Q2 2020 SL Green Realty Corp Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Thank you everybody for joining us and welcome to the SL Green Realty Corp. second quarter 2020 earnings results Conference call. This conference call is being recorded.
At this time the company would like to remind listeners that during the call management may make forward looking statements actual results may differ from any forward looking statements that met management may make today.
Additional information regarding the risk uncertainties and other factors that could cause such differences appear in the Mdna section of the company's latest form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission.
Also during today's conference call. The company May discuss non-GAAP financial measures as defined by regulatory regulation G onto the Securities Act the GAAP financial measure.
Most directly comparable to each non-GAAP financial measures discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www Dot S. L. Green dot com by slipped in the press release regarding the company's second quarter.
2020 earnings and in our supplemental information filed with our current report on form 8-K relating to our second quarter 2020 earnings.
Before turning the call over to Mark Holiday, Chairman and Chief Executive Officer SL Green.
Realty Corp, I asked that those of you participating in the Q and a portion of the call.
Two please limit your questions to two per person. Thank you I'll now turn call over to Mark Holiday. Please go ahead Mark.
Thank you and thank you to everyone for joining us today I Hope you are all healthy and safe and these unprecedented times here in New York City I'm pleased to report that we have come a long way since the start of course, New York and are now leading the nation in terms of getting cobot 19 under control from a health perspective, new.
York City has started to wake up residents are engaging in outdoor dining new Yorkers had begun going back to places of work construction has resumed and retail stores have reopened.
There are a number of positive developments happening city wide right now, including the open restaurants initiative.
There were dining and the planned reopening a public schools come this fall.
With that said office space utilization is still quite low during the summer months and most of our tenants are telling us that they were planning for 50% plus or minus return to the office after labor day, while we still have a long way to go with this pandemic. The trends here is very positive and has been that way for weeks now with very.
He is parts of life starting to return to normal.
That said.
We now know that the economic impacts of coded will not disappear overnight or as quickly as initially hoped very few industries had been able to avoid the impact of this pandemic not just in New York, but nationally. It has affected all of us from a personal health and family perspective, and certainly from an economic in jobs per se.
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This is something bigger than any industry or any company and we're certainly not in a position to make predictions on how long it will take for economic activity to begin returning to pre pandemic levels.
Whatever it is with the incredible level of resources devoted to finding a solution to this virus. We're hopeful this downturn will be relatively short in duration.
What we do know <unk> is that this nation's leading urban center and the avatar of an urban lifestyle that remains incredibly popular an appeal in New York will rise up and meet these unprecedent circumstances.
So resiliency as it has in the past.
As a global financial capital and that's an incredibly diversified center for the tech industry healthcare in higher education, we will rise back to the top when this pandemic has been arrested.
For SL Green then our 24 seven focus since March has been onyx selling at the things we can control we're influencing this time of uncertainty.
We're working tirelessly and completely to ensure that this company is in the best positioned possible to deal with the immediate and near term impacts the cobot presents and looking forward ensuring that this company is in a position to excel and outperform once the Manhattan workforce is firmly back in the office and economic recovery.
Begins in earnest.
Our job is to make sure the company gets from here to there in a way that maintains SL Green's leadership position as the largest best and most prolific operator of Manhattan commercial office in a moment, where everyone will be unavoidably impacted we are confident of our position and our actions relative to our competitors for.
Finally, we built this company to withstand.
Moments of great uncertainty you could even say that we've spent the past 21 years planning for the unexpected.
From the global financial crisis in 1998 to the aftermath of 911 from the housing led meltdown in 2007 eight to the current pandemic, we never know where or when the challenge will come so we have oh.
Company to guard against all of it. So let me describe how we fortified the company to withstand this particular moment.
It starts with our rent roll, which isn't intentionally diversified group of approximately 800 predominantly credit tenants on largely long term leases. It is no coincidence that through this pandemic today, our office tenants have paid rent to the tune of 96% of gross billings an incredible stuff.
Just a given what's happening.
The months ahead will not be easy, but when you compare that to other sectors like multifamily in hotels, where the daily monthly an annual turnover of contract exposes those segments in segments like that to much more downturn. Our average nine year lease term provides a significant long term protection.
In contrast.
So our focus needs to be on getting through the next six to 18 months, because we know that we will come out of this in a position to relative strength. Once we reach the other side and we're all very well situated for this coming period, however, long it left.
We had cash liquidity of over $1 billion at quarter end.
We have a manageable debt maturity schedule with less than 8% debt maturity in the next 18 months.
We have modest lease expirations of under 10% for the balance of this year and throughout all of 2021, our asset base a premier properties have all been substantially improved under our ownership such that the mandatory capital needs over the next 18 months or really quite modest.
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And as I mentioned, our rent collection is at the top of the industry.
That's an enviable position to be in on a relative basis for those things that we can engineer in control leading up to this moment.
But it's not all about fortification. We're also incredibly active in the market doing more than our peers and I think you've seen that throughout the second quarter investment sales jvs financings, new lease signings and development projects or moving ahead during this pandemic.
I want to share with you.
Just some of the examples of this activity.
Just from this past quarter.
280000 square feet of leases signed during the quarter, that's Manhattan office leases.
510 million of secured financing nonrecourse financing of the news building.
One of the largest real estate jvs in the world closed with NPS and Heinz at one Madison Avenue.
Sales of six so nine fifth and an agreement to sell 450, a street at prices that still demonstrate strong demand still exists for high quality in relatively high yielding real estate, New York City as index rates approach zero.
Our consummation of five individual investment loan sales near pre pandemic levels.
Continuing initiatives throughout the pandemic to lead in the area of sustainability with the recent upgrade just received from MSC.
From double B to Triple B.
Partnering with chef Danielle Balu to launch food first one of our company's proudest moments actually in the past three months.
New nonprofit organization that by end of this week will have delivered 250000 meals to first responders and families and need we now have 15 restaurant partners.
And weve reactivated kitchens feeding new Yorkers and continuing to give back to this community basically our our sole community that we do business.
So sorry for all those examples but we've been busy.
And we did it all while reengineering our buildings to meet the highest and best safety practices for virus protection in order to give our tenants confidence to return to the office, whether thats already happened.
We are will happen in the future.
The key to getting it all done is that on any given day, we have close to 100% for a company workforce right here onsite at our 420 Lexington Avenue corporate headquarters and interest satellite building offices.
We are leading by example to show that work from office can be done safely and without major risk when the right precautions are taken and that there continues to be no more productive way to work than in a collaborative creative and efficient office setting.
I don't underestimate the challenges that lie before US Trust me.
The next few quarters will be difficult.
And there will be hurdles to clear.
But we are built for these moments, we believe in New York and.
And we expect to be stronger and better position compared to our competitors when this crisis to shell pass.
Like to turn it over to Matt who can dive into some more the details from the second quarter.
Thanks Mark.
Last call I highlighted our billion dollar plan strategy to accumulate a billion dollars of cash by the end of the second quarter as a measure.
Uncertainty ahead.
In early June we announced that we've completed that plan more than 30 days ahead of schedule and exceeded $1 billion target by almost $200 million at that time, which allowed us to commence the share buyback program again.
Since then over the balance of the second quarter.
We continue to focus on cash overall liquidity leverage and share buybacks such as we ended the quarter, where the cash balance of just over $1 billion.
1.15 billion if include our share of cash at our joint ventures, while executing over $143 million of share buybacks and hope unit redemptions and paying down debt.
Reduced our line of credit balance by $500 million from its peak balance of 1.45 billion and completely repaid our 147 million dollar debt preferred equity repurchase facility.
The activities that generated this cash run the gamut and evidenced the depth of capital it still exists in the New York market.
Real estate sales generated nearly $200 million.
Including the sale of six or nine fifth Avenue, which wasn't even a part of the plan we laid out in April.
And the sale of the JV interest in one Madison Avenue.
And we expect to receive another $20 million in the third quarter from the pending sale of 450 Eightth Street.
And the debt and preferred equity portfolio, we generated almost $500 million of cash this the strategic sales of five positions totaling $259 million and repayments totaling 229 million.
Coupled with the conversion of one debt and preferred equity position to JV equity in the quarter our portfolio balance stood at just $1.25 billion as of June thirtyth more on that portfolio to come.
And on the financing front, we closed on an enormously important $510 million mortgage financing for the company and for the broader market at two Twentys 42nd Street that was provided by a syndicated world class financial institutions.
On top of that we have the refinancing of our project at 410, 10th Avenue still in process, which is expected to repatriate equity we've funded into the project as well as cover future equity needs.
As the share repurchases, we remain committed to a disciplined execution of our program and Africa tailing. It back in March pending execution of the billion dollars plan. We commenced buybacks again in late May taking advantage of extraordinarily low share prices as our liquidity plan was executed in an expedited manner.
Since then we've completed $163 million of buybacks, including $20 million in early July, bringing total executions to $401 million year to date and now over $2.6 billion through our $3 billion authorization.
At today's share price, which is a 7.3 times multiple 13.8% AFFO yield and over 7% dividend yield virtually all sources of incremental liquidity are accretive into buybacks. So.
So the care fly in the balance sheet, meaning we're not using leveraged by the stock and a focus on maintaining a substantial amount of protective liquidity.
We will continue to evaluate further opportunities to sell assets and generate incremental liquidity to continue share repurchases in the second half of this year and beyond.
Turning to earnings guidance.
In April we took what many considered a very bold step in this environment and provided revised FFO and fad guidance.
Most other office reads pulled their guidance and most of them are likely to withhold guidance again this quarter.
But we feel we owe it to all of our constituents to share our views we have a view, let's not keep a secret and three unique months later after a ton of activity more projection models and I care to count and reviews of those models no less than two to three times a week.
Theres been some movement in line items, but we remain comfortable with the guidance, we provided and are maintaining our AFFO guidance range of 660 to 71, a share and efficacy of at least $400 million.
Highlighting a few items in the real estate portfolio.
As Mark highlighted collections remain solid for the entire second quarter and now into July.
Second quarter office collections approaching 96% retail at 70%, which is now very small component of our business and overall collections at 91%.
Tenants are definitely paying at a slower pace, but the vast majority or pain and the pace of collections has actually improved every month from April through July.
One point of clarification I just want you to remember that our figures are gross collections based on contractual billings not reflective of any rent relief deals that may have been cut or the very rare use of security deposits. If we report on that basis as I see many others doing the numbers would be substantially higher.
While collections have been solid we've historically taken a very conservative view of our receivables and in this environment, we're being even more conservative.
In the second quarter alone we recorded a total of 14.9 million of bad debt reserves on a combined basis comprised of $7.6 million a reserve against actual billed receivables and $7.3 million again straight line balances, which are essentially future rents.
These are the highest such reserves we've ever booked in a single quarter for comparison purposes in the first quarter. We recorded total reserves of about $1 million and then the second quarter of last year was only $1.4 million.
And our bad debt reserve now covers 45% of tenant unpaid balances could this proved to be too conservative based on historical trend, possibly but always better to err on the side of caution at times like this.
On a positive side, we've seen a dramatic drop in our projected full year operating expenses by over $14 million just since we revised guidance back in April.
Obviously reduced occupancy levels over the last several months have contributed to the savings, but I'd pick inogen. His team is also implemented longer term cost saving plans, which we will benefit from even after the buildings gain occupants all while taking into consideration the nominal incremental costs of operating our fully redevelop portfolio at a class a step.
Entered in a postcode world.
Collectively these savings also have the effective improving our same store cash NOI expectations for the year versus what I outlined in April.
In the debt and preferred equity portfolio. Our portfolio is now almost $1 billion smaller than it was just one year ago, and we continue to assume no new originations for the balance of the year.
With regard to reserves during the quarter, we booked an incremental $3.4 million of reserves against one retail loan position, but otherwise felt the conservative view, we took in December in March as part of the Cecil process continues to be adequate and on a percentage basis far in excess of our historical loss history.
We also recorded $3.4 million of realized losses against DP positions that were sold in the quarter.
Needless to say the sales have gone very well credit to David Schoenbrunn and his team and that leads us to considering more of them over the course of the year.
In our initial guidance in December we included more than $160 million of income from the debt preferred equity portfolio.
Now with the dramatically reduce size our income projection is down by over $40 million, including the 5 million dollar fee. We recorded in the second quarter and excluding the effect of reserves just a couple years ago. The $120 million. We expect for this year was over $200 million from that portfolio.
Yet our AFFO per share remains high even while the contribution from our DP business has shrunk.
This is contrary to what many of long predicted would be the case.
Thus proving there is incredible value to the debt and preferred equity business in the SL Green platform.
And we expected to this business for many years to come.
But as a component of the earnings power of this platform not the driver of it.
A couple of seconds on other income in the revised guidance. We provided in April recall that we reduced our generic full year projection of lease termination income down to $6 million from eight for the balance of the year.
That assumption didn't last long as we recognize $12.4 million of termination income in the second quarter following negotiation with two retail tenants to vacate their space early.
Given its unpredictability, we've not assumed any further lease termination income in 2020.
And finally on the expense side, we continue to manage DNA very closely taking further action to reduce junaid during the second quarter, even after reducing it coming into the year and again in the first quarter and now see total expense down by about $10 million or 10% from our 2019 levels.
So I said earlier some movements in the income and expense line items and a lower share count than our April guidance as the share repurchase program as active again, but all in all sitting comfortably within our previously provided guidance range.
With that operator, we can open it up for questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Again to ask a question press star one.
And our first question comes from Michael Lewis with Suntrust. Your line is open.
Great. Thank you.
I want to ask kind of a product question about the rest of work from home strategies.
That's kind of overhanging the stock there was another writers article this morning.
Isn't that 25 large companies already discussed significant reductions in their office space and that's on the answer to your costs. I was just wondering have you had tenants.
How is that they intend to.
Permanently work from home and decreased their space or have you seen other signals in your portfolio that maybe there is a.
Title waiver this comment.
Well.
Yes, I'll sort of take that Steve you can chime in but.
Yes.
Tenants have work from home.
Before pandemic and we expect tenants will.
Work from home and in some cases hotels share desk everything.
Post pandemic.
Maybe maybe increasing amounts but.
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I think that it's premature to get any real read on.
To what level that will be until people are firmly back in the office, which we're hoping for.
Great strides in that direction between Labor day and.
And year end is when we expect to see the bulk of our tenant base return.
The leasing activity that we have in front of US right now that we consummated during the pandemic quarter and having front was right now indicates that there is still.
Good demand out there for New York, albeit at lower levels, obviously than 19 and at the start of.
At the start of this year, we had we had projected a million six of.
Of lease volume in our office portfolio at the beginning of this year I think we're going to revise that down more like two down by about 20% to a million to 80.
That would still imply.
More leases, we expect to sign during the second half of the year. Then we signed during the first half of the year, we expect to do another six 700000 square feet or so.
Between July and end of December of this year so.
We still think that most of the tenants, we talked to and what we're hearing.
Is that most are very much looking forward to get back to work I think it's very hard to manage from afar.
We absolutely have seen productivity and efficiency declines we hear that from the tenants.
But to say with a broad stroke will some of the bigger companies incorporate some amount of.
Of work from home going forward, I guess thats to be seen.
We have.
910, eight to 910 in the portfolio and then we have hundreds more conversations going on so sure in some of those cases I think people are.
An experiment with.
With work from home, but I would put it at a.
A small fraction of the overall demand in this 400 million square foot marketplace, So siloed or no.
What we hear from what I hear is tenants are more about work flexibility as opposed to it.
It's not a choice of either or it's a choice of.
Giving their employees Flexibilities. Okay. You can work from home part of the time, but you're still going to be in the office most of the Tom and I think that's that's more of a flavor from what we're hearing week were yet to hear any one of our tenants of size, saying that work from home is the predominant way that they're going to migrate.
The operation of their business.
The number of phone calls that were wrong as mark was indicating where.
Where the brokers community or tenant community, where there was there was a novelty.
Two working from home for the first couple months and after that I think there's a lot of frustration where people were like enough for this already let's get back to the office I get back to my desk, so much more effective.
And I think.
As time goes by that will be proving up even more so.
Great. Thanks, and then I'm actually actually want to ask about the residential portfolio I realize it's a relatively small piece, but it looks like kind of across the board you saw some material.
Occupancy decreases.
We know people are kind of moving out of the city at least temporarily.
A lot of cases.
Any thoughts on the residential market and kind of way I don't portfolio I don't think where a good barometer to answer that question I would pass on that rather than the last thing I want to do is opine on this sector and.
You know and give information that really isn't targeted I mean, we have I think.
One the 102 buildings remaining the portfolio that.
One building things under 100 units and the other is.
It's a rent stabilized building on 57th Street, which could building.
That's not an that's all we have in this portfolio right now and thats not nearly enough.
To give any kind of public guidance on the the questions. You asked I just I don't think were to position do it.
Okay fair enough. Thanks.
Thank you we have a question from Rick Skidmore with Goldman Sachs. Your line is open.
We have a question sorry, sorry.
Sorry about that I was on mute.
Just Mark you mentioned some of the Opex declines and Matt you mentioned that on the call as well can you just talked to what you're seeing on the operating expense side, what what are the things that you're doing that is allowing you to bring down the opex.
Yes, I mean, it did not.
Not here with us but.
He and his team really took back in April and then again over the last three months.
I went through every line item in our operating expenses and cut them back dramatically not part of that is driven by by occupancy obviously.
The portfolio occupancy got got very low at the bottom minutes and it's coming back but that allows you chose the scalability. The expenses that allows you to cut security cleaning maintenance costs dramatically our nm the buildings quite simply just weren't getting weren't getting used.
But in doing so and looking out over the balance of the year. The pause has been longer and the ramp back up as has been slower so that allows us to save those types of expenses, but theres also.
Some expenses.
That commentary expenses that we can save on through the balance of the year and that allows us to to see a pretty dramatic reduction.
Even beyond what we just said three months ago throughout the balance of the year and also remember we are recovered.
In large part on our expense load by the by the tenant base, yes, but building building staff and utilities, probably the top two items I would think yes.
That comprise a lot of that savings and.
Not just operating savings Richard but.
We went back and showed that because these buildings are have been so improved to a high level, we were able to scale back a lot of discretionary capital that would be a little bit more proactive in preempted, which will do in the next year or two but we took it out of 20.
Largely and we saved an incredible amount of money not only on operating expenses.
But on discretionary elective capital, which will say for for later date and the combination of that worries.
You've seen in our earnings results, which were very solid for the quarter and also in our cash liquidity position, which quickly ramped up to over $1 billion.
About.
Three months ahead.
Of schedule from where we expected it to be.
Right, but probably a 60 days ahead of schedule from where we expected to be.
And you mentioned in the prepared comments that some of those savings would be potentially longer term certainly understand how things may has been impacted in the second quarter with people not in the office, but what are some of that the things that you think might be longer term savings.
Let me look think thinkable, yes interest rate savings for us is enormous.
Until the rates now or have dropped.
And we get more and more efficient as we invest more in our sustainability programs were using less energy and reducing the carbon footprint.
The capital as I mentioned, we're getting more efficient with it and we're seeing the bids come back more competitive.
So that there had been a lot of construction cost escalation since 2015.
That was it was unbridled that all of the Sutton.
Just three months.
It creeps up whatever it is 357% a year and then in the span a three months it might drop 10 15, 20% so.
All these things are offsets to what otherwise or the impacts of.
The down market.
There is substantial savings for a business of our scale and I think we're scouring every nook and cranny to take advantage of it.
Thank you.
Thank you and we have a question from Alexander.
Well start with Piper Sandler Your line is open.
Hey, good afternoon. Thanks.
Just two questions first.
On the GP book.
Yes, it would seem to be actually rather modest marks and im just sort of curious.
Physicians are performing the cash flowing theres clearly buyers for your position that you're selling and it sounds like.
You guys sell even more what really drove the marks was it just sort of an interest rate like mark to market on.
Where the yields are versus where buyers, but yet yield today or I'm, just sort of curious what drove the mark because it doesn't seem from a performance basis that they were taking any things on cash flows.
Hey, Alex it's Andrew and I think the one was on a position that we sold.
And then as Matt said, the other was on a retail position.
We're winding down the retail portion of the DP book as much as possible.
But retail is definitely an asset class that's struggling and we just felt there was prudent to take some additional reserves that.
Okay, but Andrew what you're saying, though overall your DP, but you're not seeing a degradation of any cash flows they were all current and paying and all that.
Aside from a couple of retail loans, yes.
Yes, I would.
We worked very hard since 2015, if you go back and look at all the commentary since then to pare down our owned real estate portfolio and then I'd say in the past 18 months, our DPP real estate portfolio that was secured by retail and.
But whatever is left as little as it is I mean retail as an asset classes is pretty highly impaired.
And Fortunately for US I think is less than 5% of revenues on a on the old basis, and that which we own is generally well long term we are incredibly to credit. So we feel very good about our retail portfolio and we have very little retail left.
In the de PE portfolio, I'm going to say like a couple of assets David.
We think that.
Three or four assets, so it's very little its.
A couple of percent of the overall, which we've marked which we've already mark in one case anyway. So so we feel like we've really manage that retail exposure well income through that well, but to answer your question I think house, which is why do we take those marks.
The marks on retail were credit driven marks.
And that's just that's just the way it is but the good news is we don't expect.
We know more of those marks we don't have much left and with respect to everything else, which is mostly secured by office.
Yes, no those are.
We feel very good about those positions.
That remain.
Okay, and then bark perfect for the second question.
Albany yesterday, they the assembly at any rate asked what seems to be sort of a very pro tenant unilateral right.
Exit leases and leaves the landlord sort of holding the.
Moving to dime, if you will.
What is your sense for the potential that the Senate made assets and what's your sense that they.
This could really come to fruition, which would seem to really are banned the commercial.
Console or at least construct.
Yes, no I think I know, what you're referring to.
Alex and.
No I wouldn't I Wouldnt overstated.
I think it's it's bad law and I do not think it'll get passed in the way that it's currently drafted however, when you look at.
The impact of what it is just to be clear.
Under current New York Law.
Landlord.
Has no duty to mitigate damages, but we almost always do so.
This law says Hey, Llandeilo, you've got you have a duty to mitigate damages that's different we don't.
Legally we think thats.
Misguided.
But I also want to point out in almost every case with tenant leaves and we have a claim against that tenant.
The Ted to measure of damages is mitigated against whatever we get in terms of replacement rent and we're always replacing that rent.
So so that nuance as to whether we have a duty to mitigate or not.
We oppose it but I don't think there'll be any.
No.
Practical effect.
Because we.
We and maybe others don't but we always mitigate the other question, which is significant the burden of proven that is really legal dollars. The burden to prove should absolutely be under tenant to prove up whether or not we've carried out or.
Whether we've attempted to mitigate and we always do and for a landlord like us. It's irrelevant I mean, we have records and I mean as soon as a space comes back we're leasing it within like sometimes the same day, sometimes before even.
So.
I think it would be unprovable at least in our case to show that we didn't try to mitigate.
But if there is a duty to mitigate should be on the tenant should be on the.
Proof of that you're going to tend not to landlord. Those are the two floors I see in that Bill I think you know cooler calmer heads will prevail in the Senate and hopefully with our governor to reject or greatly modify that bill we'll see.
But I would say to you that.
We are in a position that I don't fuel will be affected by it okay.
Thank you Mark.
Thanks.
Okay.
Thank you. Our next question comes from Manny Korchman with Citi. Your line is open.
Hey, guys.
Or maybe marks you keep talking about the billion dollar sort of cash balance plan and it has gotten there more quickly what is.
So special about $5 billion number that you wouldn't use some of that for buybacks or that you only want to use is incremental cash to that to do buybacks, what's the actual billion earmarked for.
Well.
It's a nice round number Michael I mean, it's.
We talked about on the last call we said.
Point blank the billion was somewhat arbitrary.
It relates the way, we look at it as to a multiple of our dividends.
That we have to pay in a pinch.
If like cash flow reserve, which is a draconian method. So it's probably more of a cushion then we need to maintain.
But in a market like this where you feel like you can never have enough.
You know a billion dollars is a very formidable war chest, it's probably as I said, an overabundance of liquidity for what we need because all of our capital needs going forward largely are capitalized either with equity commitments from third parties or from.
Coming out of loan proceeds, which are committed or covered by cash flow from from a property. So so arguably I would agree with you it's a bit arbitrary and we probably really need less.
And.
It would be fine with less but it's just a goal that we in the board developed as something that was an abundance of caution significant number and something that was many multiples of our.
Fixed obligations that we felt we wanted to cover.
For situations that could stretch out years into the future.
And Thats, how we got.
And I wanted to go back to your comment on retail.
Certainly it's structurally.
Impaired right now and have been an issue in the city.
Given the fact that.
Theres so much retail the base year buildings of neighboring buildings and how much.
Culture or flavor personality is given to New York City, how do you envision that retail being replaced that New York City remains sort of a special place. So people don't just go in and go and elevate and get to the office space, but want to be in the streets and visitors want to be industries and tourist want to be in the streets and bring back that vibrancy to New York City.
Well.
This is Steve awed by two cents and I'm sure Mark are underway, but.
What's the base of our buildings by a largest service retail.
And even with the changing landscape of retail over the past Eurthree.
We've never had a problem leasing up that kind of product.
So those are the restaurants spaces, the takeaway food spaces, the drug stores, the banks that kind of stuff.
And.
I think going forward you will see.
Some shifting that were landlords drew for at least for point of time on the food guys will do a little more partnering with them on percentage rent deals.
Because you're right it isn't amenity to the building we view it as amenity building. We've always approached it was carefully curated with types of uses that are in those those spaces, but I think you got to do to separate from when Andrew opening remarks speak about retail the high Street portfolio, which is entirely different yes, I think I think the assets were talking about in the.
The book and the owned real estate book are really the high Street retail portfolio Standalone and there we do have some great long term credit leases to fall back on like Nike.
And others.
And the the.
For the commodity retail at the base of our building in our commentary on retail really is not related to that type of retail that's not where we got high rents in the past we didn't see the kind of rent growth in that space as we saw in the high Street retail. So we don't expect as much sort of fall and falloff in the retail has on the high Street.
Portfolio.
Great. Thanks, guys.
Thank you. Our next question comes from Jamie Feldman with Bank of America. Your line is open.
Great. Thank you I'd like to get your thoughts on lease terms and.
Where do you think we are in terms of net effective rents.
Hi face rents move concessions moved or free rent periods, how should we think about what's been happening the last few months.
We've seen more.
Movements it depends on what you're talking about retail or renewal deals or new deals, but let's let's just start on the renewal deals.
Volume large.
The renewal deals that we've been working on I would say for the past two or three months. Many of those deals have been kind of net effective type transactions where.
Concessions were just netted out of the face rents.
We've done a lot of those deals maybe the majority of those deals without the participation of brokers. So there's been a lot of capital savings on those deals.
On the new deals I think we've seen.
I think the market is still very unsettled exactly where rents are where they're headed but.
Volume large I think that tenants are looking for more movement on concessions as opposed to face rent.
And that's not surprising we've said it in prior calls that we've had people that whenever there is a major market disruption tenants go into defensive and that means they tried to shorten their lease terms on renewals they try to.
Husband their capital.
And they're willing to pay the rent, but they want to they want the concessions to be beefed up and that can go and it was pocket I think thats, we'll see that again in this cycle.
So if you would have boil it all down in terms of how much net effective rents it changed what would that answers.
I don't think anybody knows right now because it's not enough deals out there to really get a good barometer on there's there's some broker reports that says that it's been like.
Like two 2.5% net effective change but.
I don't I Wouldnt count on that because it's too early in the game.
Okay.
And then Matt it little bit more specific for you just thinking about one Madison and capitalize interest from that.
That change at all.
The JV sale and how should we think about that impact for 20 guidance as we think about 21.
How does that number move.
It was all part of our guidance I remember back in December we projected the JV. So the timing of the JV the manner in which we did at the size all consistent with what the guidance. We had December it's actually one of the few elements of our model I don't think that has changed.
Since last year.
It will reduce our capitalized interests.
Overtime, because based on funded dollars.
But that's all consistent with what we had projected back in December.
So what can you remind me the dollar amount.
The dollar amount of capitalized interest.
The benefit.
I'll have to get back to later I mean, I have a bunch numbers around me, that's probably one I don't have okay. All right. Thank you.
Thank you. Our next question comes from John Kim with BMO capital markets. Your line is open.
Thank you.
Rent collection rate has been very high but as tenants delay the returned to work do you see the.
Collection rate deteriorating and what levers can you pull to get that from happening.
Well.
We don't see a deteriorating I mean, we certainly hope it doesn't sound I think because they're the buildings are open and available for occupancy so theres a lot less discussion even around.
Deferrals or any any type of a rental accommodations.
Yes, I think the the levers we have pulled system to be a market leader in terms of opening the buildings and having them be ready for safe occupancy. So you come into our buildings and there's way finding your temperatures taken.
There's signage that clearly.
Illustrates the seriousness with which we're taking safety.
There's air filtration Theres a lot of measures we've taken that tenancy a lot of measures. We've taken the tenants don't see but that their their facilities people understand from our facilities people and I think we've gotten great feedback from tenants about the the steps that we've taken.
On the leasing activity you've done in one Vanderbilt can you discuss how rents have changed for that versus comparable space and it's your preference today to hold the rate as much as you can versus occupancy for the remaining space.
Yes, one Vanderbilt I Didnt mentioned that in the.
The opening remarks, but.
I mean, how great is that that.
Next month.
We expect to be.
100% complete with that building they want to take him to take a moment here.
After something that started 20 years ago to date, we'll cut the ribbon which were planning for in September.
Although the TCOS should be in hand by August 25th.
Through everything that's happened.
Over that period of time.
It's.
The excitement level here, even even with everything that's going on it's like palpable to.
Come to work everyday and we have the benefit of looking up at this spectacular.
Building design achievement.
Contribution to the skyline everything it's just been.
In a monumental achievement and it's something even now which is years. After we broke ground in this project.
Every day, we hear from people friend Strangers whomever passers by what would a fantastic.
Job it is and.
Noteworthy that theres $220 million of improvements to the public realm that are also going to be unveiled.
In September if not earlier.
Which right now is kind of behind.
Wouldn't malls temporary walls. So you can see.
There is such an extraordinary expansion in addition.
To Grand Central station that is weeks away from be conveyed.
To New York City commuters strap hangers tour as everybody.
That it really is.
Just something that.
When the day comes it will be it will be quite a moment for the company.
The.
Tenant.
Community out there I don't think any of this is lost on because I'd say of older buildings in the portfolio. The one building that seems to have I would call. It's good to excellent foot traffic at the moment.
Where we signed I think two or three leases during pandemic and we have two were negotiating right now and a proposal in for third and many others that went on pause just before the pandemic, where we're told after labor day, we want to Reengage. So it really is.
A testament not just to new construction, because I don't know with all new construction is experiencing the same thing it's really a testament to every element of what one Vanderbilt represents.
Forward thinking and best of class design sustainability location commute ability.
And something that we.
We plan for in general terms, but not specific to a pandemic. The building is probably as high dziennik healthy and forward a building as exists in New York City with Merv 16 filtration.
The only building our portfolio has more of 16 it might be one of the very few buildings in the city that has Merv 16 frictionless pass through of turnstiles.
Destination dispatch so you don't have to the elevator coal buttons.
Lighten air that reaches like 90% of.
I have every floor.
It's just every the amenities, which could have been modified to adapt to social distancing.
It checks every box and it's no coincidence that the tenant community still.
Still has a great affection for this building and while the leasing.
I will.
You know sort of unavoidably.
Be delayed a few months.
For the months loss to the pandemic.
We were so far ahead on leasing that I think we're still ahead on our underwriting projections, but behind probably on the 2020 goals and objectives I think we would hope to.
And that 82% for the year was the original projection I think now we're looking at closer to 72%.
Still as I said on or ahead of original underwriting but.
Delayed as it relates to 2020 for I think as I said unavoidable and obvious reasons as it relates to some of the term Steve I don't know if you have come through on that.
Well the deals that we that we closed.
It's much like I was saying before we we topped up the concession a little bit some free rent work.
But there wasn't so wasn't any material trade on the face rents.
And the deals that we've got on the table.
Similar similar story, a little bit of a little bit of erosion on the face road more more focus on the concession side than anything else.
And I'll just I'll just add one of the thing to Mark's list of the highlights of the building I think in the.
In the new World the buildings location being next to public transportation is even a greater enhancement because there's a lot of discussion out in the broker into community about being able to below a one stop public transit.
Location. So you don't have to take two modes of public transportation to get your office. So that speaks well for one Vanderbilt and speaks well for the rest of our portfolio, which is grand central centric.
Looking forward to the property tour, but so you're saying that that stabilization period has been extended.
Are you, saying also it's going to come in at the low end of your yield expectations.
I'm, sorry, what was it.
The only way.
You heard that I mean, no no. We're ahead of were ahead of underwriting. So we're not at the low end up I don't even at the midpoint of.
Well above the midpoint for sure we have been and continue to be no I was.
I had only.
Talked about timing of the leases, which you know for a period of about three months everything sort of winnable.
Great. Thank you.
Thank you. Our next question comes from Blaine Heck with Wells Fargo. Your line is open.
Great. Thanks can you guys just talk about the demand for office space in Manhattan from some of the large tech tenants that have been taken down big blocks of space or even rumored to be looking in the market how of their requirements changed if at all in the last few months in terms of number one desire to be in New York number two.
The aggregate size of space requirements and three there their rental.
Rate sensitivity.
Well.
You know.
We haven't.
We haven't seen any pullback by the tech industry as far as.
End of the deals that were working on.
I would tell you probably the best.
Best Barometer for US is the tenant interest for one Madison Avenue.
And we've had a number of when we we did a number of.
Virtual presentations.
During the work from home period, and we continue to market that building today I.
I don't think there's been any slowdown on tenant interest on that on that project given its uniqueness.
Size and its and its a spectacular location.
Some of the tenants that we were talking to the feedback was that were previously.
Looking for space, where they were.
Incorporating a hotel in concept so.
A thousand seats, there, we're going to be space for seven or 800 people.
With the balance the people sort circulating through on Hoteling.
And we've had a couple of those does come back and say, they're not doing hoteling. So now they are looking at it.
Seats for 1000 people.
So I don't know if that's a indicative across the board, but it's been our experience over the past couple of months and the feedback that we.
Great. Thanks, Dave and then one for you Mark probably.
At your Investor Conference, you've laid out an impressive NOI ramp into 2024 from development projects I'm sure you don't want to get into or can't get into any specifics, but it's just generally can you comment on how this crisis impacts that development outlook, whether it be from.
Lead development timelines or declines in asking rent that that might call. The economics on any of those projects into question.
Well I mean will likely we haven't really.
Thought about it fully yet so little premature try not to think about until after the summer, but we'll probably do a full update on each of those projects in December.
I would say that.
You know at this point all all the projects are on or ahead of schedule.
One Vanderbilt obviously completing on schedule.
You know leasing achievement.
We expect to be fairly in line with every all the guidance previously given.
To get stabilization, one Madison is Steve just said tenant.
Response during this difficult period, I think has been very good uplifting.
Obviously, you got to see what you convert to two leases, but you got to start with.
You know the Rps and the conversations in the walk throughs and Thats been that's been ongoing for the past few months and we're encouraged by it.
I also think we're going to get a significant break on construction costs and we'll Madison that's in the side. So you got we we gotta look at everything interest rates.
In terms of the LIBOR curve I mean, when we were projecting a vibrant December it's a little bit of different curve right now to our benefit construction costs I think to our benefit in terms of breaking ground. There were still on track to break ground October 1st we had possession agreements in place with every single room.
Many tenant in the building, we didnt have that in December.
We do now we actually got a jump on some of the demolition.
Because we got early possession agreements. So we're probably a little ahead of schedule and construction there.
185 Broadway continues to be topping out in September that was per the original goal so that go.
We're not revising wheel too we expect to meet on its original terms and we still feel like.
The rents we underwrote there were conservative relative to market. So we're hoping that the leasing achievement, there, which really won't begin in earnest till sometime in 21 with the bulk of that occurring I guess in 22 or second half of 21, beginning a 22.
We have every reason to think that that new amenitized product will outcompete its competitors and will perform at the high end or whatever the range of rents are for for the buildings that surround what 85 Broadway.
That deal that Andrew took you through last year 15, do we do we go through 15 as well.
No well for 10, Okay. The good news is a deal we didnt development deal we didn't even half that's part of last year, we not only havent now, but it's fully leased as I think everybody knows.
Net leased and Matt that deal is moving ahead.
What else can tend to leave for 10 10 is fully leased so fully in bad.
We didn't lose any time on development afford 10, so obviously since its leases no income Dimunition, there's no time dimunition. So look we will.
We will update everything, but I would I guess as I sit here four months ahead of that exercise I'm not expecting any material changes to what we presented.
Alright, great. Thanks.
Thank you and we have a question from Nick.
Legal with Scotiabank Your line is open.
Thanks, I just wanted to go back to the rank question.
Your mark to market it weekend in the second quarter and.
Down versus your original guidance for the year down versus the first quarter number so.
It looks like it's about your rents are down about five cents per sentiment that you had a good ballpark number and how should we think about the mark to market on the portfolio for the rest here.
I really think Thats, a little misleading you got to get deeper into these numbers because.
Strategy has shifted.
From doing new full concessionary full concession deals on new on new leases to very capital efficient.
Renewal renewal deals.
Where the concessions are far lower but the headwinds are lower net effective I think Steve already ticking through into the net effect as we're about same I mean.
Our effective I think we're helping them, we're probably above where we were otherwise.
Budgeting for the year.
Because we just so much of the leasing was oriented towards renewals.
No as I said earlier, a lot of those deals we've done without the capital cost of broker commissions.
I was very modest we give some free rents.
But we also in many cases.
In some cases dropped to face rents only because we were doing.
Deal with tenants that.
Escalated way above current market, but on balance.
Forget the Mark to Mark number it's all about than that effective on these transactions.
And.
Mark I wanted to go back to your commentary earlier about.
The next couple of quarters it'd be difficult, but then you feel pretty good next year, what's giving you that confidence I mean, the economy in the city right now is Don.
Scented problems.
What.
Did that just you need to get people back to the office the work and create.
Better traction the leasing environment I mean, what what is what are you looking at that gives you confidence beyond the next two quarters.
Well I don't know by the next two I guess.
That does your words, but.
My confidence is New York City.
I've been.
I've only done business in this city for.
Let me get my numbers right 31 years. This is that based on 31 years in the city in almost every aspect of it from.
You know structured finance.
[music].
Mezzanine lending workouts, new business development that the redevelopment et cetera.
In through that period time, many many cycles each of which at the trough it was.
New York will never be saying.
I guess after four or five of those.
Become a little hardened to that and you look past the rhetoric of New York and there would be same two.
New York will come out of this.
People will come back to work all the things that made New York what are the most desirable markets in the country.
We'll be here again once.
The pandemic is arrest I think I referred everything to that moment, where whether thats remedy or cure vaccine or or herd immunity. I mean, you know there's this isn't a medical conversation, but you pick which of those things that will when you get passed it and.
When you get passed I think you know a lot and then you start working on the healing.
Of the disruption to this economy, which I think will occur.
Immediately after one of those three or four things happen.
Maybe slow and steady it's not.
Not to say, we'll be back to 2020 levels and as you are which two quarters, but.
You know at that moment remember that the market is always forward looking it's not a question of when will we bought back to 2020, it's when will this be behind us with the prospect of a resurgence and I do think that can absolutely be in 2021 and Thats what were looking forward to and that's based on.
All the advice and guidance that we and everybody else gets.
Out there in terms of where.
We hope to.
Be in terms of attacking this virus so.
Even without that I think where a shining example of a company that is operating at nearly 100% capacity.
Safe effective much more productive I got to tell you. If we were all sitting at home.
Literally just sitting at homes in our bedrooms too yeah, Theres no way I could have rattled off that list.
What I rattled off to you in his prepared comments, there's no chance.
That would it but I don't know if we would have been half of it so.
So the only reason we did what we did and maybe you've got some other call today, you'll have similar list from other companies or later in the weaker next week I don't know, but I don't see too much of it out there in that volume and I attribute that to a.
A confidence level in the city, we operate in an experience with the city.
Through all sorts of you know calamities and.
Chaos and crisis.
But knowing that fundamentally this is still where the best educated work bases.
This is where the most international.
Community of residence and employees are its young vibrant going to come back.
It has to get past.
Kogan 19, and it will.
But you know to take a position that.
It's never coming back New York's done is to dumb I mean, thats you know that we make money coming out of downturns on thinking like that that's where that's where we usually make the most of our money.
Say most of our money has been made within one to three years of coming out of downturns, because we take advantage of sort of apocalyptic thinking that.
I don't think will apply to the situation.
I can't say that with certainty we've never been through covert 19, but.
We feel like already.
New York is way ahead in terms of dealing with this situation and we think the economic healing will be commence.
Soon as you've got remedy cure.
Vaccine or herd immunity, which we're told by the middle professionals will come in time.
Okay. Thanks appreciate it.
Thank you. Our next question comes from Craig Melman with Keybanc capital. Your line is open.
Okay.
Thanks, and good afternoon, everyone, It's Jordan Sadler with Craig So.
It seems like you guys see an arbitrage still between public and private markets, which makes sense buying back the stock, but you also want to keep leverage in check.
So it makes sense it transaction markets, obviously preneed been pretty muted.
Especially for larger assets kind of curious how are you would characterize your posture and ability to sell assets. Today. So that you can continue down the buyback path.
Yeah.
Well, we're optimistic that we're going to get more asset sales done in the second half of the year, we have a healthy pipeline of deals, we're bringing to market or that are in the market. Those include both debt and equity positions and we think there is still institutional interest.
In New York assets, and we intend to take advantage of it. So we're we're pretty optimistic in terms of our ability to execute on some capital raising measures in the second half of the year.
Okay, and then you touched on debt and equity position. So as it relates to the DP book you had some progress there in the quarter.
How are you feeling about the overall credit quality of your office loans as we make our way through the summer here and do you think you're going to see you guys have historically looked from.
Some of this underwriting from.
Loan to own perspective, do you think you're going to see opportunities there.
Well, there's one I don't know where it stands in the theirs.
Which were about the.
Yes. So we have we have won every downturn usually results in a one were too.
Actually is just one I can think of last time. It was 100 church I think right and.
Turning that'd be great deal for us.
I don't even though it was before then but.
Anyway.
When things were 700.
Hi, a 5.5 10 with a data we never took ownership by 10, but yes, I mean that turned out to be a great deal. So.
In this downturn the lipstick building 85 third is a position where we were originally.
Well owner than fee owner than private equity in FY owner and.
Now on track to basically have.
Pref equity ownership rights again in the fee unencumbered by the leasehold. So we will intend to lease and manage and operate that building going forward.
And that's a big opportunity for us because we think we're in a very attractive basis.
It's an iconic property.
The office there for seven years before as a green love. The building always have we've made money with the building over the years and even though there's law firm that is rolling out next year.
We've been working internally on a plan each of us here, along with Ed and others.
On.
Coming up with an appropriate redevelopment plan for that building, which probably is more of like a 2022 event.
Retenanting to get to a point, where we think lipstick has been and should again be.
Probably achieving the highest rents on third Avenue best building and third Avenue. So it's a very good iconic building it'll have a lot of international.
And domestic appeal for third party capital if we choose to go that route.
And so thats one situation that comes to mind. When you you, it's not loan to own.
Just that may be the outcome. The intent was never load on the intent was you know we make these deals on an arms like basis, but in this particular case.
You know ownership may make the has made the election too.
Pass the baton to work.
And the credit quality of sort of the rest of the portfolio conversations with tenants you feeling pretty good everybody's going to be.
Performing through the summer.
Yes, I mean, south that was earlier I spoke to the credit quality, we talked earlier about the portfolio.
Feel good about.
Okay. Thank you.
Thank you and our next question comes from Steve Sakwa with Evercore. Your line is open.
Thanks, Good afternoon.
I was wondering market fewer Steve could just expound a little bit more on the on the leasing environment in your comment about the second half being greater than the first half.
Im just curious you know how much of that is is kind of early renewals, maybe being pulled forward how much of that might be new leasing activity and maybe Steve could just speak to kind of the pipeline in the tenant makeup of who's in the pipeline today kind of by needed by sector look Steve I mean, I know theres a lot of focus and we've gotten a lot of questions.
On market everyone's not leasing market lease, marking these market and understandably get it and we'll do our best.
It's limited going to window to try and give you a little more flavor of that but you're getting.
You can tell I think from what we accomplished in the second quarter, what we're projecting for the second half of the year.
Basically where the market is relative to what it was the proportion of a leasing has shifted from new and renewal.
Which is very intentional or part and.
On a net effective bases equal or head of probably where we had projected even the beginning of the year for those renewal deals, but with that said, Steve there anything more to answer that we've got a pipeline that's a little under 600000 square feet right now of the two.
200000 square feet or new deals new tenants other expansions or.
New terms the portfolio and another 370 or 80000 square feet of of a renewal deals.
Why the rewind the tape a little bit in March a lot of that leasing that we were doing March and April was wrapping up a transactions that were in the pipeline at that point were advance discussions or lease documents then when we wanted to I guess, what May June a lot of focus went into real.
Duals in now.
As we're back in the office over the past three weeks four weeks.
Tour activity has picked up it was that basically stopped when everybody was on the work from home ended but over the past three or four weeks, we started to see tour activity again.
A number of the tenants that had put the requirements on a hold of dusted that often come back to the table.
[music].
Well, it's a good deal focus on.
Some of the bigger blocks and some of the better quality buildings.
So not to suggest that things have returned to normal is certainly haven't but.
There are clearly.
Reasons to believe that things are on the on demand.
Okay, and I guess, the second question Mark you've obviously, you talked about the book coming down by about $1 billion I mean, how much lower should we think that that book could go in order to be one acquisition source of capital for buybacks is there sort of a minimum level that you sort of feel no I don't think there's a mini.
Among level.
I think in Oh, seven away I think we brought it down to like six on millions a number that sticks out of my head now that wasn't from.
A 2 billion plus starting point, but it might have been from 1 billion and a half starting point or something like that so.
No there's no.
A few of the a few of the positions are caused by strategic so.
No I don't I don't think you'll ever see it it's zero, but.
Where does it stand on that by building three or once you thought you know critical below billion to five I mean, Andrew said, we've got some more loans in the market, but as you know work and working on that so yeah, we're still selling more than we're originating but Steve when we feel that inflection point in the market.
We'll probably net originated.
And we'll have to weigh the net origination a proposition again stock buyback at that time I don't think that time is now.
But you know based on what I answered earlier in response to the question from I think it was Nick we do expect that time to be upon us again.
And so.
It will probably go lower but someday that will start to rebuild that with some opportunistic investments I would sick.
And so that's kind of our view on that portfolio.
Great. Thank you.
Thank you and our next question comes from Gerrick Johnson with Deutsche Bank. Your line is open.
Hi, everyone. Thank you just another one on the DP Buck we noticed that balances went down but income went up and it typically doesn't work that way without some other influence I guess was there any one time item that may have drove income higher I think on their heard a $5 million state could you perhaps provide some color.
Yes, we we recognized a 5 million dollar fee the restructuring fee onetime recognition in the quarter.
There.
Okay.
Got it and hey, so so most of my questions have been asked already so how about a fund one.
With most companies fading in person meetings in travel and this enhanced work from home arrangements or what seems to be the remainder of 2020 would you guys consider maybe breaking the trend and the leading again by example, and having an investor event or at least all at once.
Well, we're starting we're doing a dry when today, there's 12 us in a 72 foot circle.
During this call right now and it seems to be working just fine. So we'll look to expand that I guess, if you do the math to get 200 people will eat a big space check the governor's guiding something.
Gathering we may need Yankee stadium, but if it's available we'll get it and we'll do it in person because you know we're not a big fans as you might imagine of doing resume call with 250 people.
Thank you guys. Thanks.
Thank you and our next question comes from Vikram Malhotra with Morgan Stanley. Your line is open.
Thanks.
The questions I know it's me.
So maybe just putting all of this together maybe just ones for you Andrew.
You referenced second was last quarter will maybe maybe an earlier call. It so seeing a difference in value between buildings that are higher quality, new our versus older value add that there was some comments on on what you heard about in London, just curious as it stands today with all the moving pieces what sort of yours.
View on what the bid ask is for asset values, where do you think we're going.
Well I think bid.
The bid array is there certainly wide and you have we get a ton of incoming inquiry from all different flavors of capital the opportunistic guys, who will read the press and think that were.
We're we're desperate for capital so, they're lobbing and very low bids and then the longer term guys, who have more realistic and constructive approach to valuation and those are the guys. We wind up transacting with so I do think the bid ask per spread is very wide because there is not transaction volume.
Out there and any kind of level.
That's more normal.
We are seeing as as we always do.
In a different types of capital new entrants come into the market you know some pension funds and some overseas capital that wasn't previously active in New York, That's now looking for opportunities and we try to identify those sources with whatever product we have in the market whether its structure.
Finance or.
Were or buildings and I do think.
Class a well leased assets are still most attractive to people.
But.
The.
The redevelopment projects, if they're priced right hold a lower too. So it's there's not enough liquidity out there to really.
Give you specific examples and illuminated the bid ask in each of the different asset classes I would just say it's it is it is wide right now and there's a lot of bottom fishers out there.
Okay. That's that's clinical and then just maybe abroad kind of maybe theoretical question, but but mark for you.
Few years ago Street retail was pretty hot insistence on 16 knowledge as you said is structurally impaired permanently impaired.
Assuming that there is a not a massive shift in office, but some incremental shift and work from home and that impacts office fundamentals prominently in say CBD markets would you be open to sort of widening out sort of broadening away from New York areas around New York, maybe suburban markets maybe.
Using the DP E book to make some early investments how.
If this does come to fruition theoretically would you be more open to other markets and other strategy.
No I I really think that.
Once.
The virus is arrested and put behind us that all of the attributes of New York City.
In Manhattan proper.
Our still here and are still going to be far and away the most compelling for businesses.
You want to locate here and people to want to live for 24 seven right now.
We're just we're in this moment.
And we've been this moment before and so this isn't this isn't the moment for us to be making.
You know any a bold redirection of investment strategy. This is where we just sort of you know hunkered down and manage through this.
Which we're doing I think I think quite well, but.
But you know.
I don't I don't think this is going to result in any kind of meaningful shift.
To the suburban markets, which we have a lot of experience with.
We sold I think every suburban asset we own except for one and half.
And I don't think we're going to look back at that as having been a bit decision I think that will still be good decision three to five years down the road.
Because I think the amount of demand that may spill into those outlying areas is going to be.
Just a immaterial relative to the 400 million square feet, a demand from New York City.
I think every all the tenants we speak to still want to be here in New York.
Yes, there may siphoned off what it used to be.
Densification.
We had to deal with that you've got to remember Densification was one of the greatest challenges we faced over the past decade.
Far more of a challenge the new additions to inventory and I think that Densification trend is now dead and its track.
Arguably as Steve said earlier is going to reverse itself that is a much bigger.
Influence and ER positive influence for our business.
If that comes to pass.
Then whatever.
Marginal demand might siphoned off in the suburbs. So I don't think we're going to head that direction.
Okay, great. Thanks, so much.
Thank you next question comes from Anthony Polo with JP Morgan Your line is open.
Yes. Thanks on one Madison is there going to be cash back to SL green either from your partner's equity investment here or or maybe construction loan at some point Im just trying to understand the cash in and out there for you all.
Yes, it's only we got cash from them in the second quarter.
When we signed up the deal and then the construction financing that we have in process will fund essentially the construction of the project.
And then on the other side of that we get the remaining equity contribution from our partners Yeah. Good point actually because the this substantial equity repatriation at the.
End of this project is not really part of our liquidity correct. So that's a billion dollar or liquidity as of June end Doesnt include the vast majority.
Of the committed funds from our partner, which is sort of future future factored receivable, which.
It was out there and we'll become liquidity, but we don't even included in our staff.
Got it is one of the wanted to understand thanks.
And then the second one is.
On the collection side, you kind of gave a cash collections, but it looks like you you Didnt you recognize 100%, though from like a gap and earnings recognition point of view is that right or did I Miss something.
If we if the balances are deemed collectible yes. They are in earnings and in the revenue line, but I also highlighted we took.
A significant amount of reserves, we normally book half a million $2 million reserves against receivables and we booked seven and a half this quarter, that's looking at unpaid balances and saying we have some some skepticism around collections and we'll take a 50% or even 100% reserve against those receivables.
Just want to chug from from Mats World of reserves, a $7.5 million reserve is like seismic.
Where the company with I think to building six of revenues.
Less than check.
I would call that microscopic.
We're in the.
We are in the business of taking risk.
And I think that when you measure our revenues and income relative to these workover and minor you know modest almost.
Tiny reserves as a proportion of those revenues.
I think it's a real testament to the collections effort and the balance sheet. So yes. They are substantial reserves, because we usually take almost no reserves.
But in the context of 1 billion seven to revenues in the context of a component of that which as you know was 200 million year of TV revenues was supposed to be 116 here. This year. The reserves were taking at a very tough point in time.
Against that revenue stream I think speaks to the.
Scrupulous listeners of the underwriting.
Process.
And credit process here that the reserves as a as a percent are fairly.
Small.
Okay, but is there way to think about that dollar amount, though in terms of either like a quarterly or annual eyes numbers like for instance, if it could it didnt happen.
And now it is how much quarterly revenue has become on Correctible I guess after seven and a half million quarters that 75 million cover some other period of time and like the straight line right or some other number.
No there is no way to extrapolate it.
Can you give us the number just give it sounds like how much. It was it was seven seven and a half million dollars for the quarter, which is higher than we've ever recorded I don't know how to take that out beyond that no. We're going through the best we can and collection was going forward and there's no estimate.
For for future quarters, that's what you're asking for I mean, there's no. We don't estimate future losses, I mean, the idea and hopefully we'll have a future losses, but you know I mean, if there are always or some but.
Oh visible to US then that are now than we will update for the reserves, but at this moment seven the half is some substance or was there.
Book This quarter. The total is much larger I was just what we booked this quarter.
Okay got it thanks.
Thank you.
Okay, well for those that.
Hang in there arent have call.
Appreciate the questions.
And.
You know look forward to hopefully achieving a lot of the high bar, we've set for ourselves.
Over the next three to six months, leading up to our Investor call everyone have a great summer.
Under the circumstances.
Yes, as possible and have a same summer thanks.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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