Q1 2020 Earnings Call
[music].
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 cost 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.
It's 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.
Well, it's Super 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 via no dot com.
Under the Investor Relations section in these documents in during today's call. We will just got 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 the statements made during this call may be deemed forward looking statement and actual results may differ materially probably be state that due 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 too.
Thousand 19, and our quarterly report on form 10-Q for the quarter ended March 30 for 2024 information regarding these risks and uncertainties. The call. Maybe may include time sensitive information may be accurate only as of today's date the company does.
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 RCM. Your senior team is on the call and available for questions I will now turn the call over to Steven Roth.
Thank you Kathy and good morning, everyone.
Before we begin I ask for a moment of silence at all or over the life that have been lost during this call that they team pandemic.
Including items below <unk> father in my Dear friends they'll be true.
Thank you.
They'll find ourselves it almost total short though than ever before situation life as we go with it looks like though people or hurdles businesses are hurting and the future is absurd.
For NATO as a first priority we are following strict protocols and taking all measures to protect our employees are attendance at our communities.
We pray for the health and safety of oil and we commend admire that pellets encourage or health care providers.
And their order the crowd at 731, Lexington Avenue or Bloomberg Tower, There's no flying Scrubs Lou.
As is our block long time square side and also the like projection on the board.
Our entire organization is working remotely and doing a remarkable job keeping the trains running at on time.
Well thanks.
Our office buildings remain open safe I'd say, that's always with a rightsized operating staff.
So census is currently less than 5% all but a 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.
At least 1800 employees on the temporary for LOE, including 1300 employees of BMS are wholly owned subsidiary would for boys cleaning security and engineering services to our properties.
400 employees at the hotel, Pennsylvania at 100 of our corporate stuff.
We have deferred certain capital projects to the tune of $125 million, we have closed the hotel, Pennsylvania temporarily.
[noise] effective April one.
2020, we for the remainder of the year, our executive officers wave portions of their annual base salary.
Again, it with my 50% reduction and scaling down from there at each member of our board of Trustees will forego their annual cash retainers.
Now, let's talk a little about the massive discovered 19 situation as it affects our business.
I see it and three parts first.
We expect a $9 million average monthly income reduction.
From one the hotel, Pennsylvania being close to the Marts canceled trade shows three.
Reduce revenue from view them as cleaning services for reduced income from our garage as five reduce third party spot cited 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 with like for terms tunnel.
Second.
Our rental revenue stream is supported by over a thousand office leases with an average lease term was 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 over $1.7 billion or 142 million per month.
As is normal we have collected virtually all rent due from January through March for April we collected 90% of office rents and 53% of retail rents or a combined 83%.
Interestingly.
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 tenet security deposits protecting bad debts of which $51 million is from tenants who have much it paid april's rent.
As you would imagine we're in discussion with almost every one of our tenants.
We are confident that we will ultimately collect most of this receivable.
By way of further information for the first to afford there's a big 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.
If april's run rate would ticket you continue for say an entire 12 month year, we shortly hope it will be shorter than that.
The cost or earnings due.
From the variable businesses I mentioned, plus four more educated guesses as 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 Who's got larger issue affecting valuation.
What will a world be like when covert 19 passes.
We could each estimate or guesstimate, what will be tenant 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 Oh 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 for all the pen one and pin too.
These projects other centerpoint of or Pen district vision for 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 slow appraised place 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 Sensorflex else closings no debt no joint ventures and for NATO shareholders keep 100% of the upside.
We have built for NATO to weather the storm and importantly to flourish as it passes we have a cycle tested management team.
We are always laser focused on our balance sheet and liquidity in 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.
Cycles go all of sudden there's no surely a better times to buy to sell.
Next few years should be great vintages for investors.
So you might say I am ringing. The bell here is just thought for you we invest not for quarterly returns, but for two three and even five years and we hope you do to buying 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 sale 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%.
Street retail was down 1.9%.
The market was down 11.8%, resulting from the cancellation postponement of trade shows due to the pandemic, but positive 2.22% excluding trade shows and 5.5, California Street was up 3.7%.
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 ran at $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 a $416.36 per square foot.
The GAAP and cash Mark to markets were positive, 126.6% and 104.6% respectively, driven by at least with some for a union square.
At the more occupancy was 91.9% at quarter end.
In the quarter released 231000 square feet I mean initial ran a $47 in 31 cents per square foot, including an important long term renewal with pay Pal for 140000 square feet.
The GAAP and cash Mark to markets were positive, 2.6% and negative 1.2% respectively.
[noise] at 555, California Street, where full and 99.8% occupancy at quarter end in the quarter, we leased to small 6000 square foot unit and an initial ran up $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 so not real estate fund and 7.3 million of credit losses on loans receivable, resulting from the adoption of the new see sold GAAP accounting standard.
We have three loans receivable totaling 52 million consisting of two partnership loans any purchase money mezz loans 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 of this but we must look to the other side.
Covert 19 will have an end date.
When we get there I'm actually quite optimistic.
Probably will be generating 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 all of our portfolio an average of only 4% per year.
At a weighted average expiring rent of only $74.
That will worried about our common dividends.
We have 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 intention we will as we must reevaluated 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 eight 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 concentration.
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's home human infrastructure is unparalleled and New York is the business capital of the World and New York has always come back the 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 will impair office demand and property values, the socialization and collaboration of the truth of the traditional office is the winning ticket.
Also I believe that 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 Bernie those business prospects.
Lastly, we look forward to welcoming our tenants as they return to our buildings.
Our operations teams are are hard at work preparing protocol protocols to ensure the health and safety of our attendance.
They're visitors as well as our staff.
Guests on 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 local time, Please press the star and the number one key on your Touchtone phone.
Well no problem one wants to question increase press the pound key to remove yourself. Our first question concerned 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 trying to balance sheets and competitors and also how you think about capital availability.
To fund Big acquisitions.
What I didn't understand me good morning, I didn't understand what you meant about competitive isn't competitive Alan what do you mean by that well where are you just might see some distress.
Well, that's what types of opportunities.
Look obviously, there has been a sea change in the ER and the actually it's a global sea change.
In the economies of the World and Ah Ah, we can we do expect.
And we can already see that there is a fair amount of disruption and ER and distress out there.
Oh.
I've said before you know we push away from cocktail uptick prices. This cycle may very well give us the opportunity to buy at <unk> at fair prices.
And maybe even good prices. Okay. So our antenna is very alert we are very actually enthusiastic about the prospects of act.
Growing at 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 though I can't predict what were going to invest in but I can say that we are anxious about the up 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.
Our internal capital requirements for the next number of years are fully funded already.
We think we have capacity.
Okay.
Yeah, I would just to add to the like we have significant capital Steve said for the opportunities we've already identified internally, but we also lead constantly have capital partner seeking to do things when those 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 going to 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.
We're 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 are.
And Ah you know, we're not going away because we're not going to invest in Argentina, and we're not going to invest in a steel company would go into what we know how to do.
If it's and it doesn't necessarily have to be and the for quanta is Matt.
Okay alright, thank you.
Thank you enter next question comes down to <unk>.
The line.
Manny Korchman with Citi. Your line is open.
It's Michael Bilerman Ah Hi, good morning.
A much at all since then hi him and his family.
Steve If you think about the investing your capital when you talk about the stock market being a gross exaggeration 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 deal.
<unk> 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 Oh, good morning, Michael how are you where are you by the way.
Well, we are upstate New York.
Luckily.
Stay safe look this is the old buyback question I think again.
And again it again.
I think I've been very clear and my thinking about that it and be they've 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 Ah Ah Ah.
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 HIV by buying back a chunk of stock.
It is insignificant in relation to what we can do with a similar amount of capital investing in a different situations. For example than we've said this publicly 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 it very accretive and navy buying back our stock. So we are not mindless of our stock at it we looked at it continuously we talk about it at every quarterly board meeting and right now.
That's not not number one on our hit parade.
And by the way, we're actually Ah Ah not pleased that we pushed away from the recommendation as many people that we buyback sizeable $30 $30 higher.
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.
Diversification from the perspective of the company and sort of addressing a the new York centric and basically said investors can make their own diversification choices by buying different companies were we don't think being a new York centric company. That's what that's what we are.
In 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.
Why go even further.
Oh, Yeah, we already New York Company. Okay. We are a 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 there 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 are we will not preclude a you know other things. So if you go back a long time ago.
Oh, we were in New Jersey centric company.
ER and strip shopping centers, and we made the better part of $10 billion by cutting across the river and doing something that's different so.
We are absolutely a new York centric company up our number one two and three priorities is New York.
The the prospects that we will just 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 where Q.
Thanks, Michael.
Thank you are falling question comes on the line of John Campbell PML capital markets are wonderful thing.
Thank you I think Steve you mentioned that leasing has blow to trickle and I'm wondering if that include a any leasing activity at Penn Plaza and Farley.
Oh so.
As you would expect this is an extremely Ah Ah disruptive confusing Oh realizing time.
For everybody, including our attendance at 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 at what the what the other revenue ramifications are including financial ramifications.
There are others of our clients that are thriving in this in this.
Areas, including the Fang.
So basically I'm getting to Penn Plaza.
Oh, we've we've talked about two big leases in that area or in the past one of them is for a large block of space at two pen.
With that combined tenet of who basically is devoted to that building. It has been forever 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 rumored to 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 Oh no no.
For sure no.
[laughter].
Thanks.
[laughter].
Can I just that one more oh, 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.
I'm, just wondering about hotels parking and including servers.
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 they me or the cleaning crews and the revenues from that will or will return based upon the the tendency is that a returning thing. The garage is the same thing or the trade shows would be probably missed this year and we'll get it will pick them up next year, but basically all of that but like.
Cool variable or a business will rebound back to where it was or as you know shortly after this is open that there'll be a ramp up period, but this will all of those businesses will all of those businesses will definitely be down.
Thank you.
Thanks, Thank you.
Our next question will come from liner Alexander Goldfarb with Piper Semiannual your line in Oakland.
Ah, Yes, hi, good morning, good morning.
And echoing Michael Bilerman comments.
Don't system to Communist family and then Steve. Thank you for dropping the dividend upfront appreciate it.
So two questions for you. The first you know we're happy to hear about reality you Alex Good morning, I Hope I Hope you think I was clear on the dividend.
Yes, Yes, you are unambiguous good.
Like you were clear.
All right. So one obviously good to hear about 350 Park that you guys were considering it on the capital side, which is we had 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 closing and then also thinking broadly about the $2 billion Street.
Retail preferred.
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 or 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 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.
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.
[laughter], who do not 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 have a construction point of view, we have to finish hunch lists 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 billion this year.
[laughter] with respect to the retail preferred which I think is $1.8 billion.
We have 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 a heavily.
I don't think it's quite a year ago.
And that $1.8 billion, a preferred or if we were to sell it triggers 100% tax.
So basically it is it's an asset on our book, it's like a liquid asset on our books, we have never.
ER in our plans.
We have never having our plans to sell it what they use it for.
Well I met our capital our capital.
Okay, and then second question would be 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 <unk> for their employees.
What what is it that because obviously the worked harder hit what are the key what are the key items that I didn't for telling you I need to solve these issues before we can start not reopened the buildings and get employees back into New York.
That's a good question, Alex and that sounds like something for Glennon David.
Well.
Hi, Alex Good morning, it's David.
Listen I think everybody recognizes that this is a physical and a psychological issue.
So as you as we have continued to I speak too.
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 the 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 it 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 gonna be your process, that's going to take some time.
But as we see this unfolding.
We are hopeful that it's going to be a gradual process as people become acclimated coming back to work, which I don't know about everybody else on the phone, but we are all anxious to get going [laughter].
Okay, Alex Alex.
Look.
This will have an end date.
So a covert pandemic prices will have it and 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 there 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 the regular behavior, okay and regular behavior will be disrupted okay. The subways are going to be disrupted.
You know baseball is gonna be disruptive 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 is it.
Not having to take the 530 am Crane is certainly a help so Ah 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'll be me and David on the same found but yes. It is much more efficient and as much more bedroom.
Hey.
Not for me Alex.
[laughter] [laughter].
Thank you and then next question comes from.
The line as John dining equal your line is open.
Oh, great first a very sad and here about the furlough all over 1800 people.
And I want to congratulate you on a a brilliant execution of selling 50% of your retail about a year ago.
I'm thinking about hand.
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 the effects 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 with a great deal of sensitivity and care for our employee group up and this was done not the 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 it's by the by the government programs.
So I I. Thank you for your for your a three year sympathies, but.
We did this very carefully with a great deal of Ah of upset fielding and care for our for our folks.
Oh, the hotel, Pennsylvania has been that Nick, but and then make but for a long time, it's obviously a parking lot for a development site.
We've closed it and they are a independently because the the occupancy rates went down to you know.
Ah low teens single digits Ah. So it was uneconomic, we have so what internally about using a this I 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 have a couple of floors below it so.
So you can't really.
You can't really are the Mt. Your 10, 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 <unk> and by the way as you know the Manhattan more backs up to that hotel, Pennsylvania. So that's one giant giant lock.
That would support.
034 million square feet, maybe even more of development.
So the first that's Gonna go is the hotel, Pennsylvania at some future date, and Hatton ball is way way in the future.
I'm sorry, the second question I think everybody is a big big believer in the resiliency of New York, but the last up you know the number of issues. New York is had you had mayors by the name of Giuliani and Bloomberg there.
Now you've got an incredibly different political environment can you.
Talk about that current political environment, how that changes and Oh.
How that helps or hurts, the resiliency of New York.
Yeah, John that's a good question.
Yeah. We've said we think about this a lot obviously.
Oh for all the issues that New York has which is a political or a political leadership at a political orientation, which is extremely liberal at left leaning.
Oh homeless issues 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 this the Bloomberg or are you know I mean is landlords. So we know each other very well I'd love to get them back, but that's not going to habit.
Great. Thank you.
Thank you and next question comes from along.
Mhm Malhotra from.
Your line is open.
Pat Thank you and thanks for taking the questions on my condolences on family as well open everyone else is as well in <unk>.
Steve maybe just a high level question I know you've addressed as in prior question, but you know you said many years ago that New York with sort of moving to south and west.
No, it's not in south and west given kind of Hudson yards in other development.
If you were just sort of having a high level view what worked on boom. Good due to the office market, maybe new York or more broadly what would that be.
Oh, you know, we think about that all the time, it's a very important question and in fact I I I gave that question a couple of cents is at the end of my prepared remarks.
So.
Here's the way I see it.
At the margin.
They will be I mean, now that we've experienced this at the boy I by the way we talked to all of our tenants, we even talked to 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 difference is is that are working from home you're in isolation.
ER and the only benefit that I can see a 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 or the office wins or is the winning ticket. It every regard.
Yup.
If you are.
Ambitious I don't want to get ahead, 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 a leader of age team of people and they all work in Ah, Yes, They will work from home and you can't have.
Act with him it's a it's almost impossible job. So we find a in terms of controlling a your employees and 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 a little bit of incremental Dick.
This is kind of like a trend okay. There trends they happen all the time in relation to crises and then they go back.
Or the reaction to 911 goes nobody wanted to rent space at 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 today in that but dramas and to continue to have their kids running around but I don't think that's a trend that is going to is going to pay.
Were they.
The macro demand for office buildings, nor in pair.
Ah values I mean for example, let's think about the Densification Densification he went to a certain level.
And it went from whatever too I don't know now maybe they're good the the average densification is 160 feet or other and 75 something like that.
Oh, we work gang tried to take it down to 60 feet and 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 a again sort of the that's also doesn't thing maybe higher ecommerce penetration of the bulk of that it can you give us your thoughts on sort of bracing bar, meaning kind of rents holding holding up a you know over a long term onto the meal.
Or upper fifth markets, Madison et cetera, and I'm, specifically any thoughts on sort of what were taking rents could shake out over the very near term. Indeed go to market Oh pick them. That's another good question look I'll give you a perverse are saying, which is a secret I don't want this.
To get ready to go around okay.
I have said and I have written.
And you got to remember we may be early call on the secular decline of retail five years ago or six years ago.
And everybody laughed at us up here we are.
I have written that he said that there were 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 then I said that it would take I don't know 15 years for that excess space to work off and evaporate rapid rate.
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 certainly injured.
I can't really give you math is the 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 rent over the short term okay over the medium term or I think they will be some adjustments for great property I think great property will always be in demand.
And I think I am little Ted 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 affirmed view.
Okay. Thank you thanks for that just last clarification.
53% Grant connection it seems pretty strong given where we are in Macon can you clarify if that 50% on average across office suite in parking that for you just break that up between office and retail.
It is a 53% on average it's obviously a much higher for.
Office at lower for retail.
Great. Thank you Lisa it's Dave I was just clarify victim to 53%, yes retail, it's just retail and I know I think Vikram I think your question was the many collections nothing April for me out for me. If you don't get me. Okay. So the math is if 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 differently exact math is I think David told me. This disappointing that up our collections and May are running $1 billion, which is significantly insignificant better in may that in April.
Great. Thank you.
Thank you and next question comes from.
The line Manny.
Kaufman with Citi. Your line is open.
Hey, maybe one for Glenn.
One was you know the path to sort of coming back into the office and 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're 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 or renewals keep going because we have expiring leases and people need their leases. So we're in discussions on a lot of renewals.
With that being said I'm. There is some action we've been receiving some proposals during this shutdown oh 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 gonna see slow demand for new deals and expand.
Actions.
[laughter] [noise].
And I guess I guess more so from a question of.
Those.
Decisions more more you know sort of from a focus level.
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 of how to 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 this 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 tell people. We're gonna look good you know how much based they need how many cheers you're going to fit per per foot et cetera, I just thing nobody knows until we get back and people get settled back into their offices during the year.
Make money like large tenants that I speak too and I try to speak to you know as many as I can frequently and they are looking.
Past this period.
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 in the top of mind, 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 they're small and they want to go back to.
Where they were six months ago.
With respect by the way lives is like the deals by the way Glenn and David will tell you. This.
This is not a good time for a tenant be making a deal.
Other than ever dual rather than a important space need that he has its not a good time for us to be bargaining with it that it. Okay. 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 you know a lot of the larger deals. We saw were probably more showroom in nature, then a a productive retail environment and one that was based on tourism and alike. I guess do you guys think about a sentiment shift or Ah a psychological.
The most shoppers, where they're not going to go shopping as a Palestine and so the that show room or flagship concept becomes harder to pitched to retail tenant.
I am.
So I actually think the a street retail format will prove to be more resilient and more important because the ecosystem of connecting with the consumer I think E. Commerce will continue to grow and gain market share I also think that pretty retail will prove more resilient and other physical.
Retail format like the mall.
Hi, Mike I think that 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 a when this opens up and they population, which has been shut down they want to go out and they want to go out they want to.
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 I'll, just really want haircuts, but Michael has a couple of follow ups [laughter] [laughter] or just a they went 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 was was the cost of things right and allow the tenants to be able to afford the rent.
Paid because they ramped the jam more people into them into more seats, how does that equation change in terms of he was a landlord being able to get the returns that you need.
And a tenant affordability I can say they now have to take more space to the same number of people.
David you want to try that.
Again I think.
We're focused.
As it relates to that question.
No 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 office you couldn't bring back 100% of you 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 months 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 seen 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 change long term.
I think our view of that is you 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 a paid rent how does the cash flow distribution work within the venture to be able to afford paying no 4.5% on the preferred.
On your preferred security in that venture right, what's the cash flow waterfall today with only 50% of rent paying tenants I.
Hi, Michael.
Yep.
Yeah.
Michael Good morning, or the other Michael so thank you yeah, the other Michael exactly [noise].
So like the lead the way the preferred is structured is that as you know we have to a third party or 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 what the current time, there's sufficient cash to pay the preferred not to the extent that a cash.
Collections fall off to the point, that's not the case and I will then that will accrue, but you know as of today. The preferred a is being paid and we they continue to be paid for the near term and all you know there's a deficit in one and there is excess and the other.
Then that cash is what aggregated across the different instruments.
But okay. Thank you.
The answer is that the preferred gets first call on that on the income.
But.
They are.
The the.
The percentage of rent collection and.
JV assets was approximately 60%.
And that 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.
Thank you and our next question comes on the line Husky backlog from Evercore ISI. Your line is open.
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 pan 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 a kinda design.
For the base building, maybe thinking about the elevators and you know 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.
Oh I can take a shot.
Okay, well used to.
So Steve.
Thanks for the question first I would tell you we you design these buildings.
As we already we're cool forward forward thinking buildings.
Oh in terms of the air handling systems in terms of.
The filtration systems all of this.
Pre coded.
We're 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 you had been tested in the United States.
There was an ionization type of technology.
As it relates to having the air flow through.
Mm Hmm 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 experts thinking about the potential technologies like that.
In terms of touch loose entry systems, or we have facial recognition systems in the portfolio, we have the ability to walk in the portfolio.
With your I phone or to get access through turnstiles.
Similar for visitors so again.
The types of systems that people are thinking about in fact, our systems that pre coded 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.
I would not comply with social distancing.
But again, we are designing these buildings not for the next 612 or 18 months.
Designing these buildings the 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 pen to the Grand Stare in Penn one users spaces that we think dependents long term.
We will continue to want in the buildings.
We think the buildings had 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 you know I know would 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 shorts arm, but.
Yes, and yes.
Okay. Thanks, that's it for me.
Thank you on her next question comes thinking Feldman with Bank of America Your line.
Hi, Thank you so I 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 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 restate more of your retailers may go bankrupt or even some of your small businesses may go bankrupt or are you, making it through this and Harvey reserved for it.
Well, yes, there is is that.
I think I've read most of the transcripts of all of the gang are that I've had the conference call. So far.
I think were the only one that raised the point of a bad debt reserve a in our remarks.
So oh, we are periodically we will see you know we this is a this is a news I do thing for us and everybody.
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 use it to figure out what a bad debt reserve, which we I think I gave an inkling of what I was thinking was in 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 or we don't have anything to say about it's bad debt reserve, yet, where 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 your office tenant base that may not make it through this downturn how's your views changed.
From say a quarter ago.
Well I mean, you know the history is 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 or a failures on the part of some of our customers.
And that's part of the business up so I can't quantify it.
Oh, Yeah, we have a watch list as you would imagine.
[laughter] and so but you know that'll come out in the wash over the next month's it here.
Okay all right. Thank you.
Thank you and our next question comes online and John.
Tiny huh.
Great just a follow up I know a steep Michael you guys had been a pretty negative on co working you look at that we work in particular.
How long do you see them in business indefinitely or is there a up.
And ER and the 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'm ethic, that's the reality John you know their ability to survive is dependent on a soft drinks willingness to fund a you know those deficits, 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 then in the normal tenant and Attritional landlord 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 one 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 challenge that business.
Hi, John Okay, and then John.
Let me give issue with my thoughts if I might so.
But co working business.
Ah would have been just an evolutionary sort of non event.
Not for huge loaded market.
You did that we were a seat.
So if we work was you know how to Mark.
In the venture in the venture markets had a value of $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 work 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.
A second thing is is they developed a culture.
Or in formality and your tags and think punk tables and what have you.
And if you look at the interior design industry for the conventional office space a lot of their innovations have been.
Did I conventional tenants 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 to two things that I think a good on.
The third thing is is that.
When you when you made when you used to be workspace, 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 that's also very attractively.
The rest of it I think as a whole lot hogwash.
Yeah.
Good okay.
Second question.
Maybe I'm up haven't been into but this is the first I've heard about a ground up redevelopment have 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 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, Oh, 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 a and build a combined you know 1.7 1.8 million square foot done building, which again is expanded from the combined existing building. So there's the ability in 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 10, an inquiry previously I look before headquarters locations, a and dance, where the tenant probably about 18 months ago. We continue to have interest in the sudden aside from others, a as Glen and team have spent time a educating the brokers on the possibility.
Is there and we have the ability to been think is a one of the best office buildings in the World I'm one of the preeminent location. So.
It's a building that has garnered interest.
And given the ability to upsize it or you know it is Ah you know you. It is is potentially economic and if the if the market is there.
ER Deanne.
From a timing standpoint, you know one of these 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 has put in place demo clauses, including in the most recent one was citadel so that we have the.
An option or that all would leaders 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 decreed you know what does a a first class building in a preeminent location.
So John 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 it out.
A number two is we have the flexibility to either age 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 pared down and build a brand new soup to nuts building, a that Michael set of 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 than 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 it took the entire block.
Bill that 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 well, yes, unless you think we should happen observatory.
[laughter] 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 in May I missed this but in the first quarter, yet $284 million, that's cash and a why can you maybe put some brackets around it's just you know what the draw down to that could look like in the next few quarters from parking signage Taro shows March or move outs not so much the.
You know deferrals, but just the other things and where that goes.
Joe If you would please.
[laughter] good morning, Anthony Yeah, Steve did in his prepared remarks say that those elements of our business would your variable the 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 propane is close the trade shows for the remainder of this year I'm 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 a that effect.
Ah Tony.
Tony it's important to make this distinction.
The $9 million a month.
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 diminishing in our values.
So the way we've dimension data is is if you take what I guess of bad debts might be.
But this for the coming 12 months, if it last that long and we hope it does it and what the dimunition might be for these variable business it might amount to a.
I will reflect a 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 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 that you're putting words in my math I said.
Very clearly I think at least I tried to be clear without.
Without giving any indication as to where we might go. These are the parameters of the decision it's well is it.
Okay. So there was no quick 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.
Have a oh, we can't possibly forecasts that now the other thing is we have to 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 and then just last question did just the idea of opportunities arising on the investment from what you know what would constitute which you know it's an interesting opportunity in terms of the economics I know some MCU.
You know you changed I are ours and cap rates, you know that that yesterday values find what I think you made cap rates up by 200 <unk> basis points and I are ours by 450 basis points is that kind of the order of magnitude or was that just counting that are just trying to get color on what you know what would put something in the strikes on for you.
Michael.
Yeah, I think Tony on the latter point I think that was primarily accounting driven and 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 of they've gone up there.
So look I think in terms of opportunities like I think first of all its its still early days right I mean, the opportunity not unlike the last crisis.
In the public markets react the quickest and some of the CMBS bonds trade off frankly, the fed stepping in as helped 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 of when you get to the other side of that either projects that you know, we're being developed and that a you know maybe a you know we I went to the situation in other cities that are you on the developer.
That was out of balance on their capital ratios, a maybe a lease up assumptions, but you know we're looking for value and 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 and but I I would characterize it is still early days.
That's correct. It's absolutely early days in terms of this acquisition cycle or did he said 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 where are your Tony.
And on long island good.
He says.
Thank you too.
Thank you last question comes the line up.
Daniel.
Well.
Well I know.
Maybe just a big question Big picture question here, or New York City budgetary clear on your under strain like many others across the nation.
Which might have several ramifications for landlords in the markets are there any near and long term opportunities are threats.
Virginia as the city at Citi looked at fixed or fixed fiscal situation.
Uh huh.
Well, we Danny that's a that's a that's a question look [laughter].
The next thing that's going to rear its ugly head is they just go condition of every single one of the 50 states.
Every single one of the 100 largest cities in the United States every single one of those Ah governmental entities is in.
In a disastrous fiscal situation.
In New York State.
[music].
Ah the Governor has announced that there's a 50 billion dollar hold this year at over three years it'll be $61 billion in terms of just the projection.
And every other one of the Big States are it's similar conditions in New York City in New York State are not isolated.
So.
The only place that they can plug that hole is there a bike cutting expenses.
Radically.
Or by going.
Handed mouse to the federal government because the federal government is the only government in the country.
I can have a or have a deficit budget. The 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 that got national attention that said, let them go bankrupt.
And I was a pull did that.
I mean, I, just Oh, my God, but really what he was saying if you give him a is due was that there has to be some things where 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 the next in the presidential election, which will 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 other rescue.
And God only knows what.
Conditions.
Federal governments are going to put on that rescue body and that'll depend a lot of pod 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 process and 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.
Yeah.
Fair and then I'm just laclede for me the projected cash yield on the in Costa development pipeline didn't change quarter over quarter.
It's still your anticipation that for the redevelopment and developments in your pipeline. So heading does a pretty coded development bretts. The answer is yes list to cover the two caveats number one.
We believe that leases in process, we'll we'll we'll conclude.
Which was the a basis for those projections when we put them out last year.
Now there's two variables to those are the first is is if Bowery does a.
Superman job and gets the and buys better so that we build for less which is absolutely a possibility in this environment.
And that's a plug on giving to Barry.
The second is what the <unk> got the rents will be we just don't know yet okay.
So we will adjust them when we get visit that we will just our projections when we get visibility.
But we're not going to react or you know a we're not going to react precipitously do a change to.
<unk> newspaper article this week was actually got a week after.
Okay. Thanks, everyone.
Thank you.
My last question comes to <unk> stock light and I'm working [noise].
Oh. 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 here to take advantage of the low rates and perhaps a credit spread narrowing over the next six months of hourly can you get the some of that debt.
And that kind of locking away [noise].
Michael.
Yeah, a morning, Steve I'm like we are always a out ahead and trying to refinance or dead and Ah and so we're working on those are already and the process of both refinancing and extending some of those so I don't like we agreed.
<unk>.
You know given that a you know that both library in the 10 year Treasury are down dramatically.
And even though spreads may have gapped out you know all in borrowing cost in our quite attractive.
There are opportunities you know, particularly if you look at something like a 5.5, California, we're paying north of 5% you know clearly that we're going to bring that down. So the answer is a were on its Steve you know, we're comfortable and I would point out. The you know the assets over the loans that are maturing next year, a 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 so there's a question the coupon on let's turn call back he equal.
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 you know we need you back in the office it paying rent in our buildings.
Please say stay healthy at save a second quarter earnings call will be on Tuesday August 4th and we look forward to your participation again take care say stay stay healthy.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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