, we do expect that most of our activity will be focused to DPE, which is very customary and routine coming out of a downturn like we had in 20 through 23. to start there and then, you know, sort of evolve into direct equity.

Great. And then as a follow-up, Matt, I did notice that things like real estate taxes and OPEX were at least much lower than what we had modeled. I just didn't know if there was some timing issues there, if there were some maybe refunds that you got on the tax side. Just anything, was that sort of a normalized level or is there some one-timers that might have pulled those down and those might bounce back up in Q4?

Uh, nothing, nothing unusual in there. I think they moved, you know, given the size of the line item, uh, not much. They, they do bounce, uh, seasonally, uh, from time to time, uh, certainly operating expenses too. No, I think the team's done a great job. We work very hard on our real estate taxes and the operations team does a fantastic job with our operating expenses, keeping them contained. Um, you know, they've done an even better job, uh, this year. So we saw some savings, uh, They're working right now on how that looks going forward, but nothing unusual within the quarter now.

Great, thanks. Thank you. One moment for our next question. Our next question comes from Ronald Camden from Morgan Stanley. Your line is open.

Hey, just two quick ones, starting with the same store, CAF, same store, and why. Okay. accelerated to 2.9% in the quarter. Just hopefully you could sort of talk through what the expectations are for the back half for the rest of the year, maybe into 2025, what major sort of building releases we should be thinking about as we're trying to think about 2025. Thanks.

Yeah, I appreciate you trying to ask about 2025. We'll talk about that on December 9th at the Investor Conference when we give guidance. But, you know, the results for 2024, through the first nine months, reflect the portfolio that has been performing better than expectations. It was part of the reason we raised guidance back in July with earnings. And, you know, we continue to trend ahead through the third quarter. Fourth quarter, you know, is trending in a similar direction. I do, I'm not changing where our same store full year guidance ended up, but we have trended better than we expected through the first nine months at least.

Great. And then, look, my second question was just going back to the alternative strategy portfolio. I think you talked about sort of threats coming in, maybe the environment being a little bit better, but qualitatively, does that help in terms of conversations, in terms of those negotiations, any sort of color you could provide on how that's progressing would be helpful. Thanks.

Well, again, I just want to refresh for everybody. ASP The alternative strategy portfolio is a category we created at the end of last year to address assets that shareholders perceived, or we think the market perceived more accurately, as having little value or a little current value, even though in many of the cases we believe there could be long-term value, particularly when we work to recapitalize the underlying indebtedness on those assets, or in some cases, leaseholds, in ways that are advantageous win-win scenarios for the lender and for us as holder of those assets. And I think you've seen that strategy bear fruit already, probably hadn't anticipated ourselves the early returns, but year to date, I think we've had very good results, as I recall, 7-17-5th, 7-19-7th, two Herald or three that stick out of my mind. There might be one other. And there's others we're working on where, you know, we've been able to, you know, get creative and do what we do and, you know, mine value out of the ASP assets. And we'll continue to do so as we work that portfolio down. I think the real takeaway or one of the reasons for the illumination of that portfolio was to dispel the notion that there was any, you know, recourse liability or guarantees or peril associated with those assets. They're almost in every case non-recourse. With that said, out of respect and deference to our partners and lenders, we would do everything possible to try and optimize those assets and get as full of recovery as we can on those assets. And we continue to do that. And with respect to the three examples I gave, you know, very successfully. So we're going to stay at it. You know, the market, to your point, the market coming back a bit certainly helps. There's no question. We can reevaluate some of those assets, which we do quarterly. And it doesn't mean we pop them out of the portfolio. It just means that, you know, we may have an accelerated timeline for the ultimate disposition of those assets. But, you know, there are some ability, there's some good assets in that portfolio. We hope to work those assets as hard as we can and, you know, maintain as much value as we can.

Helpful color. Thank you. Thank you. One moment for our next question. Our next question comes from Michael Griffin from Citi. Your line is open.

Great, thanks. Maybe on the leasing front, for the man you're seeing outside of Park Avenue, maybe on 3rd or 6th, is this just a function of limited availability along Park or are tenants maybe out there looking for better deals? And then can you kind of quantify maybe where concessions are in some of those submarkets relative to Park? And then maybe broadly, is it fair to say we've passed peak concessions in New York overall? Well, why don't I start at the last question first?

We've said for, I think, the better part of a year that concessions peaked last year. We've seen no increase in free rent or TI on the average deal. Obviously, you saw for our deals for this particular quarter, they went up, but they were influenced by a lot of high rent deals that were signed, a lot of new leases filling vacancy that were signed as opposed to renewals. And In one particular case, a very large deal where we actually contributed, made a dollar allowance for the tenant to perform base building work, which skewed the number as to what we reported for TI. But at its core, the TI number has not changed throughout all of this year. I think we're going to see rents rise more materially before we see concessions come down. But concessions will start to tighten up, and I think the first thing you'll see come off the table is some of the free rents, and then ultimately the TI allowances will be probably the last thing that changes. With regards to the Park Avenue versus some of the other avenues, we've been saying consistently this year that we've seen a lot more activity in the value part of the marketplace. Those tenants that are paying 55 to 75 or $80 rents. So those are not Park Avenue type tenants, whether they be on 3rd Lex or 6th Avenue in particular, where we've seen us do a lot of leasing at 810 7th and 1185 6th. And then obviously this newest announcement on 3rd Avenue with Bloomberg. Some of that is spillover from Park Avenue, but a lot of it I think is just an awakening of the market by the you know, those smaller to mid-sized tenants that are chasing sort of the value part of the marketplace. And I think we're going to continue to see that strengthening the market. In fact, there was a Newmark report that just came out the other day that their statement was non-trophy leasing is on pace to reach its highest level this year. versus all the way back to 2019. So I think that really puts a pin in it for you.

Great. Appreciate the color there, Steve. And then just maybe on the financing markets, Mark, I know you talked a little bit about the CMBS market maybe being more open, but have you gotten a sense maybe more traditional lenders have started to warm up to lending on commercial real estate and office broadly again? And then maybe you can give us some insights. You obviously had a number of modifications recently and extensions this year where you paid down a pretty small amount of principal, but can you give us a sense of why lenders are willing to kind of cut those deals on refinances that would only require you to pay down a smaller amount when the mortgages come due?

Well, okay. The question about portfolio lending, absolutely. I think you're going to see in 2025, I think the focus with a lot of the major lending institutions is will kind of start to revert back to increasing net interest income with less of a focus, if any, on establishment of reserves. Because I think the view is that the banks are properly reserved, and then some, based on what the expectations were going back over the past four years. And you've seen in the announcements The earnings trajectory and growth of the money center banks is extraordinary. I mean, there's big profits there. They're making money. They're expanding. It's broad base, high net worth, banking, trading, operations, all contributing. And I think the view is going to be growth, new business, new lending, and prime commercial assets in New York City in good locations. I think, or will be eligible for balance sheet lending. And we're seeing that. And I think, you know, you'll see more to come from us and others in the ensuing months on that exact topic. So that's that. You know, as to some of the modifications we're doing, it's, I mean, we have great relationships with our banks. We have great assets. The buildings typically are not in an over-leveraged state. And we're, you know, able, you know, again, under the thesis that some of these banks want to maintain outstanding earning assets on great buildings with good sponsorship. Sometimes the balances have to be tweaked with a pay down or some additional posting of reserves. But just remember, we're projecting 92.5% leasing in the portfolio, which means we are swinging our way back to hopefully a fully leased state in the years to come, the buildings are in great shape. They're fully repositioned and in most cases amenitized and well leased. So those are not necessarily the assets you read and hear about that, you know, where there are problems. And for those assets, I think it's quite, you know, natural for lenders to work with us on extensions until the market is fully back. And then when it is, there'll be more traditional refinancings for that portfolio. But I think it's very consistent and makes sense.

Great. That's it for me. Thanks for the time. Thank you. As a reminder, please limit yourself to two questions. One moment for our next question. Our next question comes from Alexander Goldfarb from Piper Sandler. Your line is open.

Hey, good afternoon. And first, congrats on the strong leasing. Really unreal what you guys have achieved there since last quarter. Two questions are, first, on the mortgage servicing business, it looks like you guys currently have $5 billion and there's another $6.8 billion potential, you know, depending on, I guess, if that goes to special service or not. Matt, how do we think about the income that comes off of this? I mean, it seems rather lucrative. As Mark just described, things are getting better. So how much income are you currently getting and how should we think about that 6.8? You know, how much of that will you think could come on and how do you think, where do you think this earnings could go?

Sure. I'll try it. There's like eight questions, but the business is obviously throwing off a substantial amount of fee income. We had, you know, layered some of that fee income into our original projections back in December. We're trending ahead of that. You know, we, we, Stay away from how, you know, because each deal is slightly unique on how much these fees, how they roll through, what they are. I'll let Harrison expand on a little bit. But, you know, generically, these are, you know, once they're in special servicing, you're earning a monthly, I'll call it a stipend, almost a monthly modest fee. And then on resolution, there's something more sizable. Harrison, you want to expand on that a bit?

Yeah, I mean, this business has been remarkably fast growing. Most of the people coming to us are looking for expertise in working out large loans, not just in New York, but across the country. And just to give you a sense of scale, as you just noted, it's $5 billion of active assignments today. We have another $6.8 billion of assignments where we are named special servicer, but the assets are currently not in special servicing. And then in addition to that, we have another $3 billion of pipeline. And those are appointments that we're currently working on documentation to get named special servicer, some of which are in special, some which may get into special in the coming months or years. So for us, this is a very scalable business. We run it with our current team. And the revenues, as I said on the last call, they're almost entirely going to the bottom line. So we're continuing to grow this. working our relationships to get on more assignments. And I think one thing that's new in this past quarter is now our existing servicing clients, when they're doing new HRR positions or CCR positions, they're appointing us up front on these new SASB loans. A lot of the business we've done over the past year and growth is just organic, you know, reaching out. But now we're getting new appointments on new originations. So, you know, we see this being a sticky business for us.

Okay, and then the second question is, great to see you're back in the DPE. It's been a good business for you guys historically. As you think about the JV debt fund, how do you bifurcate which goes in the DPE and which goes in the JV fund?

Yeah, so just as an update on where we stand on the fund raise process, you know, it's been going great. We've reached a deal with our anchor investor, And we're now documenting their investment, which we expect to close in the next 45 days. We also have significant follow on investor demand that we expect will meet or exceed our billion dollar goal through the final closing. And the setup of the fund is in terms of what goes into the fund and what doesn't. is that this will be our primary credit vehicle for new DPE investments until that billion dollars or whatever we end up closing on is deployed. And so, you know, we look at that's what the shareholder feedback last year was against this business. This is how we'll be deploying dollars into the credit space until the dollars are deployed. And, you know, we'll continue to mine these investors for potential follow on funds, whether it be in debt or equity businesses.

Thank you. Thank you. One moment for our next question. Next question comes from Nick Ulico from Scotiabank. Your line is open.

Thanks. First question is just in terms of the mark-to-market year-to-date, outperforming versus expectations. I think some of that I know is helped by some lumpy leases like Aries, 245 Park, but Um, we had success, but how do we think about, uh, like how much rents are, you know, maybe out surpassing, uh, expectations so far based on the leasing year to date?

Well, it's a, uh, you got, I think you got to slice and dice the market a little bit. You know, if you look at park Avenue, which is sort of the easiest example, It's the best sub-market in the country right now. Rents are clearly on the rise. It's a landlord-favored market. We've raised rents four times in the past year on our assets on Parkey Avenue. I think you're seeing the early days of a similar situation on 6th Avenue. But then I think as we look forward, I think you're going to see, broadly speaking, in Midtown specific, um uh rent increasing on a lot of parts of the market a lot of types of buildings um next year you know a good barometer i always go to is the gray bar building right pre-war building big building lots of different kinds of tenants lots of different sizes building that coming out of covet had a historically high vacancy of like 18 we're now down approaching the 10 vacancy And I would fully expect that we'll see rents rise in that building next year. So that's a very good indicator of the mid-price point product in the marketplace. If rents go up in that building, then you'll see rents go up broadly across most quality assets in midtown.

All right. That's helpful. Thanks, Steve. I guess the second question is just on going back to the acquisitions environment. And how are you thinking about funding that? I mean, how is the company right now thinking about using common equity stocks done quite well in terms of funding investments and how much of that could be on actually property investments versus debt investments? Thanks.

You know, I think that's something we'll go into a fair amount of detail on, uh, in December. You know, we're not, I mean, what, what you're really getting at is kind of a 2025 business plan. Anything we're working on now that we're closing next two and a half months, we know what it is. And, you know, we're in the process of closing typically, not to say we can't knock down a late, uh, inning deal, maybe, you know, in November or December, but most of, most of the balance of this year's activity is, uh, is is is allocated modeled thought through etc and we are right now preparing uh our plans for 25 and beyond um and we'll be able to give some good color uh i don't really i know there's a lot of question between equity and debt equity and debt to me it's a spectrum you know it's real estate and we just want to find the best point on that spectrum to invest. If we think we're getting a really good equity deal, we're going to do equity. If we think we're getting a really good debt deal and that's where there's some, you know, advantageous or mispriced, we'll do debt. It's not always one or the other. A lot of these opportunities we approach, which I think is something that's, I don't know about unique to us, but it definitely differentiates for us, is that we can do any aspect of these deals from senior financing to You know, MES, PREF, common equity, servicing, combination thereof. And we don't always know because we got to evaluate where do we want to be in a particular deal. And we don't know what deals are coming up in, you know, in the next 12, 18 months. So, you know, we like to consider ourselves fairly fluid and fairly opportunistic. We're very comfortable investing along that spectrum that I mentioned to you. and um you know we've done some equity deals obviously through pandemic we did 450 park we did 245 park we did 625 madison those are the three big ones that come to mind we've done some debt deals uh recently and i would expect you're going to see a mixture of opportunities we'll be pursuing which will be both debt and equity um in the in the months to come And I think we can give better planning and guidance on that in December. But, you know, that's where that is. And in terms of how we fund it, you know, I mentioned to you, I mean, we have all tools available. I sort of alluded to that earlier. We have, you know, a prolific group here that has great relationships throughout Asia, Middle East, domestically in Canada, where we can turn to capitalization. both debt and equity deals. We're closing on a debt fund. I mentioned in my opening remarks, in excess of 500 million of asset monetizations we expect to close this quarter. And that'll certainly fund a lot of activities and get a revolving balance down to where we want it to be for year end. And as in prior years, we'll evaluate stock along the way as a source of potential equity if we feel the price is approaching something that is reasonable in light of the opportunities that exist. So the more favorable and juicier the opportunity, and the larger the opportunity, we certainly wouldn't shy away from issuing equity for new opportunities or to, you know, rebalance the balance sheet. But we're in a really good place right now. We've shrunk our share count down considerably. We've retired a lot of debt along the way. We're at levels that are very comfortable for us right now. And I think we have a lot of access to capital in all those various ways, including potential stock issuances. So it's a good position to be in. We're going to use it wisely. and we're going to hopefully use it very creatively.

All right. Thanks, Mark.

One moment for our next question. Our next question comes from Michael Lewis from Truer Securities. Your line is open.

Thank you. First one may be for Matt. The Summit OpEx went up more than the revenue. It looks like the OpEx was actually higher than the revenue in the quarter. Is that just seasonality or is there something in that number?

They pay their percentage rent in the third quarter. So their fiscal year runs October through September. They pay base rent and percentage rent. They hit the percentage rent levels generally in the third quarter and pay it. So you'll see that same type of trend every year.

Okay, got it. My second question is bigger picture. You know, to your credit, Mark, and I guess everybody at SL Green said New York would recover. It always does. And it is. So to your credit, and I understand, you know, all the enthusiasm, it's well-earned. When things are tough, I tend to think about how they might get better. When there's a lot of enthusiasm, I tend to wonder, you know, where that might be in you know, people might get out over their skis. So, you know, as I look at SL Green, right, you mentioned the alternative strategy portfolio, you know, worldwide plaza, lost a large tenant as expected. 753rd is not in that portfolio, but it's going to be a resi conversion, 185 Broadway, I think you'll sell. I guess, you know, is this a tide lifts all boats kind of New York recovery? Or do you think you know, you need to be almost more creative here, and it's still kind of a battle out there. And, you know, is there anything in this recovery that concerns you?

Okay. I just, I want to make sure I've got, I like the credit part. Thank you very much for that. But I do have to extend credit to the entire team, as I always do, because I think one of the most differentiating factors of this is the tenure that people have here. I don't know if people recognize it. We've got so many people at all various levels throughout the company that are in the 20 and 25 year club. We've been here 20, 25 years. This is a family. We work well together. And I think, you know, we get great results because of that, you know, that history together and the level of excellence, because we have a certain culture here and if it fits and it works for you and you're committed to it, it's a great, it's a great opportunity. And, you know, if it's not, we've had, you know, people move on. But, you know, the group we have today is the best I've ever worked with, you know, in terms of just a whole new, you know, group of young folks in particular coming up through the ranks, taking on, you know, mid-level and senior positions and just carrying on the, you know, the culture and theme of this company. In terms of Your question about, is there anything in the recovery that concerns? I mean, in an odd way, the more rapid the market recovers, the thinner our opportunity set gets. And it's kind of an interesting dynamic. I think the real estate market generally is hoping for lower rates to help right-size some of other people's investments and reinflate values a bit. But you've got to make sure that rates are falling for the right reason, meaning taming inflation and not because you have recession. And clearly, the way the equity markets are reacting right now and what we see in our it seems to be a pretty robust and strong market. So to see a good market and have rates decrease, that's positive for values and positive for the economy. But it also does change the landscape of opportunity. So the other way to look at it is higher for longer in terms of getting more money out the door, because at the end of the day, we want to improve this portfolio, grow this portfolio, make smart investments at this period of time. So then when we look back in five years, we've added a lot of seeds of growth, whether they're development conversion projects like a 753rd or doing more office redevelopment and development opportunities, which we hope to do because we have a good team to do it. And we've got the prospect of of hopefully helping to transform and boost Times Square with our casino, with our casino proposal in conjunction with Caesars and Roc Nation, I think could be one of the most important developments for New York City in terms of really having benefits that radiate out far, far beyond the the building itself with Caesars Palace Times Square Casino. There's a lot of good stuff out there going on and I think whether rates stay where they are, they go a bit higher, they go a bit lower, we're prepared in all cases. We're hedged in our floating rate exposure. We want to be offensive with our capital and we're also going to benefit by compressing spreads and a yield curve that says SOFR is declining. I don't have great concern at this moment, like the kind of concern we had back in 20 and 21. Those were tough periods of time. But this is, by all measures, a very good period of time. Restaurants are full. Mass transit is full. Traffic is back. Buildings are, people are back in the office. We don't get any questions now, hybrid work, model work from home. It's It's not even – in this office, it's not a talking point. And, you know, we're excited. And we're excited, you know, in December to unveil the new plan. Great. Thank you.

Thank you. One moment for our next question. Our next question comes from Anthony Paolone from J.P. Morgan. Your line is open.

Great. Thank you. First one is on Giorgio Armani. Can you tell us when you expect to actually start closing the units there, what the proceeds back to you are, and remind us if any gains there get booked in FFO?

Yeah. I mean, in our business plan, we expected as a goal and objective to put everything under contract in the year, which we've done. And our expectation is we will close all those inside the calendar year. as well. That's part of the number Mark was throwing around earlier in terms of proceeds off of dispositions. It's roughly 160 million or so dollars. There's not an FFO impact other than the use of proceeds to pay down debt, which is what those proceeds are earmarked for. But that wouldn't show up until 2025.

Okay, got it. And then just second one, you bought some CMBS in the quarter. And so I was wondering if you can give us some details on that. You don't have it on the DPE page and just didn't know if that was because it's securities or if the thrust of that investment is just different than your sort of DPE investments.

Yeah, it's not in our DPE line because it is a different type of investment. We've invested in securities from time to time in the past. We did do more this quarter. They have very unique investments. accounting rules around security. So we had to add a couple of new lines to the financial statements. But at the end of the day, it's $109 million investment in securities. We are very careful to stay away from specifics on those as we do with DP in terms of properties and yields and strategies and things like that. But this is a furtherance of our previously announced strategy to source this type of opportunity in dislocated debt stacks in our backyard. And we'll continue to do that.

But is it the sort of thing that you're just looking to get paid back and make a return on it? Or is this something where there's something to do with the property?

I'm going to stay away from the strategy on those types of investments. They're all different.

Okay. Thank you. Thank you. One moment for our next question. Our next question will come from Ohad Bregman from Deutsche Bank. Your line is open.

Yes, good afternoon. This is actually Tayo from Deutsche Bank. In terms of the DPE book, again, back in the days, that book was kind of a substantial size. Just curious, when you guys look at the outlook, how quickly you think you know, DPE can continue to kind of grow. You guys sound really much more constructive on that business segment now.

Yeah, just understand we're doing the DPE business in a different format this year. So it's not going to be the same as our, you know, prior 26-year track record, if you will, 22 of those 26 where we were investing heavily. But, you know, we're going to be doing it in a fun format. So the You know, the capital commitment is going to be fund by fund, typically, where we have a percentage of the fund which we'll be able to illuminate when we announce a closing. But clearly, you know, other than putting together pipeline and seed opportunities, the intent is for, as Harry said earlier, everything to go into the fund. And... and then we'll own our piece of the fund. So it'll be, we think highly profitable, uh, based on the returns that we expect. And there were certain fees, uh, you know, associated with the fund that we didn't necessarily have previously, but we won't have, uh, we don't expect the same amount of balance sheet capital commitment to DPE as we've had in the past because of the new format.

Gotcha. That's helpful. And then just a quick one on, as we kind of start thinking about fourth quarter 24 and first half of 25, any significant move outs or right sizing of office space that we should be aware of as we're tweaking our models?

There's nothing, there's nothing that, there's no new surprises. I mean, anything, you know, anything that we've got budgeted or scheduled in our business plan, it's, You know, I'd say it's just the opposite. You know, we're doing more renewals than we had originally anticipated. So nothing significant as far as any kind of move outs.

Perfect. Congrats on a solid leasing.

One moment for our next question. Our next question comes from Jeff Spector from Bank of America. Your line is open.

Great. Good afternoon. Mark, when we saw you in May, you talked about the office to resi conversion as an opportunity. I don't think you discussed that yet on this call. Can you provide your latest views on that?

I feel like we're on target. I'm going to stand by those comments. There's an accelerator program down at the city that takes applications, if you will, to help accelerate projects that are not necessarily committed to going resi, but you know, somewhere between committed to or thinking about or tending to. And at last count, my understanding was that accelerated program was up around 75 applications. I think the total square footage identified by those applications is in excess of 25 million square feet. That's not to say all 25 million square feet are going to happen. And I don't think I could give you a projection In the near term of what's going to happen, I do believe there will be over 25 million square feet in the next five to seven years for sure. And that was a number I floated out at that same time, 25 to maybe as much as 40 million square feet. When you think about all of the secondary and tertiary office buildings, the need and the demand for workforce housing and affordable housing is I don't want to say it's endless, but it's strong. There's a lot of demand out there at those price points for that kind of studio, one and two bedroom housing in Manhattan. And between the projects we're working on, projects we know others are working on, buildings that we know have taken their space off the available office inventory list, You know, I'd say there's at least solidly, you know, Harry, you might have the number 10 million square feet. That's kind of what I would say is I think pretty well dialed in and locked in. Maybe in December we can share some locations and more data on that. I don't think we're prepared to on the phone right now. But, you know, deals that are, like I said, pretty well dialed in. Most are rental. Some are condo. Some are other uses, life sciences, et cetera. But most will be under the affordable program. It's not easy. But it's certainly not undoable for people who have experience with the product It's a big opportunity and I think that is a major contributor to what you know you'll see as Net absorption in this market, which you saw in q3 as of 930. I think you'll see more in in q4 You know it's also There was a question earlier about investment sale volume, and there are deals that are being traded now with the intent to convert. 625 is one end of that spectrum, which we sold to Related for condo conversion on Madison. And then there's other deals that are being sold now for affordable conversion. And all of that just contributes to uh, a winnowing supply of office. Now, the only thing I think that could derail that is if the office sector gets tight enough and rents are rising and occupancies are falling, you know, then you may get back into that zone of, uh, indifference where buildings, you know, may look equally as attractive as office and resi. But for right now, I think that, that, um, you know, that trend is bearing out on conversions and, uh, we're hopeful to see a lot happen over the coming years.

Thank you. And if I could ask for, as my second question, a follow-up. Steve, earlier in the call, you talked about concessions will tighten up and free rent would be first. I think it's an important comment, just there is so much focus on effective rents. Can you clarify that a bit? I don't know if you can talk about expectations on timing, and I assume you're talking about the broader market for New York City.

Yeah. I think, well, it was a three-parter, right? At first I said that I thought you'd see a continuation of rents rising, and you're seeing that on Park Avenue and 6th Avenue. I think you'll see it more broadly next year. So that'll be the first of the three components to change. Then I think with specific concessions, free rent is most likely to tighten. I can't really put a timing on that. You know, that's anybody's guess, but it certainly feels like the trend line is there. The leasing velocity is there to support it. The tenant demand is there. And I think you'll, you know, you'll start to see it specific to, you know, where, where the strongest sub markets are right now, Park and Sixth Avenue. And, The last component will be TI. And I think that's probably much further off in time. Because as rents rise, construction costs haven't slowed down. So tenants are still looking for the landlord to support them with these elevated TI contributions.

Thank you.

Thank you. One moment for our next question. Our next question comes from Peter Abramowitz from Jefferies. Your line is open.

Thank you. Yeah, my first one's for Steve. You mentioned still financial services kind of leading the market, but just wondering if you could talk about any updates on tech, their presence in the market, any changes in their appetite for space.

Yeah, they continue to be an increasing part of the marketplace. There's... over 6 million square feet of active, uh, tech, uh, ongoing searches. So if you compare that versus a year ago, it was a little over 3 million square feet of active searches. And you've seen some of the, the combination of some of the, you know, the household big names that are in the market. Um, I won't be too specific, but I think, you know, a lot of us heard, heard some of the big names, whether it be, you know, Amazon or Apple or whoever it may be. But, uh, as to what their specific requirements are. But you're also seeing sort of a smallish to midsize requirements driven by a couple of different things. AI initiatives are creating new businesses and creating new initiatives in existing businesses. There's organic growth in some of these businesses that are driving it. And clearly a return to office mentality are bringing a lot more people back and forcing some of these existing tenants come back into the market where they had laid off space because they thought they were going to have a more robust hybrid work environment. Now they're bringing the bodies back. It's forcing them to take more space. We're enjoying it right now. We've got a very significant lease going out as a result of exactly that function. It feels like that whole industry is coming back to life in a material way. So time will tell us what it means for next year, but it certainly feels good right now.

That's helpful. Thanks, Steve. And my second question, just to sort of follow up on Jeff's question, some of Mark's comments around residential conversion. I'm wondering if you can comment on five times square. Any thoughts on the strategy there? I know it's been in the press that it's something you and your partner are considering to convert at least part of the building to residential.

Yeah, this is Harry. This is an ASP asset. We're working with our lenders and our partners, and we'll share more at the appropriate time.

All right. That's all for me. Thanks.

Thank you. One moment for our next question. Our next question will come from the line of Caitlin Burrows from Goldman Sachs. Your line is open.

Hi, everyone. Maybe following up on Tayo's earlier question, you increased your lease occupancy rate for the end of the year. Just wondering if you could provide any commentary on how you expect that to flow through to economic occupancy and recognizing runs.

Yeah, it's Matt. So when we're leasing up vacancy, that income recognition typically has a delay on it because you're typically building out space. So generally speaking, we would say At the very short end, you know, six to nine months, typically more like 12 months after lease up, you start income recognition. So we'll start to see the benefits of, you know, 300 plus basis points of occupancy pickup this year over the course of, you know, 2025 and beyond.

Got it. Okay. And then just wondering if you could give a quick update on 245 Park regarding the redevelopment and leasing and thinking on timing of a JV sale there.

I realize we're at 3 o'clock, so what's the latest on 245 Park? Well, you've got the leasing, the development, and the JV in there. So the development, I'll start. The development is going right on schedule. It's approximately a $200 million plus or minus redevelopment, which is really touching news. many, many areas of the building from podium facade to a great new plaza, fully landscaped, relit, and new seating, new signage, new everything. It's going to be a really vastly improved plaza and front door, if you will, approach to the building, spectacular lobby. I think it's a 20,000-foot amenity with fitness and other clubs, lounges, amenities, food and beverage offerings, and a fully serviceable rooftop garden in the spirit of what we did over at One Madison. So it's exciting. It's what all the leasing has been sort of activated based off the excitement around These improvements, which have begun, they'll be done in about 18 months or thereabout. We're already doing selective demolition and closing portion. Is Lexington closed? Yeah, I think Lexington entrance is closed, so work's underway. And the tenant, you know, community reception has been spectacular.

On the leasing front, you know, we've posted a lot of big lease announcements this year. I'm fully expecting to have another big announcement in the very near term that will take the building above a 90% occupancy, which puts us in a great spot given the fact that there is no near-term lease expirations. That building is going to be stabilized before we ever get halfway through our reconstruction.

And with the redevelopment underway and Steve getting the building over 90% leased, the asset's going to be positioned as one of the fortress office assets in New York City. It's sitting right across from J.P. Morgan's new headquarters. And we expect on the investor side, the opportunity is going to resonate well with investors. We kicked off our discussions a little while ago. We're meeting with potential LPs. And we're going on a roadshow in the coming weeks to further discuss the interest along with some of the other capital markets executions we have for the end of this year and into early next.

Got it. Thanks.

Thank you. That's all the time we have for our question and answer session. I want to turn it back over to Mark Holliday for closing remarks.

Okay. Thank you for those still with us. The investor conference date is December 9th this year due to the dates around Thanksgiving late in November. December 9th, one Vanderbilt, and we look forward to seeing everybody there for our annual and should hopefully have a lot of great things to talk about then and see you soon.

Thank you for your participation in today's conference. That does conclude the program. You may now disconnect. Everyone have a great day.