Q1 2020 Earnings Call
[music].
Good morning, My name is Henry and that will be Youre quite French Sabrina chicken at this time I would like to welcome everyone to the 2021st quarter Mack Cali Realty Corporation earnings Conference call. All lines have been plays a need to prevent any background noise there will be.
A question and answer session. If he would like to ask the question jury that's fine CP, perhaps start into number one of your telephone keypad. If he would like to be draw. Your question press the pound.
Now I would like to trying to coal, which a lot worse center sort of Michael Demarco CEO of Mack Cali Realty Corporation, Sir you may begin to conference.
I grew up where to.
Good morning, everyone and thank you for joining the Mack Cali first quarter 2020 earnings call. This is Mike Demarco C.L. Mack Cali I'm joined today by my upon as most of patient jamming away then our multifamily operation, David Smith, CFO and Nick Hilton VP of leasing.
On a legal no I must remind everyone that certain information discussed in this call may constitute forward looking statements within the meaning of the federal Securities law. Although we believe the estimates reflect any statements are based on reasonable assumptions, we cannot give assurance that into Twitter results will be achieved we refer you to our press release.
Annual and quarterly reports filed yet you see well risk factors that could impact the company.
We have fallen supplemental this quarter.
As always please contact David any further suggestions as if it actually like see.
As we've done before we're going to break down the call into the following sections My opening comments I'll turn over to my partner Marshall discuss multifamily.
Turning over the next to discuss office, David will then wrap up into operating results and I will end with some additional comments before we take question.
Like they had my voice to all my colleagues Ceos and other than peers have commented before on their calls regarding the last seven weeks, which had been the most difficult for everyone.
In my experience in the past 60 is.
Everyone. We know when care for has really been affected literally every one we take our responsibilities very seriously regarding shareholder returns I live in these times, our chief focus has been and will be the concerns regarding the health and welfare about employees residence office tenants.
Communities, we operate in.
Regarding that we have contributed to it helped raise $2 million, the Georgia City small business we fund.
Headed by the Mayor Jersey City.
We also contributed to the Jersey City Medical Center Foundation, and as people have noticed provided rooms and food for Bush from doctors and nurses, who work tirelessly. These last several months.
Also contributing early here at the key arts and not for profits were struggling in this environment.
Let's talk about what's going on environment and what it's like today to operate a platform.
As we Preleased residential is solid today collection this month, the stronger than a well last month at same time.
Just to be clear about how we work in our portfolio, we collect rent for the residential tenants, but assisted a month, except for Massachusetts, which has a significant number of assets, which allows tenants to pay throughout the months without penalty. So those rents drivel and between the 50 June Thirtyth.
As my partner Marshall will outline I'll now payment is almost entirely our corporate housing times.
This business is essentially a long term alltel.
So in a process we rented these units as that business is likely not to be recovering in this environment.
Renewal rates are up for the month of April we expect will be up more significant even like the may we see our tenants focusing on basic staying in place looking at value, making decision based on things they know and not likely to move in this environment, we'll focus on attracting new tenants to fill in the spaces that we need to be that well.
Orphan discounts to specials to attempt at attempt to do that.
Well, if we only virtual and self guided tours, we hope over the next several weeks the tos, both virtual and self guided will increase as the stay at home when it's all relaxed and opportunities.
As Walter will go over where operating continue to develop our buildings under the orders or the governor of Massachusetts, and New Jersey.
In particular, we have delivered and continue to deliver units and Malden in Bolivia, most will discuss how well these units that leasing up which we've been very happy with so far.
Regarding office April was and we believe may well be strong for collections, we have a strong credit portfolio to avoid luckily over the we works other private equity big startups, sometimes not being the trendy area. It's good for you.
I hope delinquencies are less than 5%, we expect them to be payment plans and not write offs.
Hope it affected us in three places the most would you like to dwell on.
Retail, which is less than 2% of our revenue.
Hotels, which are less than 4% and talking which is approximately 4% or more in total about 10%.
In retail we have bank branches and fast food restaurants, takeouts that are doing well in this environment.
Today in retail and gyms daycare and sit down restaurants respect daycare rebound quickly.
We have no traditional retail portfolio regarding apparel, there's no tenant that I'd be affected won't turn by the web why the or the Amazon to the world.
He is a real business for us we operate over 7000 spaces in both structured and surface lots.
It was hurt by the stay home orders, we expect more people post stay at home will be driving into work all the next several weeks and months.
Lastly, we have three hotels that were affected.
To be close which is the on view, which is a brand new Mariano port Imperial and our joint venture with higher than Jersey City third a brand new resident and we kept open as a trial basis to see what would happen we're running at a high fiftys, 50% over the last four weeks, but at a reduced 80 or so it's profitable but marginally.
As expected hotels will have a slowly over the next several months.
We ran a tight ship on everyday basis.
We have in restructuring our staff every quarter.
And reduced by 10% in the first quarter planned reductions.
So we're not planning today to do any staff reductions, but we are monitoring we thought week basis.
With that I'd like to turn it over my partner Marshall discuss multifamily.
Thanks, Mike.
First quarter Roselands percentage lease was 95.7% as compared to 95% last quarter. Our 4800 38 unit same store portfolio experienced a 9.8% quarterly increase in an ally generated predominantly by 5.6% increase in revenues largest contributor to revenue growth through Riverhouse 11 import imperial.
A signature placing more explains since the onset of cobot residential collections have exceeded 96% for the month of April with a broker shortfall comprise of corporate tenancy, which we were addressing with these provider operationally, we continue to deliver a high level of service to our residents are staff is on site unresponsive, we've increased the quality and quantity of daily costs.
Earnings across the portfolio and we have enhanced our residents lifestyle by scheduling virtual programming implementing door to door deliveries introducing additional dining options April saw a drop a new leasing traffic is compared 2019. It has been offset however by an increase retention rate to 63% of tenants seeking extensions or longer term leases in the previous.
This is to vacate going forward, we are targeting longer term residential leases refocusing on distinct targeting prospective renters and reducing the contribution of corporate tenancy in the portfolio a process. We began after the passage last fall of Jersey cities anti Air Bnb legislation.
He was temporarily ceased unit renovations at Monaco and our beta we have continued in or near completion of our commentary improvements in Monaco and prepared a lot from our bayes renovation. Once the restrictions are lifted these improvements represent a complete repositioning as modernizing the units common areas and amenities initial tenant feedback has been positive as reflected by release units achieving.
Teen present rent premiums. This month, we will formally launch a complete rebranding of M Mar Bay and Monaco in Jersey City as the Boulevard collection in regard to hotel properties as Mike said before the our view is closed at the end of March However, the resin and continues to operate but I'm not that April the residence Inn achieved an average occupancy of 58% and.
Second Mack Cali provided 42 rooms, including meals and parking to frontline medical personnel from the Jersey City and Palisades medical centers as detailed on the supplemental Roselands current anybody is estimated at 2.24 billion, which after netting out Rockwood participation is 1.79 billion EUR $18 per Mack Cali share the transactions for.
Tony discussed for the last four years and consistent with the company's overall transformation, reflecting the composition of the Navy, 76% as loan Hudson waterfront, 81%, as an operating or infrastructure and assets and less than 1% and subordinated interest.
The company's five projects, representing 1900 42 units in construction are projected to generate $62 million to stabilize in IRI or development yield of 6.15%. Moreover, we only have $31 million in capital obligations remaining to complete this portfolio. We delivered initial units at the Emory in Massachusetts in late January.
And to date at least 74 apartments, representing 52% as the completed units that rents in excess of our initial pro forma the balance of the ins. We completed over the next five months resin has three projects that are scheduled delivery within the next 12 months, including 673 units import imperial at both Riverwalk and Riverhouse nine well ask delivery Riverhouse 11.
Is 95% lease and the upturn in short Hills, a 193 unit luxury community when new Jersey's premier municipalities adjacent to the short Hills Mall, a fifth project. The Charlotte is scheduled for delivery in the first quarter of 2022. This signature development of the 750 units our located in Jersey City Submarket on Christopher Columbus Drive.
It will benefit from an onsite elementary school and the below market pilot rate fix a 7% for 20 years as a result of coded and ensuing onsite safety protocols and government restrictions construction has continued but its spaceland modestly for entailed in various at each site service a local building officials enforcement guidelines and each building construction status looking ahead.
We are continuing predevelopment activities on three potential Hudson River water starts for the next 12 months, including Harborside eight 607 on unit highly Amenitized tower adjacent to our corporate headquarters at Harborside three second phase of Irby propose 796 unit tower adjacent to our successful Irby project with the highest rents per square foot in Jersey City.
And apart parcel at Port Imperial 302 unit development with unencumbered 270 degree views of Manhattan with that I'll now turn the call over to David.
Thanks Marshall.
Our first the tire Q1 results, which were quite strong and provide some context for those results in terms of our original expectations. I will then go through each of the building blocks of our financial results for the remainder of a year. So that all of our stakeholders have an idea the major areas in our operations that have exposure to disruptions caused by the pandemic.
Accreditor came in better than expected in our office and multifamily secretary, which accounted for 60% in 33% of our revenues in the quarter, respectively, while our exposure to hotel operations at 4% of revenues and parking operations, which are 3% of revenues were disrupted.
Calvin trails impart gain were negatively impacted in the quarter by $2.1 million or two cents per share versus our base case production at our original guidance.
Credicorp AFFO per share for the quarter of 33 cents versus 40 cents in the prior year you ever year decreases mainly attributable to our disposition program.
Not counting the negative effects of our hotel and parking revenues were ahead of our original expectations by one cents per share in the first quarter.
Office cash same store NOI increased by 13.1% in the first quarter as we continue to receive the benefit of all of our major blend and extend leases at harborside now cash flowing over prior periods, but still had free rent provisions.
We had expected this growth to moderate moderate from the second quarter on as we begin the anniversary. These cash can benefit these cash commencements well initial same store guidance included only our waterfront properties in continuing operations I will note that the total portfolio in the first quarter, including discontinued operations had same store NOI growth of 11.9.
Were sent on revenue growth of 4.6% and expense savings driven mainly from utility is being lower due to a mild winter.
Residential same store NOI as Marshall mentioned was point was plus 9.8% for the quarter and above our expertise expectations. We had expense savings of 1.4% in the brought up of concessions and under market leases from new development benefited the number in the quarter as more as Marshall pointed out retention rates have increased.
Which have had the effect of slowing some of our renovations that Monaco and Mar Bay in Jersey City, which will lessen the drag on our revenues versus our original forecast, which had more units offline for it for renovations.
Now given the co with 19 related disruptions to the economy and our operations I wanted to bracket each of our main product lines and highlight ranges of potential impacts both negative and positive to the original guidance we gave.
In the office segment. We originally gave guidance that included 135000 square feet of waterfront leasing for the year to date, we have signed 51000 square feet of transactions on the waterfront with another 11000 square feet in leases today. We currently have another 77000 square feet of leases and proposal.
And that would be versus the balance of 74000 square feet remaining in our original 135000 square foot targeted sidings to be completed this year.
Our disposition portfolio in the suburbs. There are 283000 square feet of expirations remaining for 2020 112000 square feet of these are at our parsippany draw the portfolio or other assets, which are under contract for sale.
The remaining 171000 square feet of expirations are almost entirely in our suburban portfolios of Metro Park short Hills and bonded within the 171000 square feet of explorations, we have 56000 square feet of known move outs occurring evenly throughout the balance of the year.
Of the 115000 square feet of move outs of move outs remaining to address we have renewal leases out for 100 that 108000 square feet of these including the tenant renewal for our largest 2020 exploration in Metro Park for 62000 square feet.
Now for multifamily the operations as Mark noted have been a standout in many ways same store NOI was running at the top end of expectations and we had expected. These results to moderate in the second half, mostly due to tougher comparisons before factoring in any covert 19.
Related responses, we only have one new development project the Emory involved in Massachusetts coming online in 20 that was projected to add to earnings. The first phase of the Emory opened in the quarter and we had only budget at 1.2 million or one cents per share about NOI in the third and fourth quarters of this year, which now may be delayed depending on new concern.
Function timing.
We are also evaluating the ongoing operations of three corporate and short term housing providers in the portfolio, who who have been impacted by statewide shelter in place orders will have more or less one were reported in the second quarter. In total the receivable balances are approximately 210000, and we have not reserved yet against these balances at this time.
Our hotel operations consist of a dual flagged on you and residents in asset in port Imperial with 372 rooms in total and our 50 50 Hyatt Regency joint venture in Jersey City.
We currently only have the residents in portion of the Port Imperial Hotel in operation.
The Port Imperial Hotel contributed a minus 687000 EBITDA loss in the first quarter. The Hyatt a JV assets contributed approximately $0 a JV FFO in the first quarter.
We estimate that the port Imperial and hired assets combined at share they lose $500000 each month in the second quarter if operations remain closed.
Our original guidance mid four point for 2020 called for nearly 8.6 billion of EBITDA for the yield from the port Imperial assets, both flags and 4.8 million of JV FFO for the Hyatt or 13 cents per share in total of EFA.
Our parking operations produced $21.4 million of revenue in 2019, we expected a similar amount in 2020. Despite the closing of one of our lots for Predevelopment in Jersey City as other port Imperial transit parking has been increasing as that neighborhood matures, we estimate approximately 50% of this revenue or about 10 million.
As in 2020 will be from transient operations, both monthly and daily customers approximately $2.5 million of transient revenue was booked in the first quarter. The parking activity is managed by third party in recorded on a one month lag basis. So the declines recorded in the first quarter were relatively modest and are expected to incur.
Crease in April and into the second quarter.
Lots of a transaction side, we dispose of two land parcels during the quarter totaling 17.3 million and our one GW Bridge office building importantly, new Jersey for $36 million or $184 per square foot at a 6.2% cap rate.
This asset was previously grouped in the class a suburban section of our Navy schedule.
Section now only includes.
Our short hills portfolio, and our Metropark portfolio. The sale was negotiated and put under contract in the fourth quarter of 2019, all proceeds from first quarter transactions were used to retire corporate debt.
At the end of April 111, liver asset in Hoboken, New Jersey was placed under contract with an institutional buyer for $245 billion or $432 per square foot. The also carries a 150 million dollar mortgage, but we'll be assumed in the sale.
Lastly, we also announced that the closing of our Parsippany, Andrew Although portfolios has been restructured with the original purchaser to close in two phases. The first phase is now scheduled to occur in mid June for $200 million and include 12 of the original 15 properties. The second phase for $85 billion will be for three of the remaining 15 properties.
And those closings are now scheduled to take place in the fourth quarter.
For the Monmouth's short hills and Metropark portfolios. We believe these portfolios will take at least one additional quarter to close from original expectations due to the pandemic disruptions.
We also highlighted that we are in various stages of alloy and contract on five assets totaling 70, 784000 square feet, mainly located in our Princeton market. We see these closings happening at various times from late Q3 into Q4.
Using in place on NOI on our Navy chart on page seven is of the supplement theres, an approximate 550 basis points spread from the NOI cap rate to our debt costs delays in sales will positively affect original AFFO guidance by this spread applied to sales amounts.
Turning to the balance sheet.
We have no corporate or property level debt maturities in 2020 and in 2021 outside of our corporate credit line only one major property level maturity as love to deal with a $165 million multifamily loan held by our life insurance company on our Monaco asset in Jersey City, we have already begun.
Talks to refinance that assets are 600 million dollar line of credit had a 277 million dollar balance at quarter end. The matures in January of 21 with up to one year of extensions available.
As proceeds from the suburban office assets sales are received where we use the proceeds to retire line of credit first and then approach our bond maturities.
Net debt to EBITDA metric was 11.5 times at quarter end metric was negatively affected and increased by 1.2 turns alone from Q4 is 9.7 times due to the early tax credit timing and the seasonal and pandemic related hotel operations.
Disruptions that I've just detailed.
Briefly touching on our development funding, we only have $31 million of equity left to fund another development pipeline as of March 30 Onest.
All relating to our 750 unit project called the Charlotte In Jersey City, We will then be into the construction loan portion on all five development projects totaling 1 billion in construction costs costs.
So in conclusion.
Pivotal and made some work multifamily was fortuitous given the resiliency of the asset class or waterfront rollover is very late this year with only 38000 square feet of move outs remaining weighted towards the third and fourth quarters and by marketing our entire suburban office portfolio in the summer of 2019 or not starting from a standstill in the sales.
Process and are dealing with many buyer groups are very familiar with the assets, but need time for the capital markets to heal longer we hold the suburban office assets the better our intermediate term cash flows and by dealing with our toughest assets for the remaining assets, we hold our best ones with that I'll turn it over the next.
Thank you Dave.
We posted a solid first quarter in 2020, signing just over 173000 square feet of transactions, resulting in our core and waterfront portfolio, finishing at 81.1% leased at quarter end.
Are these transactions, approximately 24% or 41000 square feet renew leases and 76% or 132000 square feet were in place renewals.
Across all core markets, our rents on Q1 deals rolled up 4.6% on a cash basis and 19.7% on a GAAP basis, and we could made $5 me two cents per square foot per year lease term.
As we turn our focus to the specific markets. The waterfront close just over 51000 square feet of transactions, finishing the first quarter at 78.5% leased.
And we continue to see positive rent push with increases of 17.9% on a cash basis and 26.2% on a GAAP basis.
While the pandemic has paused many of our discussions we still have approximately 90000 square feet of transactions currently in negotiation across a diverse tenancy mix, including technology financial services and insurance.
Looking ahead to the rest of the year, we have a limited amount of lease roll with only 38000 square feet expiring on the waterfront 2020.
We expect 24000 square feet or 65000 square feet to vacate and we expect to renew the balance.
Our suburban portfolio also posted a strong first quarter, specifically, we executed over 122000 square feet of transactions, achieving a positive rent push with increases of 3.5% on a cash basis, a 19.5% on a GAAP basis.
For the remainder of the year rehab over 283000 square feet expiring and our suburban portfolios of which over 112000 square feet pertain to the parsippany, Andrew all the assets, which are expected to be sold this year.
Of the 171000 square feet remaining in our suburban portfolios, we know that 56000 square feet or 33% will vacate.
We are confident in addressing the balance of this rollover as we are already in active negotiations with over 115000 square feet of transactions across that portfolio.
Finally, I'd be remiss, if I didnt acknowledge and thank the hard work our property management staff in security personnel are doing during our doing during this challenging time and our efforts to get our 10 million square foot portfolio ready for re entry.
For the past six weeks or whole team has spent hours researching and planning on how to implement implement protocols to facilitate the health and safety of our tenants.
As they make plans to re enter their office environments through an array of product types.
Reentry plan will concentrate on the employee experience, we want to focus on the entry mid and executive level employee and how they're be goes.
Now they arrive and by what means touch points from the elevator buttons to bathroom doors and fixtures.
Elevator queuing, where you stand how many can safely distance inside the cabin.
Food and beverage accessibility for carry out and catered lunches places to relax that are clean and provide ample room for proper social distancing, both indoors and outside as the weather continues to improve.
Simply put.
The more we can provide the easier the reentry process will be for our tenants.
As it relates to our business today, we have been an active communication with our tenants and tenants in the market as the situation in hand evolves each day.
As we disclosed on April 20, Threerd, we collected 90% of April charges from our office tenants and we're working with those business that businesses that have been severely impacted by the virus and or government regulations to make sure. We can all get through the situation on the right path to succeed.
From a new business perspective, we understandably expect fiscal tour activity.
Activity to be muted in the immediate future. Therefore, we have adapted quickly and are implementing virtual tore capability throughout our entire portfolio.
These stores are focusing on our best spaces, which require little to no construction and provide quick solutions for tenants that are reassessing their immediate real estate needs.
Moving forward I believe overall activity will fall into three categories immediate.
I am term and long term solutions.
In the immediate we see anyone with of lease event today looking for shorter term renewals to push out the decisions necessary.
For space construction and density studies for about one to three years in the medium term I believe tanks will look to decentralize their footprints as a means to reduce overall density which could benefit surrounding markets with good access to multiple transit modes.
I might add mass transit in these areas will be recreated not eliminated.
Thinking of air travel Pete pre and post 911.
And then the long term.
As new build out standards are created and shared Ingram ingress and egress plans or alter will go on to see a push for employee centric realestate decisions that focus on amenity availability and live work play convenience.
For these reasons I see our portfolio, having a good footing for both the immediate medium and long term with that I'd like to turn the call back over to Mike.
Thanks, Nick as my partners have outlined I think we have the makings over a year that we have to do a lot of work we can make progress on our objectives.
And continued to improve our portfolio on every single element as I said earlier I think some things a strong today I think residential has held up very well I think I'll call office business is doing well, obviously went to do more leasing.
For the areas of coffee I think we'll be down relatively quickly as with retail.
I will lead this is the hotel segment, which is unknown today, how that we're reacting upcoming months, we do have some branded product, which bodes well for us.
We do know that do a lot of things to do this is the changing environment for us.
Where we acted as a company.
As David pointed out.
The support site the base would have most of our assets up and running up to be sold which is the key advantage against competitors are still kind of deal.
Stay at home locations and trying to portfolios out.
That will have to take any questions. If anyone may have operator, we'll take the first question.
At this time I would like to remind everyone.
In order to ask the question press tired into number one I get telephone keypad again, perhaps stars in the number one in your telephone keypad.
Pause for just a moment composites the lending faster.
Presenters snow question. So far please continue.
Operator, you show the Q in a is working because you know where we are questions.
Okay.
With that I, thank everyone for joining us. This morning, if for some reason the cure waiting is not working please contact David and myself. When any questions. You may have were published I apologize accumulates come up analysts now.
Right. It will take the first question I think it's minor fluctuations.
Yes.
Hi, Good line of hearing right now.
Yes, I am not add any amount of Hagen good morning, and of course, we had questions what kind of question question with that.
I was I was dumbfounded I was thinking maybe we call people doing yoga and less spending a little money in refining Zen reflection and I'll add to seen us early week that to think about it maybe maybe with one another 30 call today, Connecticut.
Mike So I guess were caught us a little bit by surprise.
The fact that your sales are continuing and be that you've been able to set a timeline.
So the sales across the goal line.
Appreciate the comment that you guys were out in the in the market earlier, but how those conversations with buyers than going has there been any conversation on changes in pricing and how are they getting comfortable with close on the timelines are closing on one it feels like entire world is on pause.
The interesting Manny was this recession versus the one that we experience.
Posted the great recession in 2006, and seven the government reacted a lot quicker I mean, you had a playbook that could work with I think the second and Treasury was more a student.
A student the capital markets. So then pump money into power and other programs. So you look at the treasury market at the asset backed market.
Me too when I got confined to move most of operations from New York City to the Goldman Sachs building in our market, which is a couple of hundred thousand square feet. Oh I understand is is a drug spin off that's an idea where we work steel in that same space for about 120000 square feet. Both bode well for this market. We had a 50000 square foot deal that wasn't to be done to a gaming company that's on.
<unk> that we think they'll come back I. She was more like 70000, you started at 50 that winter 70.
But getting to your initial point.
If you're looking at where people are today and if I was a senior executive and I had the ability to move my operation and I lived in a short hills and and summit marketplace.
You really want to commute N., you really want take mass transit do you want to drive you know she convince your boss Hey, we need to restock anyway should I take 30000, 40000 70000 square feet go to J.F.K. Parkway go to form Park go to Morristown, Metropark, which is excellent <unk> connotation and even to be able to train.
Or if you live in the southern part of the state of new commuting up and it was the boat and so and so forth or you want executive. So you know what I want to move my operation 50000 square feet to read back. These decisions visa conversation, but I think will happen will be real unexpected <unk> actually car and it'd be not an answer for New York, but I think there'll be a restocking as people come back.
Themselves you know, what's my footprint, where do I want to be so on and so forth biological conversation we have to have some of the best localities in the state as we so the worst buildings first it kept the best to last we've put together all the rest of all the space available and I've gone to breakfast and say if you want an easy execution something that's prebuilt so relatively.
Good finish <unk> that we can racy upgrade to your standard in three to six months. We've put together listed those buildings that were circulating instead of brokerage right now.
Thank or I'm gonna thinking one more so I mean, maybe another question.
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What's that what's going on with what started the the proxy fight.
Oh wrong at the wrong question, along asset so as everyone may or may not know.
Last year, we had both street ran it disinflate for direct is you know they were recommended by glass doors for two and I assess for three or farewell elected we welcome that straight onto the board or 470 Audit Committee, which is our hottest working committee gives you the best insight into the and couldn't work is it a company two of them on the shareholder value <unk> one of them served.
Currently on the strategic committee, which entertainers any officer, we have regarding gribble transactions.
In September sorry in January we.
Sends out a method of 10 of us, though Mac wasn't included because he's retiring and ask for simply do you want to start it's a personal decision you have the time the effort something on your wife. This happening do you want to be on the board next year old kind of US reply I guess, we thought it was done subject.
Unbeknownst to us that were conversations going on but both street in the fourth dissidents directors, who we thought were now independent directors, but obviously things have changed where she came back to US and said we want control. We want what we always wanted which is the ability to sell the company on terms that we'd dictate we'd like to get control, we want Mike out because I think he's an impediment from basic.
My job Manny by the way and they basically said we want control, we'd we'd prefer to luck, we'll get your back for maybe you want three we can do other things so and so forth. They came back and said nope and it all eight of them will put on a slate. It was a surprise to US right. There was no communication. There was no email there was no conversation about any disagreement between us and.
Directors that we'd worked with during the course of the yet.
Now we have afraid of eight.
Do we do we had already interviewed Ferguson to basically for Bill Max position. We also had done Ferguson.
Backups for I'll burn, a cow and over and read or too long serving directors will be off in the next next cycle to put together a Puerto if they did we do want you might as well we went back and said, let's go expand it let's find a new slave we have five directors as had been announce I think many I can say this with confidence you take those five direct is we took our time.
We've got people, who are not being paid but want to do the job understand a fight they're going in and some of the finest people that you could put on a board accompany our size how it's compared all this to any of my competitors. We chose people that have gone through this process before we chose people that have done working industries are undergoing change we have a lotta people at retail experience industry.
Most changing and I'll and I'll space, So whether it's gas the now who works for downward ones one of the best shops I now.
Well micro Berman, who is the bricks more which is obviously you know.
Stone and then obviously jada any tell and then we have lewinsky Who's 10 Bernstein indicators, we director yeah to that Jamie Jimmy <unk>, who worked the general Motors had been on Sunset on four cities Board and we rounded out our group would how would walk who's on Lexington sport, but had been a long serving a member of the Ernst and young.
And the real estate business, that's where we are now we have a proxy battle the votes on June 10th.
And if there's anything else that'd be happy to ask you, but I think you'd have to go back into the queue for get another question.
Thanks, everyone.
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I've heard of next question.
Your next question comes from <unk> Your line several things huh.
Thanks. Good morning, I was wondering if it just provide a little more detail on the apartments and the trend that you're saying in terms of moving to move out says all the shelter and place.
And how you are thinking about renewal increases in the marketplace today.
So what happens was I was just shocked to ourselves and I was about tenants someone to stay at home came in place you know people that already noticed to vacate on a vacation because they do with 60 to 90 days, whether 60 rule, but people, sometimes 90 days give us notice and say listen to moving out and in May and moving out in June I'm moving out in April.
So out of those tennis came back and said I'm not moving out I didn't.
I didn't find a new place I'm actually happy here I want to extend for six months to <unk>, we'll send it for two years. So special commented you have a a boy and seeing if in Norway normally it was 55% give a tape it take.
63 65.
Five 8% in the first month alone he and I, both think that might go up another 10% to more like in the seventies as people separate set than say looking at where I am am I happy do I really want to embrace you know moving change whatever.
Within a good job of catering to our tenants needs. It's kinda funny running an office business and a residential business. These because the office guys. Most of my colleagues are like not much to do no tenants well in the rental business everyone's home with a lot to do we believe that we will be able to attract new tenants one of the things about the <unk>.
Structuring stay is it affects you definitely what exactly are in if you were about to finish a building the last 10 or 15% to stay is 100% no work because that's the close work where they're trying to prevent people from working within six feet, if you're a point concrete and trying to finish the outside of a totally in the states of what you're actually do that in order of <unk>.
Protect you from weather. So I'll competition is not going to be able to deliver any new product to us or something like 60, 90 days give or take martial Greece. So that's where we all see them.
So can you may be just discuss might kind of like like what kind of renewal increases are you providing whether it's for June or July I mean are you at at zero increases for tenants and kind of preserving you know just kind of the tendency and kind of taking it easy or are you still able to push renewal increases through on multi family.
It depends on the product I mean, obviously there were some 10 instead of on them okay.
<unk> had a concession given to them when they first took the apartment. So when you look at that rent burning off that confession, though I was just paying more the second year versus the first so it looks like it is a rental increase we're actually very fair minded as to what people are going through I actually personally deal with Marshall every week. The list of people that are having issues. We go through I mean.
One who's lost a job who wants to roommate, so and so forth some kind of obviously getting <unk> you can affect in this environment no woodway others are getting as you increase and others are getting a modest increase we expect overall since we had a very robust first quarter.
It'd be one and a half to two for the year.
From can maintain where we are.
Okay, and then I guess, just maybe trying to get a little bit more color from net just on kind of the activity around the waterfront in.
You know some of the tenants and and I realize things are a super slow right now in terms of new deals, but you know just how do you sort of think that unfolds, maybe speaking to some of the questions about suburban in flight from New York in A.I.G., moving and just you know how do you think Jersey city. It will be kind of looked at a as an outpost to Manhattan over the next one to two years.
<unk>.
Okay.
They'll start from.
There is part of the question I think from an activity perspective from from the waterfront. We absolutely had some deals go on hold I would probably say to the tune of about 150000 square feet or so maybe close to 200000 square feet.
Deals go on hold now it's the the the reason they go on hold none of them say, they they want to they're not thinking about real estate, it's really more of either they don't have at least expiration happening immediately that they're trying to react to.
And they want to understand what density they're going to be dealing with moving forward. What construction standards are going to be looking like so they just want to see what the world looks like on the other side of this as best they can.
With that said as I made and as I mentioned, a member March we had about we still have about 200000 square feet.
I'm in negotiations.
Today.
Out into the suburbs, we are seeing inquiries come in and there and there as I mentioned also in my remarks.
Kind of in two sections. The first is existing tenants looking to do short term expansions. We're short term renewal should they have at least event coming right away.
And then the second group is really survey medium term you know three to five year solution, maybe 20 30000 square feet presence in Manhattan, you know looking to do something that's you know easy to get into flexible.
And you know just following that sort of fact pattern and then as it relates to the waterfront over the long term I would say that the benefit that we have here is is is twofold. One we have a great product.
Great product great diversity in the product.
We can care to a lot of different tenant sizes. You can drive here you can take mass transit here. So I think as you look at it how you get here and what you do when you can get here is getting is going to continue to be a good seven points. So I I do see us in a good position to capitalize on activity move it forward.
Great. Thanks, a lot.
I've heard the next question please.
Yes. Your next question comes from Jamie Salmond Your line smoking.
Oh, great. Thank you the mornings I was hoping you could go back to your comments on converting some of the corporate Ah residential tenants and trying to extend least durations. He's provide more color on exactly how that might play out.
Sure. So what's happened is that.
It's almost like if you see the mindset of various customers go through as you give them a curiae of of of choices. So we go back to people and say listen do you want to extend here's the options will give you and people. Some people are going insane listen I really like it here I don't think to move I'll take the you know there were no increase for the next two years, but I want to walk in the next.
24 26 months.
Coming and saying I want to commit but I want to commit.
Toward the end of the near I want to get to January for my bonuses. So 178 months to basically get me to the end and the hodgepodge in between you know people that are moving around for apartments, and saying I want to move to about a unit I want to upgrade because they feel like they can they can basically lock in the corporate housing provide as we had well basically people write a corporate housing for.
Executives, who were moved into the area. The service to New York. It was basically for long term hotel business was indistinguishable from a regular rentals because most of them would say three six months nine months whatever you assigned to you worked at Goldman to worked at Merrill Morgan Stanley and they got you in an apartment a two bedroom or three demo a one bedroom with studio in Jersey City.
Or in Boston or in in D.C., we had them throughout.
We've been winning went down over the last several months because the L.D.N.B. pushback has been nationwide, which effectively kind of fall under that they don't they don't have really long term corporate stays we're going to re rent those departments. We about to do them now we might be getting the furniture back and Martian I've been talking about renting units out to students, which is part of our business cycle.
Fully furnished but we will be able to get these on his back they <unk>. They generally tend to be somewhat better location scores their corporate guys, we're going to picking right right buildings and write location. So it's just something we'll deal with over the next few months.
Okay, and I guess, how do you think about the you know I in fact is they're going to be did for a while before you can.
<unk> and then on rent.
[laughter].
It's a small hit because they won't be paying us and then we'll be able to merge our way into that are we getting better and then they were paying us to begin with then we'll wind up we'll wind up in like three to six months is probably won't be gone maybe even less this is releasing season as I said earlier like in Jersey City there were.
<unk> two buildings I knew that without to be delivered that we would've face you know competition from that'll be postponed for the next 90 days because even if the governor listed lifted the state today by the time they got the cruise back and did the punch list I get to see goes you have a competitive advantage when they use that time basically that though what went on a product.
Okay. That's helpful.
Think about the asset sales I know you guys kind of gave you know updated timing is.
A deadline for when somebody have to get done before either side before the buyers can walk away.
No, but we have due diligence contract terms and we intend to income forced down but.
<unk> <unk> I think we're good on the on the Hoboken transaction. The rest of them are ones, we want to put on the on the contract you know we were talking yesterday about the short hills before we go about some activity we've been getting that we think we can can can tranzact on I can't under state Tonight for the purpose of this call.
How much better it is if you would want it to do this a year earlier.
The brokers put the resources that I did the photos of books can imagine trying to do a memorandum or getting a self process Dawn I'll study office training for a major <unk> would be it would be it'd be nerve wracking, we already have it done and then we push the button when we can move on every aspect of we have.
Okay.
And then I guess just going back to your answer on on Frank question. You mentioned 22020 to 30000 square foot shorten medium term solutions in the suburbs that tenants are looking for.
Talk more about the magnitude of those types of deals.
And then you know when you say shorten medium term, how how how long the duration and other specific examples you can provide of companies that are actually looking to do that.
And how they give their carbon footprint.
You're getting people that common so do you know what are you having short hills, what do you have and and Metropark. What do you have in moments and and what do you have and plus 70, which is obviously Morris county, and they and they look for corporate users are coming out of New York City for Division or segment that says Hey, let's see if we could move this out sometimes to be driven by the this is going to that.
He says Hey, my people already live in New Jersey, you know going into New York isn't done to work for a short term, maybe we can take a group out.
Three to seven year deals probably the sweet spots three to five you might get some people do seven depending if they really like the space.
Range.
<unk>.
Yeah actually tenants looking or these are more intermediaries.
Oh God.
Brokers on behalf of companies and mostly boot trips.
Real names that are coming out and saying, Hey, I want to look at.
Know what can I put it in for example, you'll walk a Jamie short Hills, you know people that live in that area that were coming into Manhattan, There's someone sit there and say similar to people who have moved to downtown summer weather was Mckenzie or other groups. You know do I take 30000 square feet and I go to 150, J.F.K. or 51, J.F.K., one on one or one or three and the builders round.
We satisfy both it and people could reverse can do that in New York City and you know the train will be less crowded than we could drive and so on and so forth just it'll be a short term solution.
A lot of people not to be thinking about where they want to spend the next six months year and commuting his idea issue for people.
Yeah.
Okay, and then finally, how do you guys how're you feeling about the distribution your coverage in the outlets.
I'm fine I mean, we're fine for this quarter in a civil future. One of the benefits is said rubbing sold anything we don't have the delusion, an income and as we get closer to delivery of of multi family of course is over so we're already starting to deliver in more than a revere, we'll probably deliver the rest of the stuff I mean, jimmy's or can we have a joke for a moment how quickly do you think today.
Today, if we had a short hills asset opened and we said to people in New York City, Hey, do you want to live in short Hills and go to the <unk>. The newborns She'll School district, you can move out of Manhattan, how quickly filled out upon them.
Yeah.
Very fast right.
That's the type of things looking forward to.
Okay.
Alright, thanks for the color.
I have a nice thing.
I've heard a next next corpus.
Your next question comes from John <unk>.
Your lights out with him.
<unk>.
John murdered them.
Yeah.
[laughter], Hey couple a softballs for you Marshall I guess more so I don't know maybe David.
Do you think it takes in the hotel space.
Well you guys to get to break eat and just covering operating costs forget that service.
Do you have to get to 2030 40, 50% run right on occupancy what's what's it costs you to get to break or what's the arcade busy and.
A number to get the break even.
Then Marshall really big picture.
Think about them.
Dozens of multi multi family sub markets in the New York Metro area.
Given what's happened recently, where would you want to own a dirt today, where do you think there's gonna be real strength versus real weakness in a couple of key some markets.
Well I'm going to the first one a marshal obviously the the second one regarding hotels it really depends on the operating expense matrix, where you're was a margin. So resident in has some of the best margins right. You don't provide food and beverage check is relatively efficient small number rooms relatively small front office staff, we can operate that a 20.
Five you break even so at 58 were actually making some money depending upon obviously, where you're 80 arthritis.
Collapses it it affects that.
When you move to the arms, you, which was supposed to have a decent food and beverage, but was mostly toward to travel in business.
You probably won't be after being a 50, 560% range right. The hired could operate at the same but make money depending on how much sales and convention business you have to hire was very big for weddings begging for sales meetings, which were all things that maybe people won't be doing well may not want to do the next three to six months. So all that Mac matrix I would say normally.
55 to 64 your full service hotels 25 to 30 for the limited service.
And I'll turn over the martial to finish your questions.
You know John I think it's too early to tell which some markets are going to have a dramatic moves up or down and land value. You know, it's Dorothy the last five or 10 years, all the sub markets that were censored to mass transit really had the big acceleration and land value you know, there's an easier it'd be a debate.
I guess now whether people are gonna want to jump on trains to get to the city or we're gonna have this reverse commuting in exodus, but all those same sub Marcus it had mass transit proximity have all the lights and lifestyle and and entertainment, which is always always been a big draw for young professionals renting as well so that might offset the the the maybe the D.V.I.
<unk> and the mass transit knows I'm, not really sure yet you know land value moves as a commodity pretty quickly. So it also depends on demand how many builders route looking for sites to or who are the or whether financing constriction or not.
Great. Thank you so you're next quarter, but you better John.
I've already next question.
That's the next question comes from.
You know your line several things.
And I Havent <unk>.
Oh, how about yourself.
I bet lovely dangers you're setting.
Yeah.
Yeah, just wants to see if he could provide a bit more detail on 111, a river street sale looks like pretty healthy pricing that for 30 square foot keeps popping up around that markets and looks like pretty good read through it for the remaining portfolio. So just curious little search anymore color.
Yeah, So I wanted to market the suburbs, if we did well working through that I also felt that I want it to be able to tranzact. It's could on some waterfront assets to lighten the load looked at assets that one there were good assets, but <unk> core to the strategy, which basically has you know the the <unk> multi family.
The court and then homicide because of the zoning and the and the retail components basically built into it so.
So we marketed last year, Danny to be very candid one of one Hudson and 111 wherever 111 River is through one building of a three building complex to other buildings owned by a couple of hours a week, we deal with every day. He went them and said listen what are the market. This a couple of people want it would you want to buy this you want it to buy it.
Right, it's a tight market.
Dread is Walmart expanded its where.
So young had moved into a couple of years ago I met some publishing companies and it's actually a salad shoot market right gets early attributes are basically the in a dense area. The price is deceiving the actually receiving the higher than you think because that's a <unk>. That's a building that we have a long time lease with the Port authority.
Off to Jersey relative attractively background noise.
And then sits above it we have John Wylie and for at $37 excluded for a long time lease and we've been renting a 50 bucks for the remainder the building so healthy remark at spread he has long-term capital you want it to buy it he didn't want to catch it a deal with Wiley goes bankrupt or some other credit happen. So we.
Signed a deal and he's waiting you have to go through to get the Port authority assumption done if alone on or something he assumed and that should close hopefully barring no other economic occurrence in sometime in August wellbeing.
No one on one Hudson just to give you more information we were getting a price around 400 Bucks square foot and that was essentially essentially straight deal. There's no rallies big building, 80% occupied so you've got a little higher than that came out to about about $500 in total and we were working or.
Through that it's kind of fell away as the market slips, but we think we could go back to that as the market rebounds people look at that attractively.
And we and we've been backed up is obviously the the sale.
But the sale Refracked sold a building up those levels. They sold an empty building by S.J.P. properties to Joe set and company for 385 a foot.
Sorry to 85 foot excuse me.
It's been a piece amount of activity in this market bus and write levels have been good so far.
Okay. That's helpful and then just.
You know to touch on the Groninger. They program, you know looks like and local budgets across the nation or under strain because of the pandemic related quarantine any thoughts or any updates on.
That program.
<unk> restarting it turns.
How you get her yet so that playing out.
I have conversations with the Governor staff the governor the speaker the Senate on a regular basis and they always come back to the same set right. That's on the bill the ability to pass as soon as Murphy in the Senate President agreed on the.
Cap level Brookings held out Governor reference held out for the caps Senate president feels caps and not not appropriate in this environment.
Get addressed in this economic budgets that says because then it'd be wanting to grow the company real estate's getting a jobs at once we we didn't mention we had to have a deal poking around for a couple hundred thousand square feet from a tech 10. It that we just assume would have to take a grown new jersey incentive right, but that accompanies done a lot of due diligence buildings.
Second or P.N. soon but you know we look favorably at this environment, they're going forward. So.
Okay.
Like everyone.
<unk>.
I've heard any more questions.
My question. So far you mean continues sir.
Thank you I wish everyone say happy save healthy look forward to a more normalize environment in the upcoming months and I think of for the time attention. This morning greatly appreciate about all of us do well.
These concludes to these conference you may not all disconnect.
Yeah.
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