Q1 2020 Earnings Call
Good morning, and welcome to the Vornado Realty Trust first quarter 2020 earnings call. My name is Sydney and I'll be your operator for today's call. This call is being recorded for replay purposes. All lines are in a listen only mode. Our speakers will address your questions at the end of the presentation. During the question answer session.
At this time. Please press Star then one in your Touchtone phone.
I'll now turn the call over to Ms., Cathy Creswell director of Investor Relations. Please go ahead.
Thank you.
Let me cover NATO Realty Trust first quarter earnings call yesterday afternoon, we issued our first quarter earnings release <unk> quarterly report on form 10-Q, with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website www Dot Vietnam Dot com.
Under the Investor Relations section in these documents in during today's call, we will discuss certain non-GAAP financial measures reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release form 10-Q, and financial supplement. Please be aware. These statements made during this call may be deemed forward looking.
These statements and actual results may differ materially probably be safe.
To a variety of risks uncertainties and other factors. Please refer to our filings with the Securities Exchange Commission, including our annual report on form 10-K for the year ended December 31st 2018, and our quarterly report on form 10-Q for the quarter ended March 31st 2020.
More information regarding these risks and uncertainties.
Oh, maybe may include time sensitive information may be accurate only as of today's date.
I need.
To update any forward looking statements on the call today for management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, Michael Franco precedent and our seem your senior team is on the call and available for questions I will now turn the call Luverne even.
Thank you Kathy and good morning, everyone.
Before we begin I ask for a moment of silence your daughter over the life that had been lost during this call that 19 pandemic.
Hi, I'm still love his father in my Dear friends they'll be true.
Thank you.
I'll find ourselves you had almost total shutdown I never before situation life as we know what is upside down people are hurting businesses are hurting and the future is I'm sure.
For NATO as our first priority we are following strict protocols and taking all measures to protect our employees our attendance at our communities.
We pray for the health and safety of oil and we commend admire their talents encourage your health care providers.
They're on or the Crown of 731, Lexington Avenue or Bloomberg Tower is now flying Scrubs Lou.
As is our block long time square sign at all so the like projection on the more.
Our entire organization is working remotely and doing a remarkable job keeping the trains running at all the time they have our thanks.
Our office buildings remain open safe I'd say, that's always with a rightsized operating staff building. So census is currently less than 5%.
Little bit central retail is closed dealing a LIFO blow to sum it already challenged industry.
We have taken the following operating steps to reduce expenses and preserve cash.
We have placed 1800 employees on temporary for low.
Polluting 1300 employees, a B.M.S., our wholly owned subsidiary, which provides cleaning security and engineering services to our properties.
400 employees at the hotel, Pennsylvania at 100 of our corporate staff.
We have deferred certain capital projects to the tune of $125 million, we have closed the hotel, Pennsylvania temporarily.
Effective April one.
2020, a week for the remainder of the year, our executive officers wave portions of their annual base salary.
Beginning with my 50% reduction in scaling down from there at each member of our board of Trustees will force older annual cash containers.
Now, let's talk a little about the massive just cope with 19 situation as it affects our business.
I see isn't reports first.
We expect that $9 million average monthly income reduction.
From one the hotel, Pennsylvania being close to the more its cancel trade shows three.
Reduced revenue from Vms cleaning services for reduced income from our garage is five reduce third party spot signage rentals.
All of these businesses are variable, depending upon economic activity as opposed to fixed price leases.
They represent only 6% of our overall revenue at all of these businesses will rebound to prior levels when like returns to normal.
Second.
Our rental revenue stream is supported by over sales of office leases with an average lease term of eight years and over 300 retail leases with an average lease term of six and a half years.
This year total annual rent due from alternatives is over $1.7 billion or 142 million per month.
As is normally we have collected virtually all rent due from January through March for April we collected 90% of office rents at 53% of retail rents were combined 83%.
Interestingly of the unpaid office rents and coincidentally of the unpaid retail rents almost two thirds is due from creditworthy tenants.
So in April we have uncollected rents of almost $24 million and that's calculated at 17% times 142 billion.
Which will become a receivable on our balance sheet in effect a loan to our tenants.
We have 302 million of tenant security deposits protecting bad debts of which $51 million is from tenants who have not yet paid april's rent.
As you would imagine we are in discussion with almost every one of our tenants.
We are confident that we will ultimately collect most of this receivables.
By way of further information for the first to afford days of me.
We have collected 50, 53% of office and retail rents, which is very slightly ahead of the first four days of April.
Here's the punch line of my first two points as they affect valuation.
April's run rate, which acute you continue for say an entire 12 month year, we surely hope it will be shorter than that.
The cost or earnings decline from the variable businesses I mentioned.
Plus four more educated guesses to what bad debts might be is a onetime cost of around the dollar per share.
And that would be for a total 12 months.
This does not give any credit for security deposits.
And my third point is the larger issue affecting valuation.
What will or wont be like when covert 19 passes.
We could each estimate or guesstimate, what will be kind of demand rents and building values. How many tenants will not survive and how many retail tenants will seek bankruptcy.
The stock market has voted by taking the price of our stock down $25 or $5 billion.
I think this is a gross exaggeration.
Our current liquidity is $3.4 billion, including 1.7 billion of cash unrestricted cash and almost 1.7 billion undrawn under a 2.75 billion revolving credit facilities.
In addition, we are scheduled to receive $750 million from 220 Central Park, South closings from May through the balance of this year.
So you might say our liquidity is really over 4 billion interestingly since the heat of the crisis.
In mid March and through April we closed as scheduled five units for net proceeds of $210 billion.
We remain committed to our redevelopment capital plans for the Pen district, formerly pen one than Pinto.
These projects other centerpoint of or Pen district vision, the new epicenter of New York, where we will be delivering for tenants cutting edge next generation amenities and services unmatched anywhere.
Each project is progressing, albeit at a somewhat slower praised pace due to government mandated construction restrictions.
As we've said before these three large pen district projects, our debt free and are being funded off our balance sheet and from the Afro mentioned proceeds from 220 Central Park, South closings no debt no joint ventures and for NATO shareholders keep 100% of the upside.
We have built related to weather the storm and importantly to flourish as it passes we have a cycle tested management team. We're always laser focused on our balance sheet and liquidity at a recent years had been aggressively selling and spending has its aggregating over $19 billion pushing away from topic acquisitions and pushing away from stock buybacks.
[noise] cycles go all of a sudden there's no surely a better times to buy them to sell.
Next few years should be great vintages for investors. So you might say I am ringing the bell.
Here is a thoughtful you we invest not for quarterly returns, but for two three and even five years and we hope you do too.
Right and the passage of time and patients begets outsize rewards.
I'll now turn it over to Michael Franco for our first quarter financial results.
Thank you, Steve and good morning, everyone I hope, you're all self safe and healthy.
As we expected our first quarter ever FFO as adjusted was 72 cents per share compared to 79 cents for last year's first quarter.
First quarter cash basis same store NOI performance was as follows.
New York Office was up 2.1%.
Discrete retail was down 1.9%.
Mark was down 11.8%, resulting from the cancellation postponement of trade shows due to the pandemic the positive 2.22% excluding trade shows and 5.5, California Street was up 3.7% [laughter].
New York Office occupancy stood at 96.9% at quarter end.
In the quarter released 311000 square feet of office space is a very healthy initial rent of $90.47 per square foot.
The gap in cash Mark to markets on second generation space were negative, 3.3% and positive 0.8%, respectively negatively affected by a short term renewal and expansion was Citadel Threefifty Park Avenue as we lineup that building for potential ground up development to start in three years without this one.
At least the gap in cash Mark to markets would have been positive, 5.2% and 10.7% respectively.
New York retail occupancy stood at 94.9% at quarter end.
In the quarter, we leased 15000 square feet, a retail space and an initial rent of $416.36 per square foot.
The gap in cash Mark to markets were positive, 126.6% in hundred and 4.6%, respectively, driven by at least with some for a union square.
At the Mart occupancy was 91.9% at quarter end.
In the quarter, we leased 231000 square feet I didn't initial ran a $47 in 31 cents per square foot, including an important long term renewal would pay Pal for 148000 square feet.
The GAAP and cash Mark to markets were positive, 2.6% and negative 1.2% respectively.
And 555, California Street, where full at 99.8% occupancy at quarter end in the quarter, we leased to small 6000 square foot unit and an initial random $117 per square foot with GAAP and cash Mark to markets, a 44, and a half person and 29.7% respectively.
As to our New York Office pipeline leases that were already in progress pre cobot 19 are moving forward the amount to 1.7 million square feet.
Our first quarter Noncomparable items consisted primarily of a 59.9 million after tax net gain on you don't closings at 220 Central Park South.
Partially offset by 56.2 million at share a write down some real estate fund and 7.3 million of credit losses on loans receivable, resulting from the adoption of the new Cecil GAAP accounting standard.
Three loans receivable totaling 52 million consisting of two partnership loans any purchase money Mezz loan provided to facilitate a sale in 2014, we have no loan book.
Now back to Steve to wrap up her opening remarks.
Thanks, Michael.
New leasing activity in New York, and just about everywhere has slowed to a trick.
The next year or so we'll be very challenging last year, a tragic this well we must look to the other side.
Covert 19 will have it end date.
When we get there I am actually quite optimistic.
Following will be generate income and Penn one and pen two will be coming to life.
These will generate large accretive earnings for US further our New York office expertise for the next three years portend, well for both stability and growth.
Amounting to only 1.9 million square feet for the three years or 12% of war or portfolio, an average of only 4% per year.
At a weighted average expiring rent of only $74.
Now we're worried about our common dividend.
We pick up at least 100% about taxable income a few days ago. Our board declared a regular quarterly doing 60 cents per share payable on may 20 seconds. So far this year, we have paid too.
66 quarterly dividends amounting to $252 million, we do expect our dividend to exceed fed this year.
Without telegraphing any attention, we will as we must reevaluate our third and fourth quarter dividend based upon financial and economic conditions at that time at our then estimate of taxable income.
Here's some final thoughts for you actually a plug for New York, We continue to believe in New York and all that has to offer its lodge at highly educated workforce. He professional sports teams concerts Lincoln Center Carnegie Hall Broadway, Great museums, great restaurants at night life, the best hospitals and universities and of course the largest cuts.
Situation, a fortune 500 headquarters the world's banking center, the world's media Center and now a growing Tech center you get the message.
New York shown human infrastructure is unparalleled and New York is the business capital of the World and New York has always come back to bigger and better from every crisis.
Well, we're now working from home, we do not believe working from home will become a trend that we wouldn't pair office demand at the property values, the socialization and collaboration the truth.
The traditional office is the winning ticket.
Also I believe the Densification trend has bottomed the victim of lots of things and now including social distances.
In sum.
We are respectful of the severity of the current situation at cautious for the next couple of years.
We are actually optimistic after that and excited about bring nato's business prospects.
Lastly, we look forward to welcoming our tenants as they returned to our buildings.
Our operations teams are hard at work preparing critical protocols to ensure the health and safety of our attendance.
Their visitors as well as our staff.
Yes, that's silver at least Lisa Vogel our team leaders here.
With that operator, we're happy to take questions.
Thank you, ladies and gentlemen, I can't look question at this time, please press the star and the number one keen on your Touchtone phone.
Yes, so I wouldn't want to ask a question and please press the pound key to remove yourself. Our first question concerns Jamie Feldman with Bank of America. Your line is open.
Great. Thank you and good morning.
Hi, Steve I want to go back to your comment that your ringing the bell finally might be a good time to start buying.
Can you talk through your thoughts on what you might expect to see what the landscape looks like in terms of trouble balance sheets and competitors and also how you think about capital availability.
To fund Big acquisitions.
I Didnt, Jamie good morning, I didn't understand what you meant about competitors and competitive Alan what do you mean by that well where are you just might see some distress.
And well that's what types of opportunities.
Obviously, there has been a sea change in the ER and the actually is a global sea change.
In the economies of the World weekend.
We can we do expect.
We can already see that there is a fair amount of disruption and ER and distress out there.
I've said before you know we push away from talk to uptick prices. This cycle may very well give us the opportunity to fall yet at fair prices and <unk> and maybe even good prices. Okay. So our antenna is very old or we are very actually enthusiastic about the prospects of Uh huh.
A growing as an expanding externally.
And it's very high on our radar screen okay.
We feel that we have the financial capacity to partake.
So I can't predict where it's going so I can't predict.
What we're going to invest in but I can say that we are anxious about the up that about potential opportunities going forward.
By the way this is still a totally different environment than we have perceived as a management team for the last number is three four years.
Okay, and then just how and when you think about your liquidity and balance sheet. I mean, how do you think about how much you'd want to keep for the long term funding.
Penn Plaza redevelopment it just seems like there's a lot of different.
Needs over the next several years, if there's big opportunities out there how do you think about what you would use to fund.
The answer is as you know, we think our balance sheet isn't very good shape, we have access to all different phases of the capital markets.
And we think that our like our internal capital requirements for the next number of years are fully funded already.
We think we have capacity.
Okay.
I would just to add to the like we have significant capital as Steve said for the opportunities we've already identified internally, but we also lead constantly have capital partner seeking to do things with us in many had reached out.
As soon as this crisis hit so they're large opportunities we want to avail ourselves of capital beyond our balance sheet.
We're confident we're gonna have the capital to do so.
And then would you only consider New York City office or would you look at retail or things outside of the of the Metro region.
Going to look for value.
Got it and we're going to look for value that is down the.
Right down the middle of the road for our skill set so we know what our skills or.
And you know, we're not going on because we're not going to invest in Argentina.
I can only invest in a steel company would go in with what we know how to do.
If it's a <unk> and it doesn't necessarily have to be and.
The four quantities of Matt.
Okay alright, thank you.
Thank you and our next question I'm style.
In line.
Manny Korchman with Citi. Your line is open.
It's Michael Bilerman, Oh, hi, good morning.
And my condolences to a high him and his family.
Steve If you think about the investing of capital and you talk about the stock market being a gross.
Got you rationed in terms of the stock being driven down $25 5 billion. How do you line up the external growth in terms of putting new capital to a new deals versus your own company either in the stock or buying out a venture partners.
Interest in some of your assets.
Oh, you know I I get good morning, Michael how are you where are you by the way.
Well, we are upstate New York.
A lovely.
Stay safe look this is the old buyback question I think again.
And again and again.
I think I've been very clear and my thinking about that.
Big Theyve been very transparent and communicating our company's thinking to you.
And that is that if we buy back stock.
First of all we since we don't have a recurring.
Uh huh.
We don't have recurring earnings to continuously do that it actually will SAP, our capital capacity, we believe that the amount.
Of wealth creation, and the accretion that we can make to our and they the by buying back a chunk of stock.
It is significant in relation to what we can do with a similar amount of capital investing in a different situations. For example, and we've said this publicly and I think we even published it the returns that we expect to make on one Penn.
To Penn based upon the the capital that we have commit.
Exceeds by a multiple that which we might earn that which we might create additional creative and navy buying back our stock. So we are not mindless of our stock Oh, we looked at it continuously we talk about it at every quarterly board meeting and right now that's not that number.
One other hit parade.
By the way, we're actually not pleased that we pushed away from the recommendations of adding people that we buyback.
The dollars $30 higher.
Yeah.
I'm going to the external growth in terms of where you may invest and I remember I don't know if it was last year's letter or maybe there was a year before because of the year before that you talked about.
First of occasion from the perspective of the company bought and sort of addressing a the New York centric and you basically said investors can make their own diversification choices by buying different companies, where we don't think being a new York centric company. That's what that's what we are.
And so I guess from your perspective of looking for value when you wouldn't be confined to the four corners of New York.
I guess why not well why go and further.
Oh, Yeah, we already in New York Company. Okay. We are at tried and true New York Company. There is no doubt about that we think we have the best skill set of any New York operator.
And there are plenty of opportunities in New York, I Wonder, what even say enormous up.
In New York, Okay. So our first second and third priority will be to invest in what we know and where we know and where we have a powerful franchise, okay, having said that.
We we will not preclude a you know other things. So if you go back a long time ago.
We were in New Jersey centric company.
And strip shopping centers, and we made the better part of $10 billion by thing across the river and doing something that's different.
So.
We are absolutely a new York centric company.
Number one two and three priorities is New York.
The fact, the prospects that we will.
Outside of New York.
Our low and it would only be Fred absolutely extraordinary breathtaking opportunity and there may be one.
Okay. Thank you will review.
Thanks, Michael.
Thank you are falling question comes on the line of John Kim with BMO capital markets are wonderful thing.
Thank you I think Steve you mentioned that leasing has slowed to trickle and I'm wondering if that include any leasing activity at Penn Plaza in Farley.
Oh so.
As you would expect this is an extremely.
Disruptive confusing Oh, realizing time.
For everybody, including our tenants in our customers.
Our tenets of our customers fall into basically two broad categories.
There are those that are basically shut down where they have no revenue.
And <unk> they have no visibility into how long it is going to be and what the what the other revenue ramifications are including for natural ramifications.
There are others of our clients that are thriving in this in this.
Period, including the Fagnant.
So basically I'm getting to Penn Plaza.
Oh, we've we've talked about two big leases in that area.
In the past one of them is for a large block of space at two pen.
With that combined tenant.
Who basically is devoted to that building it has been for ever and you know for obvious reasons.
They basically are in pause waiting for their business to open up which is absolutely understandable and David and I am glad or sympathetic with that.
Not going away, but in pause there's another large tenant that has been room would be that we've been in dialogue with.
And that conversation is going forward aggressively and.
Hopefully, maybe even almost complete.
Our either of those tenants that co working.
Oh, No wondering where you can co working no no no.
For sure no that's another.
[laughter].
Thanks.
[laughter].
And I guess, that's one more.
The 6% of non office and retail revenue that has been impacted.
How much of this do you expect to recover in the second half of the there it sounds like trade shows and off the table, but I'm, just wondering about hotels parking and and cleaning services as.
Well I mean, you know with a less than 5% census, you can't have a full cleaning through crew in the buildings that makes no sense.
They can be a the cleaning crews and the revenues from that will will return based upon the the tendency is that a returning thing. The garage is the same thing the trade shows would be probably missed this year and we'll get it will pick them up next year.
Basically all of that what I call variable ER business will rebound back to where it was.
You know shortly after this is all but then there will be a ramp up period, but this.
All of those businesses.
Those businesses will definitely detailed.
Thank you.
Thanks, Thank you.
Our next question will come from the line of Alexander Goldfarb with Piper Sandler O'neill. Your line is open.
Yes, hi, good morning, good morning.
Echoing Michael Bilerman its comments.
Consistent to crimes family and then Steve. Thank you for addressing the dividend upfront appreciate it.
Two questions for you. The first you know we're happy to hear about three Sally Alex Good morning, I Hope I Hope you think I was clear on the dividend.
Yes, Yes, you are unambiguous good.
But you were clear.
Hi, So one obviously good to hear about 350 park that you guys are considering it on the capital side, which has been one of the hallmarks of you guys with the balance sheet. Your comment in the press release about 220 Central Park, South potential for delays that could disrupt closings and then also thinking broadly about the $2 billion.
Street retail preferred odd so one risk on Twotwenty and second on the 2 billion preferred that for the street retail is there are risks that that is somehow impaired where that's not the 2 billion of liquidity that we originally thought it was last year, but it could be something less than which means as you guys think about funding these projects.
That may not be the sorts of liquidity that we thought it was.
Thanks, Alex first on 220 and Ah Ah.
I was I was pretty careful to communicate to you all.
That notwithstanding the and then make.
Since the middle of March we closed actually five units on scheduled for $200 million. So who don't expect in fact, we are even more certain than that.
At the schedule closings for the remainder of the year.
Somewhere in the neighborhood.
$750 million will come off on schedule.
The only little wrinkle in that is is that we are the construction point of view, we have to finish punch list and minor work in those apartments, maybe 30 days per apartment.
So right now we don't have access to those apartments because of governmental mandated work stoppages, but that's going to come back pretty soon.
So we are very confident that all of those closings will occur approximately on schedule and will give us the better part of $700 million this year.
With respect to the retail preferred which I think is $1.8 billion.
Never use that in public or private as a source of capital for any of our investment opportunities or our ambitions or whatever.
So we have looked upon that as a as just an asset on our books, which will generate in.
Now you remember that this oh it was a highly structured tax driven deal that we did.
I believe.
I don't think it's quite a year ago.
And that $1.8 billion of preferred or if we were to sell it triggers 100% tax.
So basically it is it's an asset on our books, it's less liquid asset on our books, we have never.
In our plans.
We have never having our plans to sell it go to use it for.
Well I met our capital our capital.
Okay, and then second question Steve from your initial conversations with tenants what are they saying, it's the crucial thing for them to sort of reopen their offices. It solidly mass transit is it providing CPD for their employees.
What what is it that obviously be worked harder hit what is the key what are the key items that I didn't for telling you we need to solve these issues before we can start tab reopened the buildings and get employees back into New York.
That's a good question, Alex and that sounds like something for Glenn and David.
Alex Good morning, it's David.
I think everybody recognizes that this is a physical and a psychological issue.
So as you as we have continued to was two major tenants.
During the building shut down process.
I think is a the world begins to reopen it's gonna be a very gradual process and it's really anticipating a return initially in that 10% to 20% range ramping up overtime.
I think you know you talked about who we talked earlier about garage is I think we're gonna be seeing fewer people using mass transit people are going to be driving in and I think initially when we open up.
Most people are either going to be walking to work bicycling to work.
We're driving to work.
So it is going to bigger process, that's going to take some time.
But as we see this unfolding.
We are hopeful that it's going to be gradual process as people become acclimated coming back to work, which I know that everybody else looks alone, but we are all anxious to get going [laughter].
I'm, sorry, Alex Alex.
Look.
This will have an end date.
So are they covert pandemic prices will have in date.
Now the end date will be a when there is a therapeutic and maybe even a vaccine.
So as I understand that a therapeutic treat you if you get infected.
Axiom prevents you from getting it at all.
But every every medical scientist in the World is working Oh 24 hours a day on this problem and hopefully there will be a or they will be a medical solution at some finite period.
In between.
When there is still risk of infection and there is still there will be we will just crawled back to regular behavior, okay and regular behavior will be disrupted okay. The subways are going to be disruptive.
You know baseball is gonna be disrupted so I can't predict what's going to happen, but I do know that in some finite period of time.
We will very quickly revert back like a rubber band back to normal.
Well it did it.
Not having to take the 530 am Crane is certainly a help so you know there is a at least or something there anyway listen. Thank you. So by that I take it you're going to continue to work from home.
You will be me and David on the same found but yes. It it's it's much more efficient and as much more efficient.
Hey.
Not for me Alex.
[laughter] [laughter].
Thank you and then next question comes from.
The line of John dining from Stifel. Your line is open.
Oh, great first a very saddened to hear about the furlough over 1800 people.
And I want to congratulate you on a a brilliant execution of selling 50% of your retail about a year ago.
Thinking about Penn.
Hotel, Pennsylvania, and the Manhattan Mall I know those have been on the redevelopment page for a long time.
Is there any thought to just using this opportunity to decommission both of them and demolish them sooner and let sooner or later.
First of all a thanks for your comments about the Furloughing.
Thanks of the matter all are under the new unemployment insurance augment that by the PPP Federal program [noise].
Almost every body that was on the furlough list is getting the same or maybe even more in terms of wages than before.
So we did this was a great deal of sensitivity and care for our employee group.
And this was done not to hurt anybody in fact, we cut the for a little list off.
Where we thought that people would not be able to get a recap and by the by the government programs.
So I I. Thank you for your for your fleet your sympathies, but.
We did this very carefully with a great deal of Oh upset feeling and care for our folks.
Oh, The hotel, Pennsylvania, you know has been a Nick but and then Nick but for a long time, it's obviously a parking lot for development site.
We've closed it and they are a independently because the occupancy rates went down to you know.
Ah low teens single digits. So it was uneconomic, we have thought internally about using a this I'd just never reopening it and that might happen, but I doubt it they so that step one.
They are the Manhattan mall the minute mall is really a building was two components to it in one building.
There is a large office building on top of it which is fully lit and ER and performing well and then there is a mediocre retail a a couple of floors below it so.
So.
You can't really you know you can't really are the mouth you can you could shut down the retail.
But you can't really demolish it because of the office building up a club so in our development plans the first and by the way as you know them at more backs up to that hotel, Pennsylvania. So that's one giant Giants block that would support 034 million square feet, maybe even more of development.
So.
The first it's going to go is hotel, Pennsylvania, some future date and that mall is way way in the future.
Second second question I think everybody is a big big believer in the resiliency of New York, but the last.
A number of issues New York is had you had mayors by the name that Giuliani and Bloomberg there.
Now you've got an incredibly different political environment can you up talk about that current political environment, how that changes and.
I have that helps or hurts, the resiliency of New York.
Yeah John.
It's a good question.
Yeah. We've said we think about this a lot obviously.
Oh for all the issues that New York has a which is a political or a political leadership at a political orientation, which is extremely liberal that left leaning.
A whole decisions other things like that.
The best the best real estate city in the country right now with San Francisco and each point San Francisco is worse than New York is further left leaning Homer situation is worse et cetera.
So the political situation is important.
But it's not definitive it's it's not this positive three.
So we think new York's resilience will continue we think new York's infrastructure in terms of human infrastructure.
Cultural infrastructure business infrastructure finance et cetera is extraordinary the best in the World and we do and we believe in its resilience.
I would love to get in just a Bloomberg Ah Ah you know I'm is landlords. So we know each other very well I'd love to get them back, but that's not going to happen.
Great. Thank you.
Thank you and then next question comes from along.
I think malhotra.
And your line is open.
Pat Thank you and thanks for taking the questions on my condolences on family as well hope everyone else is is when <unk>.
Steve maybe just a high level question I know you've addressed is.
Great question, but you said many years ago that New York with sort of moving to south and west.
Let's talk in south and west given sort of Hudson yards in other development.
You were just sort of having a high level view of what worked on boom. Good due to the office market, maybe New York, Paul or more broadly what would that be.
Oh, you know, we think about that all the time, it's a very important question in fact, I I I gave that question a couple of cents is at the end of my prepared remarks.
So.
He was the way I see it.
At the margin.
There will be I mean, now that we've been we've experienced this at the boy I by the way we talked to all of our tenants, we even talked at all of our employees. There's a very small already which I guess includes Alex.
Ah Ah Ah.
Ah Ah that prefer to be working at home. Most people are dying to get out of home into the office okay.
So the differences is that working from home you're in isolation.
Oh, and the only benefit that I can see of working from home is you save the commute.
Oh, I guess, depending upon who you are where you live that could be an important thing.
But in all other regards in terms of the socialism associate with the other collegiality.
The interaction the creativity the office wins or is the winning tickets in every regard.
Yup.
If you are a ambitious and want to get ahead and you work from home you're not getting ahead, if you're in the office and you are performing with all of your colleagues.
Then you can get ahead.
If you are a pay leader of age team of people and they all work in Oh, They all work from home and you can't have.
Backed with a it's a it's almost impossible job. So we find a in terms of controlling a your employees in for gold and we find is enormous number of benefits to their traditional work at home.
That's a traditional office minutes lasted 4000 years it'll continue at the margin there will be a little bit of incremental Nick.
This is kind of like a trend okay. There trends they happen all the time in relation to crises and then they go back.
The reaction to 911 was nobody wanted to rent space in the upper reaches a buildings because it was dangerous.
And now the only space that the space. That's the most valuable is the upper reaches of the buildings. So this will pass okay. At the margin. There are some people who want to work from home continue to spend the spend that they end up a job is at that continue to have their kids running around but I don't think that's a trend that is going to it it's going to impair.
There.
He said the macro demand for office buildings, nor in pair.
Values I mean for example, let's think about that Densification densification he went to a certain level.
And it went from whatever too I don't know now maybe the the the average Densification is 160 feet or other in 73 something like that.
So we work gang tried to take it down to 60 feet.
That was the justification for their pricing that Didnt work. So anyway, that's where I am I think I think I think the office is the right ticket.
That makes sense and then just on street retail given sort of again sort of the social distancing, maybe higher ecommerce penetration at or above that.
Can you give us your thoughts on sort of pricing bar, meaning kind of rents holding holding up a you know over long term on some of your core.
Upper fifth markets, Madison et cetera, and I'm, specifically any thoughts on sort of what were taking rents would shake out over the very near term indeed core market Vicki <unk>. That's another good question look I'll give you a perverse thing, which is a secret I don't want this to get it.
The go around the table.
I have said and I have written.
And you Gotta remember we made the early call on the secular decline of retail five years ago or six years ago.
And everybody left Atlas here, we are.
I have written that.
That there are two huge problems with retail the most important is that there maybe two to three times as many square feet.
Of retail space in the country as there should be.
So I think as I do the math is 50 square feet per capita and I think the number should be like less than 20.
Oh, so and that I said that it would take I don't know 15 years for that excess space to work off and I've Appia Apparate.
So in a perverse way and maybe that this pandemic is going to get us into a line, but much more quickly. Okay. So we'll see.
I don't think that the retail that the physical retail store is dead, but I do think it's certainly injured.
I can't really give you may ask as to what's going to happen in the very short term to rents I can only tell you that they are down and they're going to <unk> and and they are.
I have a negative outlooks outlook for rents over the short term okay over the medium term or I think there will be some adjustments for great property I think great property will always be in demand.
And I think I am will tell you hire.
Well, we ever get to the peak pricing that there was a three years ago on fifth Avenue.
I don't believe so.
And that's and that that is our for that is our firm view.
Okay. Thank you thanks for that just last clarification.
53% rent connection seems pretty strong given where we are in Macon can you clarify if that 52% on average across off if we didn't parking sets or could you just break that up between office and retail.
It is a 53% on average, it's obviously, but much higher for.
Office at lower for retail.
Great. Thank you Lisa <unk>, Steve I was just clarify that they're going to 53%, yes retail.
Just retail and I know I think Vikram I think your question was the many collection nothing April for me out for me. It's been okay. Okay. So the math is it's in the Twentys for retail right, now, which which is tracking exactly what happened in April and it's in the sixties for office with a weighted average of 53% [noise].
Okay, great. Thank you, so Mike and I think that the exact math is I think David told me. This disappointing that our collections and many are running $1 billion, which is significantly it significantly better in may that in April.
Great. Thank you.
Thank you and our next question comes from.
The line Manny.
Kaufman with Citi. Your line is open.
Hey, maybe one for Glenn.
Well, you know the path to sort of coming back into the office in companies targeting what sounds like 50 per cent for the far near term. If you will how did they think about either leasing or renewing or renewal decisions in that context. So if you sort of your planning for half your workforce to be in you don't know how long that.
Last how do you make any kind of leasing decisions around environment.
Look I think the answer is for the first you know call it six months plus or minus the more kids going to be quite as it relates to new leasing decisions, meaning people moving out of their existing building, we're expanding within their existing building a renewals keep going because we have expiring leases.
And people need their leases so we're in discussions on a lot of renewals.
And with that being said I'm there is some action.
We've been receiving some proposals during the shutdown.
For people looking to a change or life and move to another building within our portfolio, but generally I would tell you during the ramp up of getting back in you're going to see slow demand for new deals and expansions.
[laughter] and I guess I guess more so from a question of.
Those.
Decisions more and more you know sort of from a focused on how are they going to think about the number of square feet per person. When the person counts are just so drastically off I guess, there's a it's a question how do they even think about how much space they need.
I think it's too soon to say no one knows I mean, we're gonna get back into the buildings between the summer in the winter I think things have to settle back in we'd get back to normal so to speak and then people see how their tableaus I think right now you know would not be fair to project how people are going to look good.
How much space they need how many chairs you're going to fit per per foot et cetera, I, just think nobody knows until we get back and people get settled back into their offices during the year.
Make money like large tenants I speak too and I try to speak to you know as many as I can frequently.
They are looking.
Yes, yes areas.
They don't really they're really not focusing hard all I'm, saying, Oh my God, what a great thing I can save 7000 square feet of office space, that's not in there.
I'll have to mine.
What they're trying to do is get their businesses back and they really basically the once I speak do they want all their employees back they want older. This vote and they want to go back to where they were six months ago.
And with respect by the way like the deals by the way Glenn and David will tell you. This.
This is not a good time for a tenant to be making a deal.
Other than a renewal or other than a important space need that he has its not a good time for us to be bargaining with it that it thing. So everything is going to come back to normal at some period or hopefully get though within a year from now and then we'll get back to business.
Thanks, and then maybe flipping to the street retail in a similar contacts a lot of the larger deals. We saw were probably more showroom in nature, then a a productive retail environment and a lot of that was based on tourism and alike. I guess do you guys think about a sentiment shift or Ah a psychological.
Most shoppers, where they're not going to go shopping as a part time and so does that show room or flagship concept becomes harder to pitch to retail tenant.
I am.
So I actually think the a street retail format will prove to be more resilient and more importantly, the ecosystem of connecting with the consumer I think E. Commerce will continue to grow and gain market share, but I also think that retail will prove more resilient than other physical.
Retail format like the mall.
Hi, Michael I think there could be it a counter intuitively I think they could be at opposite okay.
My wife is a shopper.
And she is very frustrated she can't wait to get out and walk up and down Madison Avenue woke up and down fifth Avenue. So I think that there will be a when this opens up and the population which has been shut down they want to go out and they want to go out they want.
A shop they want to go to restaurants, they want to have they want to have their life back. So I think a this is not as dire is as some of the commentaries I've read.
Well I think they all just really want haircuts, but Michael has a couple of follow ups [laughter] [laughter] or just to follow right and then when you get your hair to kick off take one for me. Please [laughter].
[laughter].
I had two follow ups. One was just on me the density question, which I think part of the move to having much more dense population as was the cost of things that allow the tenants to be able to afford the rent.
Paid 'cause it rip the jam more people into into more seats, how does that equation change in terms of use a landlord being able to get the returns that you need a in a tenant affordability because they they now have to take more speaks to the same number of people.
David you want to try that.
Again I think.
We're focused as it relates to that question.
You know you're focused on a period of time, which is today.
So today people are talking about social distancing today people and im not they're not talking about it it's being mandated by the public authorities.
So obviously today in an office you couldn't bring back 100% of your workers you couldn't fit them within the office and properly socially distance.
But as people I think Michael are looking at long term decisions for themselves.
I think people are recognizing that ultimately it may take.
Six months 12 month or two years, we don't really know as Steve said ultimately, we're gonna have to filling an antidote.
Through the virus.
When that happens I think what we're gonna be seeing substantially is effectively going back to much like we were.
People are going to want to come to offices as Steve said.
And as it relates to some of the density that we've seen nobody ever believed that we were going to get to 60 feet a person as some of the co working companies had aspirations to densify, but in terms of what today is in our portfolio.
The way we've seen both financial services technology other service companies in terms of changing the use of their space. We expect that is going to radically radically changed long term.
I think our view of that is we don't think so today.
And then just a follow up on the retail joint venture and given the fact that only 50% of the tenants are paid rent how does the cash flow distribution work within the venture to be able to afford paying no 4.5% bomb the preferred.
On your preferred security in that venture right, what's the cash flow waterfall today with only 50% of rent paying tenants.
Hi, Michael.
Yep.
Yes, Michael Good morning, the other Mike So thank you yeah. The other my colleagues and.
So like the.
The way the preferred is structured is that as you know we have to a third party pieces of debt on the portfolio as well and adventure.
You know that all the cash is effectively aggregated for purposes of paying the preferred and so you know at the current time, there's sufficient cash to pay the preferred not to the extent that.
Cash.
Elections fall off to the point, that's not the case and that will then that will accrue, but you know as of today. The preferred is being paid and we they continue to be paid for the near term.
But all you know there's a deficit in one and there is excess and the other.
And then that cash is sort of aggregated across the different instruments.
Okay. Thank you.
I mean, the answer is that the preferred gets first call on that on the income.
But.
The Oh.
The the.
Percentage of rent collection and.
JV assets was approximately 60%.
And that's swung negatively.
By one big very credit worthy tenant, who decided not to pay which we will undoubtedly collect so it's not as bad as it's not as bad as you think the numbers are.
Right. So there's more cash coming into the venture then would be for the portfolio overall, let's hope.
Yeah, Okay. Thank you.
[music].
Thank you and our next question comes from a line of scheme Sokoloff from Evercore ISI.
Okay.
Thanks. Good morning, most of my questions have been asked but I guess I had one question just on some of the newer developments like Farley and the work you're doing at a two pen you know what sort of changes do you need to make a you know in order to deal with sort of the issues at hand today, and how costly Mike those changes being kind of the design.
For the base building, maybe thinking about the elevators and some of the stuff that might take place on the floor the air handlers and all that kind of stuff.
Who wants to handle that.
Yes, I can take a shot.
Okay.
Okay.
So Steve.
Thanks for the question.
First I would tell you we design these buildings.
As well he will cool forward forward thinking buildings.
Oh in terms of the air handling systems in terms of.
The filtration systems all of this pre coded.
It was being engineered state of the yard.
In terms of having the ability to use the highest rated mirth filters.
There are other technologies that potentially.
Our available some of them have not even yet been tested in the United States.
There was an ionization type of technology.
As it relates to having the air flow through.
Oh tubes.
It's not enormously closely in fact, it is relatively efficient it's something that we're currently looking at but first we're working with.
Obviously, our engineering expertise speaking about the potential technologies like that.
In terms of touch loose entry systems.
We have facial recognition systems in the portfolio, we have the ability to walk in the portfolio.
With your I phone.
To get access through turnstiles.
Similar for visitors so again.
The types of systems that people are thinking about in fact, our systems that precluded we have thought about the buildings themselves are being designed realistically for the next generation.
And then the nature of these spaces to be communal spaces that we have designed in the building.
Obviously today.
Would not comply with social distancing.
But again, we are designing these buildings not for the next 612 or 18 months.
Designing these buildings for long term and there's really no change that we would make two or any of the communal spaces from a long term perspective, whether it's the auditorium space that's great space in pinned to a degree instead of in Penn one using spaces that we think dependents long term.
We will continue to want and the buildings.
We think the buildings have been designed a right spot on for the future.
And just to follow up day, but would that include things like large conference rooms, or I know there was a.
Point in time, you were looking at large Jim for you know kind of the 210 buildings you know just things like that still work in your mind today longer term I know they don't short term but.
Yes, and yes.
Okay. Thanks, that's it for me.
Thank you on our next question comes and Jamie Feldman with Bank of America Your line.
Thank you so I'd like to get your latest thoughts on.
Long term tenant credit quality, especially in retail coming out of this I mean, we've seen now headlines of several bankruptcies coming through in the last week or so.
Just you know what <unk> you know I know, we'll get through this and.
Things will get back to normal, but how do you now feel about.
Tenant credit default risk and then I guess any changes to your reserve balance I know you don't give guidance, but to the extent that that's changed at all.
Oh, that's the question is as to our thinking about retail credit.
Yeah, I mean, just recent more of your retailers may go bankrupt or even some of your small businesses may go bankrupt.
You are making it through this and Harvey reserved for it.
Well, it's or is that.
I think I've read most of the transcripts of all of the gang are that the conference call. So far.
I think we're the only one that raised the point of a bad debt reserve.
Marks.
So oh we.
Periodic Lee we will see you know we this is a this is a new I do think for us and everybody. This is the first time, we I've ever had accounts receivable.
Of any moment.
So when you have accounts receivable do you have to go down and into the we figure out what a bad debt reserves will be which we.
I think I gave an inkling of what I was thinking was my prepared remarks, when I got to the.
The dollar a foot for 12 months might be the course of.
Have a cold, but so far so.
We don't have any Ah, we don't have anything to say about bad debt reserve yet when we published our financial statements we will of course.
But I guess you know taking a step back just kind of your view of either whether it's your retail tenant base or even some of your office tenant base that may not make it through this downturn how's your views changed.
Them say a quarter ago.
Well I mean, you know the history is that there are tenants who drop out every time that there is a severe economic traction.
This may be the poster child to that because not only is there an economic contraction, but there's a total shutdown. So I mean, we are expecting a.
Ah failures on the part of some of our customers.
And that's part of the business, so I can't quantify it.
Yeah, we have a watch list as you would imagine.
And so but you know that will come out in the wash over the next month's here.
Okay all right. Thank you.
Thank you and our next question comes on the line of John.
Tiny equal.
Great just a follow up I know a steep Michael you guys had been a pretty negative on co working.
Look at that we work in particular.
How long do you see them in business indefinitely or is there a up.
And ER and insight.
Hi, Michael.
[laughter] I was going to say as long as softening funds them.
Oh, I don't think that that's a bad thing to say.
[laughter] I mean, I think that's the reality John you know their ability to survive is dependent on a soft drinks willingness to fund a you know those deficit, which would probably be more significant near term you know given this crisis. So I don't know look I think as Steve said, you know a little while ago.
You know their business model was driven by a high density of tenants actually we're paying more per square foot then.
You know than than the normal tenant and a traditional landlords lease.
But they were pacman more densely so that's obviously challenge now there are also paying for flexibility and so obviously you know there are elements that are attractive for certain types of users, particularly particularly small users but.
Like I think in terms of their willingness to survive.
And the thrive I personally view it as a you know in Dallas and you know I don't know whether it's beyond a couple of years, which is sort of their their runway, but I don't I don't want to prognosticate I don't know their balance sheet.
In detail, but I think it's a highly challenged business.
Hi, John Okay, and then John.
You can issue with my thoughts if I might so.
The co working business.
Ah would have been just an evolutionary sort of non event.
Not for the huge loaded markets that you did that we were saved Hello.
So if we work was you know how to Mark.
In the venture in the venture markets had a value a $500 million nobody would have somebody would have paid attention.
That they ended up with some 60 billion or some whatever the crazy number was that got everybody's attention.
So we weren't model contributed a couple of things, which I think might be here to stay.
The first is is there a short term lease or no lease.
Which gives total flexibility to a user game.
So that's a very interesting thing and we've talked about that a lot.
And that will be important to some people.
The second thing is is they developed a culture.
Have a formality I fear tags and think punk tables and what have you.
If you look at the interior design industry for the conventional office space a lot of their innovations have been adopted by conventional tenants Ah Ah because that's the way young people sort of want to work.
Oh, so those two things the culture of work and they are the tenure of of the of the financial commitment it to things that I think a good uplift. The third thing is is that.
When you when you made.
Used we work space you walked into existing desks and you took them as is.
You didn't have to go through a six month period of hiring an architect and building out space I think thats also with very attractive thing.
The rest of it I think as a whole lot hogwash.
Good okay.
Second question.
Maybe I'm up haven't been Intune, but this is the first I've heard about a ground up redevelopment of 350 Park can you talk about the size and the scope and the timing of that.
Who wants to take that on.
I'm happy to do it Steve.
John I'm I think we've referenced the you know once or twice previously we have an existing 570000 foot office building.
And you know what the Midtown East rezoning.
District.
You know, we have the ability to to tear that building down and with the acquisition of air rights that are available to build a brand new a 1 million square foot building a we also have the option to combine.
With our neighbor to the west.
And build a combined you know 1.7 1.8 million square foot Golden which again is expanded from the combined.
Listing building so there's the ability and those those air rights are available and cost effective.
And so you know we have a location that is pre eminent and arguably the best in the city.
We've had tenant inquiry previously now looking for headquarters locations and dance, where the tenant probably about 18 months ago. We continue to have interest in the site from others.
As Glen and team have spent time a educating the brokers on the possibilities there and we have the ability to build where we think is.
One of the best office buildings in the World I, one of the preeminent location. So.
It's a building that has garnered interest.
And given the ability to upsize. It you know is Ah yes. It is is potentially economic and if the if the market is there.
Yeah and.
From a timing standpoint, you know one things we've done over the last several years use lineup. The leases. So that we have that option and knowing that you know the Midtown East district was being finalized so you know Glenn and all his leases as put in place demo clauses, including in the most recent one was citadel so that we have the.
Option that all would leases are lined up.
To tear the building down so that's that's the effect is that we have a we have an opportunity in the next three years or so a degree you know what is a a first class building in a preeminent location.
Okay, great. Thank you very much.
Very interesting position in that situation number one as Michael said, we I think we have to single best location in ALS.
A number two is we have the flexibility to either a stay where we are.
Which is a 40 year old whatever office building, which is perfectly serviceable and ER as a value of X.
Or we can pare down and build a brand new soup to nuts building, a that Michael said, a a million feet or we can combined with our neighbor, Michael said to the west I would say to the rare.
Because I am always a little bit more difficult and Michael.
And build a much bigger building okay. So the marketplace will tell us what to do based upon Tennessee, and inquiries and what have you and I want to emphasize one other thing that Michael said, he said that we danced with a very major.
Financial Services Cup <unk>, a company to do just that the entire block.
Bill day headquarters for them, which.
Fairly far down the line, but never materialized.
Do you have a no observatory pleasure on that slide you on that development.
I give you my word there will be no observatory [laughter]. Thank you.
Lets you think yes, unless you think we should have been observatory.
No comment.
[laughter].
Thank you and your next question comes from the line of Anthony Paolone. Your line is open.
Yeah. Thanks, I was wondering if we go back at me I missed this but in the first quarter, yet $284 million, that's cash and a why can you maybe put some brackets around just you know what the draw down to that could look like in the next few quarters from parking signage Taro show supermarkets or move outs not so much the.
You know deferrals, but just the other things and where that goes.
Joe If you would please.
[noise] good morning isn't a yes, Steve did in his prepared remarks say that those elements of our business would your variable hotel Penn the trade shows the blocking signage our run rate of $9 million.
And so do you think there's basically go away the next few quarters or.
Well there, they're they're close today the whole pens close the trade shows for the remainder of this year on not going to happen.
Signage is going to stand still so for sure as long as cold that goes on.
They're going to be that effect.
Ah Tony.
It's important that said I think this distinction.
$9 million a month.
Ah that Joe mentioned is or is it the way we look at it is a one time hit.
Because this is going to spring back and wed.
The economy opens up and business is open up and the cold or the coal that begins to open up.
So basically this is not is if you have empty space that will be it's not as if it's a permanent long term dimunition at our values. So the way we've dimension Data's is if you take what I guess of bad debts might be.
But this is for the coming 12 months, if it last that long and we hope it does it and what the diminishes might be for these variable business is it might amount to a dollar for dollar share what 200 billion dollar one time it.
Okay.
Okay, I understand and then sorry, you have to repeat this but I don't know I was just squares, maybe others on the dividend, but what is the plan for the rest of this year on the dividend.
Ah Tony I think I said it is in my remarks pretty clearly that we paid.
The first two quarterly dividends, we pay the second we declared the second quarter three or four days ago.
So that's 250 odd million dollars of dividends for the first half.
With respect to the third quarter and fourth quarter or we will look at them in light of the economy.
Market conditions or the world, our expectations of the future and most importantly.
In light of our taxable income.
So that means you maybe not paid on that normal course since you have been not enough Tony that's it.
Putting words in my math I said.
Very clearly I think at least I tried to be clear without without without giving any indication as to where we might go. These are the parameters of the decision.
Well they sit there.
Okay. So there was no clear decision that's just the brackets around how you're thinking about it. This is a board decision, which has to be made at the time, okay. So how we can't possibly have Andy.
I have any oh, we can't possibly forecast that now the other thing is we have the financial capacity to do basically anything that we want to and we will do a combination of that plus what's prudent financially for the business.
Okay, well just last question Dick just the idea of opportunities arising on the investment front, what you know what would constitute.
You know in an interesting opportunity in terms of the economics I noticed in the queue you changed I are ours in cap rates, you know that yesterday value. Its find what I think you moved cap rates up by 200% basis points and I are ours by 450 basis points is that kind of the order of magnitude or was that just.
Turning now that I'm, just trying to get color on what you know what would put something in the strikes on for you like Michael.
Yeah, I think Tony on the latter point I think that was primarily accounting driven and keep in mind on the on the fun you know the largest asset is a is a hotel and so obviously, that's the most stressed category and Ah.
Cap rates discount rates have gone up there.
So look I think in terms of opportunities like I think first of all its still early days right I mean, the opportunity not unlike the last crisis.
On the public markets react the quickest and some of the CMBS bonds trade off.
Frankly, the fed stepping in has helped to stabilize United on market quite a bit.
And the stocks have come back some but you know the private markets it takes longer.
A lot of lenders are for bearing right now and working with borrowers to just allow them to sort of you know stabilized during this timeframe when we get to the other side of that.
The other projects that you know we're being developed that a you know maybe a you know we are wyndhams situation in another city that a you on the developer and that was out of balance on their capital ratios.
Maybe they'll lease up assumptions, but you know we're looking for value.
Where we can buy a discounts to replacement cost high quality assets, where we can apply our skills and make some make some real money and that's the that's the essence of you sort of know when you see it.
Yeah, we're out looking both debt and assets.
But I I would characterize it is still early days.
<unk>.
That's correct. It's absolutely early days in terms of this acquisition cycle to the extent that there is an acquisition cycle.
But clearly the playing field is much more attractive for acquisitions today that it was three months ago.
Okay got it thank you.
Thanks, Tony we're all your Tony.
On a go on long island.
Okay.
He said.
Actually too.
Thank you last question comes the line up.
Daniel.
Well.
Your line is open.
Maybe just a big question Big picture question here or New York City budget is clear on your under strain like many others across the nation, which might have several wayne occasions for landlords in the markets are there any near and long term opportunities are threats.
Emerging as the city cities looked at fixed or fixed fiscal situation.
Uh huh.
Well, we Danny that's a that's that's a question look.
The next thing that's going to rear its ugly head is the physical condition of every single one of the 50 states.
Every single one of that 100 largest cities in the United States every single one of those.
Governmental entities is is.
In a disastrous fiscal situation.
In New York State.
Ah the Governor has announced that there's a 50 billion dollar whole this year at over three years, it'll be $61 billion in terms of just a projection.
And every other one of the Big States are it's similar conditions to New York City in New York State are not isolated.
So.
The only place that they can plug that hole is either aided by cutting expenses.
Radically or by going.
And in mouse to the federal government because the federal government is the only government in the country that can have a habit deficit budget.
Other guys have to balance the budget somehow.
So.
I think the majority leader of the said it made a statement two three weeks ago.
National attention that said, let them go bankrupt.
And I was a pull that that I.
I, just Oh, my God, but really what he was saying if you'd give him. A is due was that there has to be some things with these governments to start to get their budgets under control there has to be some pressure.
So I don't know, what's going to happen I believe that the biggest single single.
Fight and then next in the presidential election, which were all is almost upon us is whether the federal government is going to spend two trillion dollars to.
Base, So we'll see but clearly up I don't believe that they're going to go crazy and raise taxes I don't believe they're going to do anything the only way out is for the federal government to come to the rescue.
God only knows what.
Conditions.
General governments are going to put on that rescue body and that'll depend a lot of paused the outcome of the election.
Okay, So you're not anticipating any hey, rezoning of there is a new York additional air rights speeding up permitting processes or anything like that at least in the near term I think that will happen, but that'll take do you know if they change there's only it takes five just to make anything happen.
That's.
Fair and then I'm just lastly from me the projected cash yield on the in cross our development pipeline.
Didn't change quarter over quarter.
It's still your anticipation that for the Redevelopments and developments in your pipeline so hitting those pre co bid.
Ah development threats. The answer is yes, what's to come to copy us number one.
We believe that leases and process will will will conclude with.
Which was the a basis was those projections when we put them out last year.
Oh no. There's two variables to those are the first is is if Barry does a.
Superman job and gets the advice better so that we build for less which is absolutely a possibility in this environment.
And that's a plug them, giving to Barry.
The second is what the <unk> not the rents will be we just don't know yet okay.
So we will adjust them when we get visibility will adjust our projections when we get visibility.
But we're not going to react or you know, we're not going to react precipitously to a change to.
<unk> newspaper article this week or next week to week after.
Okay. Thanks, everyone.
[noise]. Thank you.
Your last question comes from Steve talk later I'm working [noise].
Thanks, just one follow up I know you don't have that much debt coming due this year, but to do on I think north of 2 billion of mortgage debt coming due next year.
And I'm just curious if there are things you can do kind of this year to take advantage of the low rates and perhaps a credit spreads narrowing over the next six months of hourly can you get to some of that debt.
And that kind of locking away [noise].
Michael.
Yeah, a morning, Steve.
Like we are always out ahead, and trying to refinance oded and Ah and so we're working on those are already and the process of both refinancing and extending some of those so like we agree there's an opportunity.
You know given that you know the both LIBOR in the 10 year Treasury are down dramatically and even though spreads may have gapped out you know all in borrowing costs not quite attractive.
There are opportunities, particularly if you look at something like a 5.5, California, we're paying north of 5% clearly that we're going to bring that down. So the answer is a were on it Steve you know, we're comfortable and I would point out. The you know the assets over the loans that are maturing next year happened to be on summer premium office ask.
That's a low loan to values and highest debt yields and so you know we're confident in those refinancing executions.
Got it thanks.
Thank you and I'm not showing any further questions at this time on let's turn call back to school.
Thank you.
Thank you everybody were grateful for everybody joining us this morning.
Please don't get too comfortable working from home Alex. That's it you are you know we need you back in the office and paying rent in our buildings.
Let me say stay healthy it safe Oh second quarter earnings call will be on Tuesday August 4th and we look forward to your participation again take care say stay healthy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[noise] [noise].