Q1 2021 SL Green Realty Corp Earnings Call

Ladies and gentlemen, and this is the operator.

Today's conference is scheduled to begin momentum.

And until that time and lines will again be placed on music hold.

Mhm [music].

Thank you everybody for joining us and welcome to the F. L. Green Realty Corp, first quarter 2021 earnings results conference call.

This conference call is being recorded.

At this range of companies would like to remind listeners that during the call management may make forward looking statements.

Actual results may differ from any forward looking statements for management may make today.

And our information regarding the risks uncertainties and other factors that could cause such differences appear on the risk factors and and and a section of the company's latest form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission.

Also today during today's conference call. The company May discuss non-GAAP financial measures as defined by regulation G. Under the Securities Act.

GAAP financial measures and most directly comparable to each non-GAAP financial measures discussed on the back on.

Reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both of the company's website at www Dot S. L Green Dot com.

That's correct and the press release regarding the company's first quarter 2021 earnings.

And in our supplemental information and filed with our current reports on form 8-K relating to our first quarter 2021 earnings.

Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp. I ask for those of you participated in the Q&A portion of the call to please limit yourself to two questions per person.

Thank you I will now turn the call over to Marc Holliday. Please go ahead Marc.

Good afternoon, everyone and thank you for joining us today.

After a year defined by Lockdowns and closures and restrictions and New York City is now undergoing advanced reawakening businesses restaurants, and hotels are reopening and restrictions are being eased the leisure and hospitality industry is starting to bounce back as domestic tourism is increasing and Manhattan 100.

Thousand jobs have been regained over just the last three consecutive months during the first quarter of this year.

Leasing volumes for the period January through March were higher than any quarter since the outset of the pandemic. These are just some of the signs, indicating a robust and perhaps unprecedented recovery is underway.

The cycle of a sharp downturn, followed by large monetary stimulus followed by increased business activity and profitability and ultimately followed by increased demand for office space is a familiar one and one we believe will once again be played out during this recovery.

Just about every company, we've spoken with and our portfolio is making firm plans to have their workforces returned to the office sometime between June and September of this year.

Big New York City employers like Google, Bloomberg, Amazon and J P. Morgan.

Have reversed course and have set hard dates for return to work this summer or even sooner upon workers being vaccinated in certain cases.

Leading the way Mayor Deblasio was called back 80000, New York City government workers to city offices on May 3rd it's right around the corner.

With the goal of 5 million people vaccinated by June employers will have every expectation I've seen their employees back and action and working together.

While some employers will undoubtedly experiment with a hybrid workplace model, giving employees the option of working one or possibly two days a week from home I believe this will be at first limited and practice and over time will become even less and less prevalent.

I think we have a bright future for New York City office properties, because we have most important thing and that's a growing successful business space and a diversified economy.

Last year Wall Street firms made $51 billion. That's the second highest profit ever recorded since the data was first capped.

Over 30 years ago.

First quarter Big five bank profits were up 163% year over year, and the technology sector and New York is absolutely booming.

This rising momentum resulted in our leasing 178000 square feet. During the first three weeks and April bringing our year to date leasing results to 530000 square feet, putting us well on track to meet or exceed our one 3 million square foot goal for the year.

And <unk>.

And one Vanderbilt is front and center and these results.

I couldnt be more pleased with the way one Vanderbilt turned out it exceeded all expectations and it's just simply a wonderful addition to the east Midtown and to the New York City Skyline, a very special building that is resonating with tenants and establishing a blueprint for the future of sustainable development and New York.

City.

East Midtown needed this development and and sparking a wave of new development projects all throughout east Midtown and the number one business Submarket and New York City.

Earlier this morning on Squawk box I announced at 35000 square foot lease at one Vanderbilt that was signed last night at 10 30 P M to be exact and moments after.

I went off air we signed another 17000 square feet.

This morning, bringing total building occupancy at one Vanderbilt to 77%.

As we are trading paper on another six deals and it'll be a we expect to achieve 90% lease status by the end of the year, which is much faster than originally projected and higher than our goal for the year of 85 per cent.

The success, we are having with one Vanderbilt is an enormous endorsement for a development at one Madison, which we are now well underway with.

The one Madison project will be the only project and Midtown Midtown South.

Delivering in 2023 to offer the desirable combination of well designed park from new construction and.

Amenity package to rival one Vanderbilt and direct subway axis.

Project completion is scheduled for more than 30 months from now, but we nonetheless have good activity from tenants and the market who have shown significant interest in this new development.

We are about to experience the confluence of low interest rates.

Approximately $100 billion of federal stimulus, making its way to New York over the next 12 to 18 months.

Surging financial sector.

Significant business activity.

Upward swinging hiring trends and a gradual lifting of COVID-19 your restrictions.

That's a recipe for what could be a truly explosive recovery and New York City and SL Green is well positioned to meet the growing tenant demand and develop the future of New York City.

So with that we'd like to open it up for questions on the.

The quarterly release debt.

Debt, where you sent out last night.

Ladies and gentlemen to ask a question.

And one from your telephone keypad.

And so limit yourself to two questions.

Your first question today comes from the line.

Alexander Goldfarb with Piper Sandler.

And so just a question.

Oh, Hey, good afternoon.

And I guess Marc first.

On the because you mentioned that stimulus coming to the city.

One other big issues has been.

And accessories.

Folks for lower tax climates more regulatory friendly. So maybe you could just offer some of your own thoughts on how we should think about the $4 billion and tax increases and already past the fact that.

We're appealing the salt would be sort of a tough hurdle because it's really a tax giveaway for the for the 1% and then obviously there's potential that reimposition of the AMC would indicate that for the middle cl<expletive>. So how do you think about what's going on in the political scene versus your comments about employers trying to bring people back and how that plays as far as.

Now New York going forward.

Well.

Alex on a much more optimistic on the sold cap repeal.

It has bipartisan support.

Senator Schumer and Senate majority of it.

Schumer has.

I think made a very a big point about.

Needing to and wanting to repeal the sold cap not just for New York, but for.

All the states that were affected by what essentially is a double taxation.

Tom Swasey has the bill out there with.

A lot of support on both sides of the aisle and.

And.

Whether or not a M T as a part of that that's a separate question but.

The soul.

Cap.

Affected much more than 1%. This is not a one percentage this is.

This is a much wider swath of individuals' and predominantly blue states that are now subject to <unk>.

Double taxation and I think.

In accordance with what could be coming out of Washington, with some potential increases for taxes I do think as sold cap.

Repeal.

And is on the table and I think would go a long way towards mitigating.

Some of the tax increase that was just p<expletive>ed so.

Nobody wants and tax increase I mean, that's for sure.

But you know.

I do think that notwithstanding.

Net tax increase New York.

And we'll have to just step up even more in providing.

Reasons for people to you know be and whats considered I think still one of the most dynamic and diversified.

Places to live and work and.

And regardless of my particular feelings on the matter.

Condo sales and March where.

For.

And very very high levels, we see occupancy gains and multifamily we see commercial leasing gains as I mentioned earlier.

And we just see a general comeback and New York So.

The tax increases are.

Unfortunate because they are regressive and a progressive.

But I think there and hopefully as a effort underway and Washington to bring some level of equity and fairness.

To those that.

Our NAV subject to double taxation, which as you know like I said, a lot more than one per cent of the of the populace and that's what we're all hoping for it.

Okay, and then second question and I don't know if you want this or garage and wants it but for this morning on Squawk, you mentioned the rent spreads and that the premium buildings are holding up and obviously that's been degradation on the older stock just sort of curious.

You know what that spread is and if your view is and maybe a steep towards prospective tenants that we're going to see a bigger shift and the rent levels between the newer modern buildings that are more efficient versus the older ones and how that may play out.

Well you know what.

Marc said this morning, I think holds true, which is that and our commodity product you've seen.

Face rents dropped somewhere between 5% to 10%, but and the better quality buildings to highly redeveloped or new construction buildings.

Face rents have held and.

And if you use one vanderbilt as the barometer of that.

As we were rapidly leasing up we're actually pushing rents and this building.

There's clearly been a.

Large shift and tenant demand towards the better quality product and that doesn't just new construction and it means.

Better quality products at all price points, and we see it throughout the portfolio. So whether it's one Vanderbilt Avenue, because if it's a particularly unique <expletive>et.

That.

Checks all the boxes for what people aspire to and a modern workplace or in our better quality buildings like 100 Park Avenue or for 61 fifth or attendees from third Street.

We've got good leasing traction and those buildings and.

And you know more of the commodity buildings.

For those owners that haven't invested and their buildings, which are really not you couldnt and say that about anything our portfolio, but for those owners and the marketplace that haven't invested and haven't been a forward thinking the other ones that are going to suffer.

Okay. Thanks, Steve.

Your next question comes from the line of Michael Little bit True Securities. Please proceed with your question.

Great. Thank you.

You talked about reasons for optimism on the demand side I wanted to ask a question about supply and.

New York had always been a barrier to entry market, you've got a great chart in your Investor presentation show and how the net new supply and New York City Hasnt grown for for many years.

But now you know as we kind of entered the age of Hudson yards, you built one Vanderbilt and now it seems like there's this new wave of to meet that high and demand Youre talking about now will be talking about the Penn District.

I'll be talking about towers on 11th Avenue I saw the Grand Hyatt now has a plan for a potential super tall skyscraper.

How do you kind of think about that high and demand that you just talked about versus the supply that seems to be coming.

To meet it.

Well first I think.

What youre seeing is a number of projects now being announced in the east Midtown area, where the pendulum sort of swing back.

To Midtown where there was a lot of leasing.

Velocity in the first quarter relative to almost every other.

Commercial sub market and.

I think that's very healthy I mean, you're talking about a project like <unk>.

The Grand Hyatt that project, I think and that sort of a best case deliveries and seven years and possibly more so the optimism I Express.

And my opening comment commentary really is reflective of my outlook over the next.

12 months 12 to 18 months for the most part.

And which I don't think theres any new construction being delivered in Midtown east, but I'm I'm just looking around the room here is there any so I would say at least through 'twenty two nothing in 'twenty three you'll have one Madison, which is the point I was trying to make and the opening commentary is that will be one of the only new construction projects in.

And.

2023 for delivery in Midtown Midtown south of any scale and.

No.

Projects like Grand Hyatt.

Like some of the other.

More recently announced projects on the West side, I think youre looking at six seven years, plus so I don't want to diminish the importance of that because inventories inventory, but you've heard me say before I'm not against growth.

I think growth and regeneration of the commercial stock.

As a good thing because it gives tenants options those that want to pay more for state of the art.

Office, and those that want to be and the value part of the of the.

Of the spectrum, but.

These are all market rate deals Theres no government subsidy like you had with Hudson yards. So that again, all we ever ask for it is that it would be a fair a fair competition for.

For tenants because subsidy is what distorts that and.

And.

On a on a fair playing field, we feel that one Vanderbilt one Madison and.

Some of the other developments we have currently underway are both timely because their near term because we went forward in 2019 and 2020 very difficult time, but we went forward to make sure that we'll be able to deliver this product.

At a time when we think we will have.

Good demand and not a lot of competition so.

That's how.

And that's sort of the basis for our near term outlook.

Balance sheet balance supply against private sector job growth and office using growth, which pre pandemic. There was office use and growth to absorb all the new supply and then some and we expect as that growth returns and there'll be a need for more office inventory.

Alright, Thanks, and then my second question is about.

I guess net effective rents and what it takes to get deals done and the current environment.

And I think the deals you signed this quarter seven months free.

$60 and capital is about it's roughly a year of rack and that sign.

Deals with an average term of little less than six years.

How should we look at that and.

Signing deals now versus in the apartment sector. I think we have seen some people try to take inventory off the market and try to wait this out a little bit what are your thoughts on kind of the deals that are getting done now and the pricing and how that might look six months for nine months from now.

Well I think as we sit here today.

Sure.

I'm a strong believer, we're strong believers that the.

Market has stabilized as far as where.

Net effective Saar.

The concessions were not seeing is increasing their brutal right now they're at a historic high and as far as the amount of concessions go but I think over the past 90 days, they've clearly stabilized and we're not doing more ti or more free rent for new tenants coming into the market.

As opposed to renewals.

And then we were doing.

At the depths of the pandemic so.

I think I think we've seen the worst of the of the rents erosion and I think at this point, we're bumping along the bottom and waiting for for a turn back up with regards to holding space off the market. That's never been our philosophy and the 20 something years that we've been a public company. We're strong believers and we are a large portfolio.

We keep the portfolio for we meet the market.

As necessary.

And if that gives up a little bit of opportunity.

Short term, we'll catch it on the next wave because we've got plenty of wells.

Well staged explorations, we don't suffer any one year, where all of our space. It comes back to us on exploration.

We were very careful stewards about how we manage our lease expiration so that and every single year, we try and make it as even as possible or as level as possible so that.

If theres enough tick and rents, we'll ride that wave when it when it gets here.

Okay. Thank you.

Your next question comes from the line of John Kim with BMO capital on that.

Thank you for your question.

Thank you and good afternoon, I had a question on the permanent financing and one Vanderbilt which is.

Reportedly imminent and I know you.

You mentioned, it a little bit and your press release yesterday, but can you comment on the use of proceeds of the capital being returned back to SL Green.

And also how does the bank lenders view the loan to value of the financing.

The second part.

We're targeting around a 60% loan to value loan.

The final structure and proceeds and alone on the outset.

The real deal article this morning was inaccurate in many respects.

And.

In terms of use of proceeds use of proceeds it's Matt that'll be for other debt repayment. So we will we had bonds maturing over the summer we have revolver balance.

We'll take out existing debt with the proceeds from the new debt on one Vanderbilt and.

And we hope to have that closed in the we're targeting the second quarter.

On that revolver balance and that you drew down $520 million on it this quarter, which.

Didn't seem like it was necessary given the cash balance you already you already had can you just provide some color on that.

Yes, the biggest component of that as we unencumbered and 85 third Avenue, it's about a $300 million mortgage.

Okay.

Thank you.

Yeah.

Your next question comes from the line of Steve.

Evercore ISI. Please proceed with your question.

Yes, thanks, and good afternoon.

And maybe Steve could you touch on the leasing pipeline and.

How it has kind of changed over the last couple of months and maybe the composition of tenants and what youre seeing in terms of expansions any contractions.

Stay in the same space configuration.

Sure.

Right now, it's a pretty diversified group of tenants that we're dealing with.

I'd say, if it's <unk>.

Heavy and one sector its a financial services.

It seems to be particularly.

And active but more activity than we've seen and prior couple of quarters from a law insurance.

We've got a couple of sizable deals with tech tenants.

So kind of a broad swath of tenants.

But not so dissimilar if we'd had this conversation three to six months ago, where we don't see a lot of activity.

Is media.

Type business advertising firms and media businesses, Theres still kind of on the sidelines, but I think most of the other businesses that we historically have dealt with there back in the market and sell.

Some of them are clearly expanding the financial service guys, the hedge funds and private equity guys clearly expanding.

The law firms that were dealing with some of our expanding somewhere consolidating locations and.

And.

And Theres a good there's a good chunk of tenants that are relocations and new.

New tenants coming into the portfolio and I think how theyre going to use their space. Its a great question that everybody else is.

Covid really change the way people are using this space and.

On the short answer is not so much.

The programming more square footage per employee their programming more amenity more meeting space and greater diversity on size of meeting rooms.

Our flexible but.

I don't see those as.

As Earth shattering changes.

So I think ultimately if you talk to these people about what they're planning and the long term ultimately everybody will still be and a fairly dense world, although not nearly as <unk> as we were pre COVID-19 and.

And we will still be on an open plan and work environment and I think that's here to stay.

And sorry, do you just have the size of the pipeline today versus maybe three months ago, just to help kind of frame it out.

And we're at 760000 square feet of pipeline comprised of 270000 square feet or 220000 square feet of leases out and some form of negotiation and and another 525000 square feet of term sheets that we think have a good chance of.

Converting over to lease.

Great and then maybe Marc just on kind of dispositions I know you've talked about $1 billion goal and.

And likely maybe exceeding that can you just talk about your plans for disposition the rest of the year and the share buyback program.

Well we have.

I'd say, we have a pretty.

Ambitious.

Program ahead of us.

I think it was pretty well documented back in December and.

As we sit here in.

April having done some exploration investigation free marketing.

We think we're going to get a lot of stuff done and we just announced those two residential deals.

We just closed a tower 46, obviously at the end of December we had that big sale. It for 10, 10th and.

And there is a couple of.

Sizable joint venture <unk>.

<unk>, we're looking at so not everything is going to be in the form of.

And <expletive>et disposition, we have certain <expletive>ets that we feel have long term upside and.

Warrant more of a JV execution and there are some that youll see will bring to market for.

For harvesting so.

<unk>.

We're still we're good with the number will probably exceed that number for sure.

And Mac and respond to the share repurchase question, yes.

Hey.

On the heels of what what Marc said about testing the market and getting a feel for for the market and and putting some <expletive>ets out maybe more than we originally anticipated.

And we're now looking at a.

Targeting debt repayment for some of the proceeds from those <expletive>et sales along with the share repurchase program. We did 100 million of share repurchases and the first quarter.

A lot of these sales that we have teed up will close and the latter half of the year. So you would see the volume of buybacks coincide with that but we're balancing any additions to the pipeline of dispositions.

Allocating those proceeds and debt repayment as well.

Got it thanks.

Your next question comes from the line of one question.

Please proceed with your question.

Hey, everyone.

Talks about the split between the higher.

Cl<expletive>, a <expletive>ets and and maybe some of the older.

Lots high cl<expletive> stuff, what do you think happens with the debt cl<expletive>.

Cl<expletive> C are cl<expletive> B product is that conversions like we've seen in the past is it.

Those owners do step it up and put in the capital and make it look more like an <unk> or somewhere in between.

Boy that's a.

And I think it's primarily affordable and product I mean, you do have a lot of businesses and New York for can't afford.

Hi, and cl<expletive> a product so it becomes affordable rent or it may get repurposed and converted.

Other uses but.

And I think for the most part it's going to stay as affordable and problems.

Those orders will.

They will still suffer on execution and they just won't get the same rents by comparison to the better located better better capitalized landlords that have repositioned their product.

It's Michael Bilerman.

Marc or Andrew.

On that just in terms of Oh, VA with the refinancing.

What is the potential for your partner.

On to perhaps uses excess proceeds to buy more of the project from an equity perspective, so low.

Lowering your stake from 70 down to 50 or something below and then can you also just remind us of the math around being Marc and Andrew sort of profit participation in two and half to 3% and whether that gets triggered at all now that you're going to be the permanent financing closer to stabilization and do you have to start recording net liability.

On SL Green's balance sheet.

Well, we'll let Matt take the second question.

Work in reverse order there is nothing that would trigger putting anything on the balance sheet related to market Andrews and investment.

Triggered by the refinancing.

And recall, we paid for those interest we own our interest and.

And when the project starts to cash flow and the capital has been returned.

We have our sort of pro rata interest alongside the REIT and those but.

So that just just as a reminder, on how that works.

The other questions.

Buying us all on recap our purchasing a portion of our interest.

It's too early I mean, we're not we're not marketing any of our 71% at this time.

It's on our goals and objectives for the year to evaluate and the future, but the goal is to close the most efficient.

And most secure in terms of tenure put away financing as possible and the next 45 days or so.

In terms of.

Our strategy for selling down interest and the future if we want to.

I think it would be sure the existing.

Partner.

And concept.

Could do it might have an appetite for it but I also think it would be one of the most liquid <expletive>ets of any <expletive>et and New York City. So.

I think the source of the money and the identity investors.

Secondary to a strategic decision by us.

Whether to hold the existing position or sell down further.

Also recall our partner on one Vanderbilt did.

Become our partner on one Madison, who mentioned yeah, that's right.

Net of anticipated getting proceeds they were obviously pleased with how this deal weren't pleased enough to be a significant part of the next deal. So.

Okay, and then Andrew can you just clarify just in terms of the new financing on and obviously, it's a substantial part of your initial construction cost and you just talked about a 60% LTV, which I guess at a $2 three five would put at about 4 billion I know you've been talking about a value low VA of like.

For for to almost $5 billion at the most recent Investor day based on that 2025, NOI stream and applied cap rate. So.

I know theres lender values or your own values, but I'm, just trying to get a perspective of.

The underwriting of this loan to the NOI streams and.

And leverage levels.

Michael It's Matt so.

I'll talk more about the financing when we get it on the next 45 days I will say Andrew made the point earlier. There is press out there that is inaccurate just to be clear as to where we stand we did forward starting swaps totaling $2 $2 5 billion.

And anticipation of financing that is in excess of that we haven't said what the proceeds level will be their various rumors out there about what it is it will be 60% financing at whatever the number is and when that do and Thats finalized and announced will discuss it in more detail.

Okay. Thanks Pat.

Yes.

Ladies and gentlemen, just a reminder that limit yourself to two questions.

Your next question comes from the line of credit.

Thank you from Jefferies.

Hey, guys.

Could you just give a little bit of color on on what tenant was behind the lease term fee this quarter.

It was retail location and AT&T location at $5, 95th Avenue property and we just acquired recently.

Okay.

And then Ah.

Just an update on you guys gave when most tenants are coming back, but just has the utilization and your buildings picked up at all as people have been getting vacs vaccinated or where does that stand currently.

I think the.

And the return to office I don't think is going to be.

Random or in a haphazard format and the companies we're speaking to.

Which really drive the bigger companies that drive the population within our portfolio.

And are very forward looking in terms of what their protocols are going to be for return to office.

The earliest we're hearing.

From anybody at the moment is May June and with what I would say a.

Vast majority by September.

So I think that the relevant time period to look at those.

Stats.

Are going to be between June and September as you'll see it start ramping up.

April I don't think.

We've had some uptick but not material and.

It wasn't planned I mean, we've.

Assume we're in dialog with every tenant we surveyed our tenants we have schedules of what tenants are telling us when they're moving in and I think they are on track with their plans.

But.

Most of those plans are not for and April return.

Okay, great. Thank you.

Your next question comes from the line of Jamie.

With Bank of America. Please proceed with your question.

Great. Thank you and good afternoon.

So I wanted to focus on the debt and preferred equity book and just any kind of distressed opportunities you guys might be seeing and the market. Today. So can you talk about.

And maybe the health of the book or do you do you expect to see to get any <expletive>ets back anytime soon.

And then how are you thinking about distressed buying here.

And with.

And David why don't you.

Yes, and I think we haven't taken any credit marks recently against that I think we're very comfortable with the <expletive>ets we have.

And where they're marked there may be and opportunity to I would say.

Accretively taken and one or two of the <expletive>ets.

But there's nothing that we're seeing out there that's real distress and our own book.

I think likewise, there are few opportunities out there I think a lot of distress out there is mostly in the hotel sector. I think office has held up you've seen with our portfolio of rents have been paid and collected retail has obviously had a little bit of distress, but a lot of other guys who've made made it through kind of the toughest part are now being positive and seeing accounts.

The upswing.

And a lot of other lenders have worked with them. So new York's a very strong institutional market with good sponsorship and.

There arent usually tons of distress I think we've done well finding there's one or two <expletive>ets out there, which we continue to look for.

Alright, Thank you and.

And then we have a narrow election coming up.

Just curious to get your thoughts on kind of what you think are the most important initiatives.

For <unk> for the next candidate and the next day air to kind of get right for New York City.

Well, we hate the most is probably 10, most important initiatives but.

I think you'd have universal agreement amongst many debt addressing.

Homelessness and vagrancy.

And quality of life issues, which.

Degraded somewhat during the pandemic in part and large part because.

The streets were in full and the m<expletive> transit nodes when were in full and I think a lot of that will be self correcting when when people are back and everything is back up to 100% utilization and.

And there is life on the street, not just on weekends or not during the day, but at all hours of the day.

Think that has a tendency to be.

To deal with that issue along with <unk>.

Tremendous amount of effort now.

City is starting to put behind.

And.

More.

No.

Ambitious efforts to get things cleaned up and get things put on the right track so that the city at large Ken.

Can feel.

Safe and good about.

Being out at a day and night and work in and commuting.

Think for and incoming mayoral candidate I think that's the number one.

The issue on my mind because.

That's what everybody wants whether you're a business owner tenant and landlord.

For resident.

Commuter I mean, everybody.

Wants to feel safe at all times I think its imminently achievable I think the NYPD is.

Still considered.

The best security for Us and the country and.

And for it for any municipality curve for any police force and I think that.

They've gone through a lot of changes and.

And our Reformation, and we have to get back to a point, where there is a balance.

Between.

Keeping.

Everyone safe secure and.

And also making sure that.

People are and and.

Duly infringed on the other side so.

And hopefully the next Mary will have a solution to working with the police force to make that happen.

Alright, thank you.

Your next question comes from the line of Derek and Sean.

Thanks, Paul.

Please proceed with your question.

Hi, Hi, everybody. Thank you.

Do you expect lease termination income for the rest of the year to dry up and given that first quarter's 10, and a half million dollars.

Surp<expletive>ed full year 'twenty, one guidance of seven point for and I guess, secondly, like what changed that drove the ramp and first quarter.

Versus the December expectation and guidance.

So when we come out with guidance every year, we basically just look at historical trends and lease termination income and <unk> and put a number and there the historical trend has been $7 million to $8 million a year, we have no visibility into that for the year.

And sometimes we exceeded and oftentimes we've come in below it.

We did not have visibility into this termination.

That happened and the first quarter when we put out guidance in December it does exceed our full year number by $3 million, but theres no way to tell what the remaining nine months looks like as of now we don't have anything and the pipeline. So it could be zero, but there could be somebody comes and next week and wants to pay us to get out.

Somewhere else so.

It doesn't cause us to rethink guidance levels or anything like that its only $3 million and we'll have to see how the rest of year plays out.

Okay no. Thank you that's fair and.

And I look at on Phase 350000 square feet of leasing looks looks pretty strong, especially emerging from the pandemic I'm actually going to say it is strong.

And someone else on the call mentioned, starting rents of just $57 16, So I kind of went back and looked at it I mean this is the weakest since for Q <unk> and then the Pis and the free rent incentive packages.

These are are the highest and they've been since we've been keeping track. So I guess do you guys expect these levels of concessions and low rent to kind of remain in order to achieve the lease volume guidance you gave in December.

Well, let's let's just one other thing you left off.

And good observation, which is first quarter was strong the start of the second quarter has been blistering 178000 square feet signed and the first three weeks I think is one of our strongest quarters and quite a while.

And then when you look at the low.

The rents and the concessions.

You really need to break it apart because.

On a renewal product we've done a bunch of deals that have been net effective fields.

So the rents were kept low or they were netted down by concessions.

But then on the other hand, if you look at deals and our higher price point buildings, one Vanderbilt in particular, where the rents range between and.

Anywhere between 135 for 220, plus dollars a square foot.

You would expect the concessions to be disproportionately high relative to give us given the high level of rents that we're achieving and the building.

I think we'd have to do to.

Properly answered the question, we'd really have to slice and dice the portfolio for you to say what are we doing on renewals what are we doing on commodity buildings. What are we doing on the high price point.

Where a lot of our recent leasing has been done, particularly at one Vanderbilt with big rents and appropriate concession packages.

And it can skew the numbers that you see and any particular quarter.

And Im just and Im just going to add to what Steve said, so $57 is not on the full $3 50 that was done and Thats just on the mark to market leasing, which is only a 180000 of the three.

On the full 350 330 of that.

Is that a $65 rent.

And the other the remainder is at one Vanderbilt, which is excluded from the number and it's in the range and Steve was talking about well into sales.

Just wanted to repeat that and that's an important and forget about mark to market has its own.

World of subcategory of the leasing, but if we're talking about 300 and include one Vanderbilt if we're talking about 350000 square feet of leasing which was the question what was the blended rent on that $3 50, youre going to be around 70 Bucks a foot 70 bucks. So so I think I think what you have there is just a little bit of a.

And.

Mixing and matching apples and oranges and that's what I was looking.

And for apples and oranges, where youre looking at the rent on a subset of the $3 50, and not the entire through 50 and Boyd you stood me up because I was saying Wow I didn't realize it.

We've got low either so I had Matt pull it.

Looks like that actually the blend on that $3 50 was 70 Bucks and Thats im not saying that thats.

No.

Your question remains what's that trend and and where it's headed and everything but I don't want to leave the call with the impression that our average rent for the quarter was $57.

Thank you very very helpful.

<unk>.

Your next question comes from the line of with some momentum with Morgan Stanley.

Good day.

Afternoon, Thanks for taking the questions.

Maybe just first one you talked a lot about obviously the one Vanderbilt one Vanderbilt leasing has gone well and 90% target can you remind us what the gap is the full contribution is for this year and how should we what we should anticipate for the next I think it was about $30 million. This year, if I'm not wrong, but if you can give us more color on that that'd be really helpful. Giving you.

You're 90% target.

Yes, just barely one secondly, I know the GAAP NOI our share for one Vanderbilt was about $7 million for the first quarter.

And I think your recollection is about right about $30 million.

Thereabouts for the for the full year on a GAAP basis, obviously on a cash basis, it's going to be significantly lower it was negative for the first quarter because a lot of other tenants are in free rent periods when they move in.

And the leases, we're executing now won't even be and occupancy until into 2022.

So then given your comment on 'twenty due to the GAAP contribution.

More than double.

I'm and I'm going to stay away from 'twenty two numbers until sometime in December as is typical but it is a substantial increase yes.

Okay.

And then just.

I know.

Somewhere on the call and that was referenced that there are a few distressed opportunities maybe that pertain to the D. P E book, but.

Given your bullish commentary over and over the next call it 18 months and longer term.

Kind of wondering how you think about it.

Opportunities acquisition opportunities for the more call it value add or troubled <expletive>et given their they are few but isn't there and just a short window before fundamentals really turned according to you.

And so on.

I'm just sort of wondering is there an opportunity for you to deploy more capital get more aggressive given where we are and the cycle.

Well, there's a couple of.

And a couple of ways to answer that first.

We did acquire I guess within the past six months the lipstick building.

That was something that came through our <unk> book.

The prior ownership and lenders to that ownership.

Unfortunately.

There was hundreds and hundreds of millions and subordinate equity debt and you remember how much.

Off top my head on with a couple of hundred million a few hundred million dollars of subordinate equity that we were senior to and have now taken possession of that <expletive>et.

Which I think is one of the.

And more notable and attractive <expletive>ets we're at it.

Correct.

Basis, we're comfortable with we're executing a significant.

Upgrade and repositioning of that <expletive>et, which I don't think its been undertaken since it was built and the eighties.

And.

And where I look at that is.

As an addition to the portfolio coming out of this period of time.

For sure that's one too I would say one of the biggest opportunities, which we invest heavily and as our own stock.

And that generally tends to be more attractive than almost anything that we come across not always but just usually and we did I think.

Millions and a half this is about $100 million $100 million worth 100 million dollars' worth and the first quarter you.

You might see those are projections, where that for the full year closer to.

Our goal for the year, yet for hundreds so that obviously leaves quite a bit.

More to do <expletive>uming we stick with that plan.

Which for the moment, we are on that plan and that's how we're going to deploy a lot of the net proceeds which we spoke about earlier.

And there are new opportunities on top of that the most compelling of which we think is new development.

Given my commentary earlier about the rent premiums if you will for the best <expletive>ets and the best locations.

At this moment and frankly for the past two years, we view development as a better approach than buying and repositioning existing generally unless it's like just a world cl<expletive> <expletive>et like it looks like.

On.

And that is something.

Where we still believe deeply and so new development, our own stock and kind of rifle shot opportunities like.

Like lipstick.

Our ways in which we are taking advantage of this market.

Great. Thanks, so much just one more if I could quickly clarify you did a big street retail leave it. So it's one of the probably the larger leads and thats seen in a while.

How did that deal come about and maybe you could clarify roughly at grade what was the first footprint.

Well.

It's 5000 feet at grade.

There were actually two tenants competing for the space.

The space is all currently occupied by.

On a furniture store and another retailer and this was leased and advance of their expirations.

<unk> Green is on the best block and Soho.

Both really for retail and for office.

And then there was the space is still very desirable so.

I think.

It was a very successful execution.

We got very good security package, and it's a great luxury tenant for the block. So we were pleased to get it done.

Thanks, so much.

Yeah.

Your next question comes from the line of Peter.

Net Jefferies.

Thank you for your question.

Yes. Thank you.

Just wanted to ask you about lease negotiations for some some anecdotal evidence about.

And just needing to be more flexible and working with tenants. So what are tenants looking for I guess in terms of lease flexibility whether it's offshore.

Options too.

Decided how much space they take.

Partway through the lease or possible termination options midway through the lease.

Any color you can give on that would be helpful. Sure.

I don't think it's a.

What we're what we're seeing is what we always see when theres, a big disruption and the market and we feel that they've got.

From.

From added beverage and a competitive environment, which is they want as much flexibility and so they can get and that generally I would say.

From our from what we're experiencing right now is mostly about growth.

And our tenants are coming and saying they want right of first offer.

Positions or they want fixed date.

<unk> and options.

And some cases slightly shorter terms, but I don't want and I don't want to.

Be misleading on that.

And that's I'd say.

In some cases, we're writing plenty of deals right now that are 15, and 20 years and duration, but.

Flexibility is mostly what they talk about and and the world of flexibility I would say, it's more oriented towards growth as opposed to termination options not to say that they don't look for Reits to shed part of their space midterm or cancel but.

Three out of for tenants are.

Fight very hard to make sure they have a clear path for future expansion.

Okay.

Okay. Thanks, Steve and then one more just kind of a macro question.

You know I guess and the lifecycle and kind of lead up.

Before the pandemic.

A lot of office using job growth and the city and a lot of other net absorption as well as kind of driven by the tech sector, even though it's.

Still compared to some other markets not a huge part of the market.

Just curious what's kind of your outlook.

For office using job growth anything about the pandemic.

On the other side of it that kind of changes those dynamics over the next few years.

Okay.

It's Matt so.

Marc said in his opening comments, we said it back in January and its been reiterated office using job growth is expected in the city is expected to return to pre pandemic levels, meaning all the jobs that were lost or regained by the end of 2021.

The job growth has accelerated from January into February into March.

Technology as part of that private sector job growth is 100000 jobs and office using jobs.

As accelerated from the $20 and mid Twenty's. So.

That is why we feel confident about the return of demand for office space is because we are seeing it's not a projection and what we are seeing the return of office using jobs. There were about 156000 and office jobs lost about 30% of those have been regained through March I expect APE.

So we will we will continue that trend.

The city believes and we have no reason to doubt.

Debt.

All of those jobs will be returned by year end.

And if not it seems like it would be early 2022 in any case. So the bottom line is we should be back hopefully to what.

And prior pandemic levels were about $1 5 million office using jobs and I would think sometime end of 'twenty, one and 22, we'll be back to those levels and then hopefully growing from there.

Ideas and just to get back the idea is to get back and exceed like we have and prior downturns and.

And we think that.

The environment is right for that to happen for all the reasons, we laid out early on.

Got it thank you.

Got it.

Your next question comes from the line of.

Nick.

With Scotiabank. Please proceed with your thanks I just wanted to go back to this topic of work from home and the hybrid work Force and Marc you said that you thought employers will experiment with Highbridge.

And the Romanian and practice at first and then and less prevalent but I.

And you clearly have a view that even before talking about office using jobs coming back and somehow those jobs are still going to be.

Taking up the same amount of office space and the city and I guess I'm wondering why you think that's the case, even pre COVID-19. There were firms that were already talking about changing their work.

Workplace and terms of making it more flexible and reducing real estate.

Footprints and even during the pandemic, we have seen some examples of firms who are starting to move to on <expletive>igned seating because there are other view that employees are not going to be back and the office five days a week so.

May have more space per desk, but youre not going to have more space per employee because employees may share guess, so I guess I'm wondering with those factors being and play here maybe it's not every company is going to do that what is what is your insight here about that not being a problem because and.

Implicitly youre, saying its not going to be a problem I guess.

I don't think it is who telling or hot seats, whatever you want to call. It. This is not a new concept. This is a concept that's been around for years and years and years.

There is like nothing I know people look at this and say Oh My God Covid.

That's the plan I mean, yes, I mean, it's got a new name hybrid I mean, who cares about the new name it's called whatever it's called it's called you have a ratio of more than one employee per seat.

Firms managed to one one <unk> to $1 two.

Bigger firms tend to utilize what I call hot seating, but you can call. It anything you want.

More than others.

So my comments about.

The future is incremental to what existed pre pandemic because I look at that as kind of the established baseline and the question. In my mind is do I think COVID-19 is going to greatly increase debt ratio and.

And I don't think it will be because.

<unk> of the firms debt.

And that I've spoken with are talking about the kind of flexibility that might allow for up to one or two days.

<unk>.

Of work from home and that's at most for most of the big firms.

When do you when you're only.

Doing that kind of rotation once or twice a week you really cant downsize.

On the.

On the desk count to seat count that efficiently in order to really down so and you got to go to wait for a five day a week from work from home and.

Then you can obviously get tremendous efficiency, but the moment somebody's in the office for days of week and their home one day a week, that's their desk and they're not hot seeding that desk because the math doesn't work. If you have five people coming forward. He has a week and they are taking random one day, a week off and you can't plan for that one day it.

Becomes a very complicated.

Set to manage so.

Part of it is I don't think its as easy as it sounds to make that work because when people are there 80% of the time they are being the office they knew they needed they need it wherever it is a desk a cubicle workspace or an office.

And so on the leasing that we've done since Covid and I guess, we've done since COVID-19.

Almost almost 2 million feet right. We did 1.3 last year and 500 this year, so $1 8 million square feet.

Have not seen the kind of.

Reductions that I read about.

And a lot of these leases were signing right now are 10 15 year leases so people.

People are thinking about it and I think people will will do it not so much from a management of real estate, but more from a.

And consideration.

The work force.

As something that.

Contributes towards.

There is some form of live work balance the only problem is as I see and this is my own personal opinion is that live work balance comes at a cost of productivity and efficiency I mean God knows we could not have done anything close to what we've accomplished over the last 18 months. If we were work from home, there's just no way I mean.

Maybe some firms can we couldnt.

It's impossible, knowing just how much we get done as a group and I think that when I speak to the business leaders. They all sort of acknowledged yet and we're out of our best when we're together so.

It's not.

And optimal situation its more of a concession I would say where businesses are considering.

Working let's call it hybrid work force into place, but I, just don't see it yet as a trend that's resulting in.

Significant downsizing of space and as you mentioned there is the offsetting concern that the package together.

<unk>.

Of workers is Theres a day densification that is definitely working into floor plans. It's very arithmetic a five foot work station is now six foot six foot is 7% and seven is eight and those are big changes.

When you go from just adding a foot or two to a workstation that dramatically changes the density of our floor, especially and open planned for and we are that I am seeing a lot of de Densification. We're also seeing a lot of more amenities Asian of space, which works its way into.

The total.

Square footage per per worker.

When you're working more amended into space. So.

And I don't want to.

I don't want I don't want to dismiss the concept that no because of Covid.

There will be firms that will experiment with work from home, but that's a different statement than what I think that's going to do to the real estate footprint.

Okay. That's helpful. Thank you Marc I guess, just a follow up on that and as you look at <unk> and <unk>.

Any cases, it feels like firms or just kind of waiting until they have to make a decision on this and.

And that's when our lease renewals coming off for they are planning to move and that you plan to expand right and we.

Just think about your portfolio on the lease expirations that are coming up this year and next couple of quarters.

And.

Is that is that when you're starting to learn about this impact meaning that you know in many cases, we don't really know how tenants are gonna behavior, just kind of learning about this impact and the renewals are coming up and.

How is that are you gaining any new insights.

As this process is going along well.

Well I don't think.

And I don't think we have to wait around for for future explorations to understand what tenants are doing we've done a lot of leasing over the past.

Period through the pandemic period, and certainly into the first four months of this year. So we have a very good sense as to what.

What they are and are not doing and I think we've said it a couple of times on this call, which is tenants are providing a little more space to providing more amenities they're providing.

A little more flexibility to their employees, but.

You know the headline examples that I think you may be focusing on when you talk about.

Gigantic firms that incorporates a more flexible or hybrid work environment into their into their into their world.

Not necessarily the the rule of thumb for everybody. If you look around Manhattan, and you see businesses that are 1000 square feet or 25000 square feet those tenants, probably arent thinking anything in terms of.

Hot desking or for.

Or.

Anything that impacts their real estate decision.

And those People's mindset hybrids simply means and I work some of the time mobile I worked for some of the time and my office and at the other day I just worry a whole lot more because I have the flexibility to do so whether that's at home or in the office or at the Starbucks Cafe and I think you know.

From a manager's perspective, allowing their employees that latitude that's really the core shift of what we're seeing.

Employers talk about where they don't get all bent on the ship because they are employees.

Day from home as opposed to five days and the office and I think you've got to sort of <unk>.

Bifurcate between.

Guys. It really true hot do true Hot Desking, and and the majority of the world that really don't just provide a little more flexibility and Andrew you want to add to that.

And Steve.

Yes.

Alright, Thank you everyone and appreciate it.

Okay.

Well, thank you everyone.

For calling in and.

Yes.

The great thing is we're back and three months and we will be able to share with your results, which obviously, we have a fair degree of confidence in and we think we're going to have a good second quarter off to a great start and.

And we hope to carry that momentum through June into July and look forward to speaking with you then.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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