Q3 2023 SL Green Realty Corp Earnings Call
[music].
Thank you everybody for joining us and welcome to SL Green Realty Corp's third quarter 2023 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 you should not rely on forward looking statements as predictions of future events as actual results and events may differ from any forward looking statements that management may make today all forward looking statements.
Made by management on this call are based on their assumptions and beliefs as of today additional information regarding the risks uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and M. D E sections of the company's latest Form 10-K and other subsequent route.
<unk> 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 regulation G. Under the Securities Act.
The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed.
The Richemont Sealy Asian 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 SL Green Dot com by selecting the press release regarding the company's third quarter 2023 earnings and in our supplemental information.
And our current report on form 8-K relating to our third quarter 2023 earnings.
Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp.
I ask that those of you participating in the Q&A portion of the call to please limit your questions to two per person.
I will now turn the call over to Marc Holliday. Please go ahead Marc.
Okay. Thank you good afternoon, everyone.
We're obviously holding this call at a moment of great global stress, but we will do our best today to focus in on the company's third quarter performance and what we're seeing in the market.
While the current market remains challenging we did have a number of very positive developments and milestones.
Summarized for you right now.
Cause they were hard for it and we're proud of them first we celebrated the completion of one Madison Avenue with the receipt of our temporary certificate of occupancy marking the completion of the building construction three months ahead of schedule and well under budget importantly, this milestone triggered the final 577 million.
Equity payments from our joint venture partners, which we are already received and used to repay an equivalent amount of unsecured debt.
Earlier this month, we launch sales of 760 Madison Avenue, the beautifully designed and executed Georgia or Monty residences with half of the 10 units are already spoken for and negotiations pending on additional units. We have also substantially completed euro money retail store and restaurants and are in the process of turning the space.
Two our money to commence the lease.
Building off our positive experience in sales momentum at 760 Madison I'm now happy to report that we have successfully acquired the fee interest in 625 Madison Avenue through a UCC foreclosure of our mezzanine loan and we are now in control of the fee all litigation with the previous owner had been resolved and we're fine.
Analyzing our business plan, which we intend to unveil in December with JV partners. We closed on two extremely well executed loan extensions at 719 Seventh Avenue and 115 Spring Street, bringing our total refinancings of extensions and modifications to $3 2 billion.
For the year, reducing our combined debt by $1 billion and additional extensions and Paydowns are planned for the near future.
And yesterday, we announced the sale of our interests alongside our partners and $21 66 Street for a gross total value of $40 million demonstrating the resiliency of demand for upper Madison Avenue boutique and retail properties, perhaps and most significantly for the first time in the last 16.
Quarters, you Gotta go all the way back to December of 2019, I can report that same store occupancy trended up in this past quarter with projections of a slow but steady climb that should continue into the next quarter and on into 2024. This is an important moment that signifies the stable.
Rising of the operating portfolio assets.
Trend is in our favor as companies continue to call people back to work with mirrors. This past week of another 500000 workers.
Being called back and expected back. This January it's important to note. We are sitting in a good position at $1 1 million square feet of pipeline leasing activity with nearly half of that amount represented by 20 leases that are either in negotiation or out for signature, indicating a high probability of close.
Or have those particular transactions.
As leases are split about evenly by square footage between new and renewal leases.
Decision timelines for tenants are lengthier than average, which has delayed some of the occupancy gains we had hoped to achieve this year, but directionally. It appears that predictions of an existential crisis from New York City Office buildings is way way overblown and in fact, more and more of New York city's leading businesses.
Champion a physical presence in the workplace is the best and most meaningful way of building community promoting team work, establishing relationships and maximizing productivity, we will continue to enhance and <unk>, our core properties to provide maximum convenience and benefits to our workforce today.
That is looking for elevated workplace experiences.
Along with the rest of the real estate industry are impacted by the sharp and rapid rate increase experienced over just the past 18 months, but we are implementing our strategic plan to complete our development projects.
Lease up the portfolio selling JV certain assets pay down indebtedness refinance and extend debt maturities and hedge our exposure to future increasing interest rates and we are going to succeed we will talk at greater length about our 2024 strategic plan at our upcoming inverse.
Your conference, but rest assured that we are ready for this moment of great opportunity and we intend to take advantage of market repricing in the liquid borrower with dislocation through growth in our asset management business. So as we look into 2024, we see reasons for real optimism, we have a plan to execute in a new.
Generation of leaders to help execute it.
That last part is bittersweet for me and for the company as we prepare to say farewell to Andrew Mathias.
After 26 years.
Of.
Over on my estimation 100 earnings calls today will be his last earnings call for the company. While this was an extraordinarily hard decision. It's the right time for the company.
Probably the right time for Andrew as well he can speak to that.
But one thing that's for certain is that he has made an invaluable contribution from the time, we first embarked on a new trajectory to become the biggest and best Real estate company in New York City, and the rest is history, Andrew as a partner and a friend and I'm happy that he will continue in his role as a director of the company.
And as an advisor to me and Andrew will undoubtedly have the opportunity to move on to other things and we will have the opportunity to bring up some of the younger talent, we've been mentoring to assume positions of leadership as we ready for incredible opportunities that will be before us in the new year I want to take this opportunity to thank Andrew on behalf of the entire.
Our company Andrew his dedication and loyalty has been essential in accomplishing things for this company that were unimaginable 25 years ago on a personal note Andrew and I have been side by side for nearly 30 years and work and and friendship.
Incredible right, it's been now I'd like to hand, it off to Andrew to say a few words.
Thank you Mark it has truly been along an amazing run for a kid from Buffalo, who never expected any.
Like this kind of experience in his life.
I appreciate all the relationships with shareholders and analysts have formed over the years I've seen.
<unk> Com money go many many stay in.
Kept in touch with them on their new positions and.
Quite an industry credit business.
And we've written a lot of ups and downs together.
I would just say, we have a great and deep bench of talent that this company some young some not so young anymore.
I am confident that.
As shell Green will be the best positioned company by far for a recovery when it comes on it will inevitably come.
I look forward to continued involvement in.
The company's success as a board member as long as they'll have me and us as an advisor to March.
And all the words on <unk>.
Reach olive garden over the last couple of weeks is greatly appreciate it. Thank you that's.
Great. Thank you Andrew.
And I guess, we'll end on that note.
And open it up for for questions operator.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of John Kim from BMO capital markets.
Thank you.
Congratulations and best wishes Andrew.
Can you talk more elaborate more on the decision at this time.
For him to lead the company.
Who's going to take over day to day responsibilities, if he's got a noncompete.
And what the G&A savings will be going forward.
Okay. So okay.
I think John if I was a little muffled, but if I heard you correctly.
First question was.
About timing of why now and.
It's a very hard decision and I guess, you never really know.
None of us know when its time when's, the right time, but I think there's a recognition that we are starting a new chapter here.
At SL Green starting in 2024 with.
With extraordinary new opportunity and we have this unbelievable.
<unk> of our younger professionals that they don't have themselves had been in the $10 50 in some cases 20 years and we.
We just felt that this was the right time and the best time.
For this.
Restructuring if you will too.
Allow for that talent to step up at a moment in time, where we can maximize.
Their relationships with kind of a new generation of lenders and partners.
And co investors out there that.
We think is just.
In the interest of the company and.
Knowing that Andrew is still on the board and still an adviser to me.
<unk> serves a critical role for me that I don't.
I don't feel this is a loss, but I feel it's additive overall to something that I think is a good move for the company.
Probably a good move for Andrew because I'm sure he is going to have.
A limitless amount of great opportunities in front of him.
I think you mentioned <unk>.
Division of responsibility or something to that effect.
As we always do we don't like to be reactive I'd like to be measured to the board and I are going to take the next several months, we'll meet we'll talk about.
How we want to work on that division and successors ship role.
Going forward and I would imagine sometime in 'twenty four we will have some additional announcements to make but for.
For the time being we're just going to Andrew is still here through year end. There is a lot to do as you know and that's how green style will be doing it right to the last day of December 31 of the year and then we will take.
Take stock and make sure that we're extremely well positioned.
No no nothing will be unintended to no stone will be until we get to 'twenty four will be off and running.
The last piece I think dealt with some of the numerical issues, which Matt you want to address yes G&A.
G&A savings on a run rate basis.
Between 10 and $11 million.
Okay, well I wanted to ask about condo sales at 760 Madison Euro.
Report NAREIT <unk> to core numbers. So is it fair to assume that condo sale.
Gains will be included in earnings next year.
Condo sales, while proceeds from condo sales to the extent they close in 'twenty four would have an earnings benefit.
The gains on those sales themselves are not <unk>.
Okay.
But this is a new development contracts.
This is 760 Madison was a retail condo leased long term lease to our money at the base. That's been turned over to Armani condos 10 units up top half of which are spoken for.
They said the proceeds we would hope to come in in late 'twenty four.
This will be utilized.
Utilized and then but the gains from those are not <unk>, which I think was the essence of your question okay. Thank.
Thank you very much.
Thank you one moment far next question.
Our next question comes from the line of Steve <unk> from Evercore ISI.
Thanks, Good afternoon, and congrats to Andrew I best wishes.
I guess, maybe on the leasing front.
Marc or Steve could you, maybe just break down the pipeline a little bit and just maybe talk about the types of buildings that you see the most demand for and the types of tenants, whether they be financial services law firms any big Tech that's kind of peering its head out of that kind of hibernation.
Sure.
So as Mark said, we've got 1 million $1 1 million square feet in the current pipeline.
A big long list of other prospects behind that.
Our prematurely included our pipeline number.
Of the.
Of the pipeline that we've got out right now.
67% of those leases are from fire.
<unk>.
The balance is a mixed bag between healthcare governments.
Nonprofits business services things like that.
So financial services clearly as you might expect is driving the boat right now.
A lot of the big deals one of the largest that we have that are in the better quality buildings.
Park Avenue in particular is very busy 280 Park 245 Park.
100 Park are all very active.
The good news behind that is as we said the last earnings call as we continue to see increased.
Foot traffic and proposals at the in the rest of the portfolio and the buildings that are more price sensitive type of product.
I think thats a positive notes.
The next step is that needs now to convert over to leases and I think we're going to continue to see.
Traction on that as the as we come to the end of the year and going into early next year.
Okay. Thanks, and then second question I don't know, maybe Marc or Andrew you guys had talked about.
Doing some some additional asset sales and dispositions one vanderbilt possibly.
Maybe even selling down a little bit more of $2 45 can you maybe just talk about the disposition market and what youre, saying just in light of where interest rates are and the economic uncertainty. How are you thinking about that and the impact to to maybe leverage moving forward over the next year.
Sure Steve It's Andrew.
We're still actively out there as you saw Mark mentioned the sale of the retail condo on Madison.
We're talking to groups.
Really from around the world.
Regarding some of the other interests either further interest and $2 45, which we haven't really made a decision on yet.
And certainly the interest in one Vanderbilt and it's just trying to balance the right timing.
And matching up with the requirements that a lot of these firms have so.
I'd like to turn it over to Harry to have him speak a little further can you just got back from Asia.
About what you're seeing in from Investor demand out there.
Sure. Thanks, Andrew So as Andrew mentioned, we just returned from our quarterly Road show in Asia.
We're continuing to hear from foreign investors that theyre interested in making select new office investments and they really do believe in the fundamentals for quality office.
More specific to us they believe in our ability to underwrite business plans executing this market and get stuff done so.
Variable that foreign investors are still very focused on our U S interest rates.
And in some cases, the impact that has on forex rates.
Specifically as it relates to the U S dollar to certain Asian currencies.
We're helping push back against that with the fact that some of these countries.
Very low borrowing rates you saw us successfully navigate through that last.
Last quarter at $2 45 Park.
We're very focused on <unk>.
High priority of ours.
We're going to be putting a lot of pressure to get that done.
And I would expect to see good momentum for that are in the next few months.
Great. Thank you I've been I've been very.
Happy with the response, we're getting.
Obviously that we got on $2 45 Park Premier as a premier location and that we're getting on one Vanderbilt.
Multiple.
Party Counterparties highly.
<unk> interested in different parts of not only Asia, but around the world and.
Working hard to try and get something done by year end and we'll see how that comes out.
Great. Thank you.
Okay.
Thank you one moment for our next question.
Im sorry next question. Our next question comes from the line of Alexander Goldfarb from Piper Sandler.
Hey, good afternoon Andrew.
Congrats Moslem Tau I guess.
This is Ed for you having to do the earnings call. So.
Congrats and look.
Look forward to wear.
New York Gossip column heavier next real estate deal.
Two questions here.
First question Matt.
Capitalized interest.
We started the Bane of modeling you guys you did the one Madison delivery you got the $577 million. You also closed on 625 Madison. So maybe you could just put some framework about how we should think about interest expense next year.
The impact of capitalized interest.
Just given those moving pieces.
Capitalized interest is.
The tough thing to model even tier.
It's a complicated exercise, particularly when you have joint venture interests in multiple development redevelopment projects.
But specific to your question something like the proceeds at one Madison, which is a fully capitalized property because it's infill development.
When you get to $577 million isn't that reduces our investment in the asset by $577 million and therefore, you can't capitalize interest on that $577 million.
Use whatever interest rate you want where it's based on our consolidated weighted average interest rate so call that four 5% four 5% times 577 is a big number that's lower capitalized interest.
Other assets like.
625, or or anything else for that matter that <unk>.
<unk> leased up as leasing comes on.
Capitalized interest goes down so there is an offset to NOI coming on.
From interest capitalization, so yes, there will be some some <unk>.
Significant changes as you roll through 2020 forward into maybe even 2025 is one Madison.
Comes online NOI benefit capitalized interest.
<unk>.
So.
Im optimistic that people will start to flow those through their models I haven't seen it flow through just yet but I am.
I am sure as people tuned up there they're forward looking models that will that will appear but it sounds like the big one is obviously the one Madison that's helpful. And then fixed 25, just for clarity because you just brought that on that would be.
That would reduce interest because now you're that building its on your books and you're capitalizing it or were you sort of already running it through I just want to make sure that we bring 625 billion that we account for that correctly.
We had a lease hold investments previously right. We wrote it off back in the second quarter prior to it being written off that would've been capitalized interest against that investment now there'll be a capitalized there'll be capitalized interest against the new investment.
So there will always be capitalized interest, but on a different investment amount.
Okay, and then second question.
With Andrew's departure, Mark you mentioned, bringing up the younger.
The bench and having other people step forward on the Mezz.
And preferred business that you guys have that you have long held.
Andrew with was big into that but should we take the comment as other people will step into that and euro re grow.
One interest rate and transaction market start to normalize or is this sort of a wind down does this andrews departure signal a wind down of the Mezz business, Yes, it's a good question.
Andrew sort of presided over the whole company, which included in investments bench proud.
Probably 20 investment professionals led by Harris to tell him about Hershey, Rob Schiffer, all of whom have four.
Worked on I don't know countless billions and billions of.
Debt and equity investments.
Under Andrew's and my tutelage.
Over the years remember we've been doing this business for well since 1990, 8% 99 I forget.
So it's always been core to us I would say on average anywhere between $1 billion to $3 billion gross.
Nations.
And backing up that team, we have Andrew for crews had a special servicing and.
As you know.
Runs that business and has a team under him helping them. There are other young guys behind that with.
Harrington elaborate on but debentures deep debentures very experienced we are very much going to stay in that business.
Like no illusion whatsoever that we're not going to be in that business and what I hope will be a very very big way in 2024, five and six I think theres going to be three years of very solid opportunities a year ago. I said 12 months six months ago, I said six months whats youre going to hear in December I think as the opportunities.
Now and where.
You should expect that as we have settled out the other aspects of our business plan with respect to paying down debt hedging monetizing assets.
Our full focus is going to pivot.
Two new investments and assume that we are in deep conversations with many capital partners about putting the capital together both in the discretionary and <unk>.
And then.
Managed account situation for various ways of taking advantage of this market opportunity that I think is going to be nothing like what we've seen in probably 30 years I have to dial it back too.
My first experiences.
<unk> ADC early ninety's to sort of get a comparable bench point. So yes, I mean active or continue with the program I'd say is an understatement.
Thank you.
Thank you one moment far next question.
Okay.
Our next question comes from the line of Camille Bernal from Bank of America.
Hello can you talk about the drivers behind the update to full year guidance, which implies your midpoint has changed excluding onetime items and with only one more quarter to go can you talk to the big swing factors that we should consider as anything we've kept the range so wide.
Yes, Neal it's Matt.
You're a little muffled so that I think the first question was just talking about the.
The details, but a little bit more of the details behind our guidance revision.
We have to take a 25%.
Sorry, 25, 27, total nonrecurring charge related to Andrew.
10 cents of severance in 17.
That's accelerated stock based comp that would have been recognized over the coming years that in part contributes to the $10 million to $11 million of G&A savings on a run rate basis.
Offsetting that though performance.
And the rest of the company has been modestly better than expected.
So were it not for the charges, we would be taking up.
The rest of the range by a few pennies.
And we still leave a fairly wide range, because even with three months left to go we do have a significant amount of execution left and.
And in part depending on where the one Vanderbilt JV interest sale falls, whether it be in 'twenty three 'twenty four that has an impact on on <unk>. So we had to leave the range at the same.
30.
Level. It was previously while adjusting primarily for interest charges.
Got it and thinking about your operating model and continued transition to asset light strategy are there any further cost saving program you are considering to implement from an operating our G&A standpoint.
I'm sorry repeat the question are.
Are there any cost saving or G&A.
Asset management.
Well, let me.
Generally.
We as a team.
Our meeting I would say almost like daily or the operational and construction members of the team are meeting daily.
Scrubbing through property level.
Operational expense budgets for next year, where appropriate looking for areas of savings trying to keep.
Our expenses as quotes is close to like net zero increase in an otherwise deflationary environment, but making sure that we're still delivering best in class service. So we're never going to do anything to jeopardize the.
Reputation.
And excellence that we are delivering to that program now.
But we are hyper focused on that and looking at our capital programs.
We benefited by investing so much in the buildings over the years.
That.
We can go a little capital light in.
24 million to $24 25, not to the detriment of any building simply because most of the buildings have been completely repositioned to monetize new lobbies security system local law 11 work and roof replacements out of the way and it's not to say, there's 30 million feet, there's always something more to do but.
I feel like we'll be able to really.
Enter the market in 'twenty four.
With a strong hand in terms of operating expense control and capital.
Cost control as it relates to G&A, if that was a specific question or item.
I would say we are one of the.
Leaders.
No.
In our peer group if you will in terms of not only.
Controlling G&A or maintaining it but reducing it.
We had G&A I wouldn't say at its peak of.
Millions or so.
<unk> hundred 10 billion, so and this year it will bring in at around $90 million and I would expect next year through all sorts of.
Smart planning austerity measures et cetera.
To come in below that we Havent done we'll know in December , but I would say, it's safe to say below 90 days. So that's a trend that I think is unusual or unequaled in our industry and sector and yet we're able to do more with less.
And the building performance and I think level of services is high it's ever been so I don't know if that answers the question, but that's what we're working on between now and December and maybe in December can elaborate further on that but yes operating expense conservation capital cost.
Efficiency and reduction in G&A are all things, we're going to be focused on going into next year.
That's helpful and final question for Matt on the balance sheet I know, you've managed to swap euro exposure exposure too.
On your swap expiries to its respective debt maturities, but how are you thinking about cap maturities for instance, 10 East 50, <unk> Street, and 220 East 40, <unk> Street have final debt maturities in 2025.
<unk> debt maturing next year.
Sure happy to answer it and I'll save the operator, the trouble is reminding people two questions only please.
I'll give you a free one.
We do hedge when we when we swap as.
As far out as is the debt to which those swaps are associated goes.
As it relates to caps caps are often a requirement of the underlying financing.
And specific to the two instances you referenced we have JV partners. So we are not.
Able to make a unilateral decision to put a cap in place without the sign off of our partner.
We agree with our partners on the terms.
With regard to those two we grew at a time until one year cap and those caps needs to be put back.
As is required by the financing.
Thank you one moment for our next question.
Our next question comes from the line of Blaine Heck from Wells Fargo.
Great. Thanks can you just talk about the lending environment, and maybe touch on where interest rates stand for high quality office buildings now.
How the pool of lenders that are actively lending to office may have changed and what they're looking for with respect to loan to value and debt service coverage ratios.
Yes.
Sure. This is Harry so we're continuing to navigate through the current debt capital markets.
Environment, given the prominence of who we are and what we need to just market, we're working with our depth of relationships.
Modifying existing modifying extending existing secured debt.
We're seeing a capitulation in the market from the lenders.
And we think we're really well positioned right now to work with these lenders on terms.
It makes sense given their confidence in us.
To be the right steward of this portfolio.
We're getting very well ahead of our existing debt maturities. Most cases, we're looking three years out at this point.
As Mark mentioned earlier, we already executed two deals this quarter and.
And I would expect to see us do some larger ones over the course of the next few months leading into the end of the year.
And each refinancing that we're looking at we're assessing prudently.
Putting in new capital and trying to very conservatively underwrite any money thats going in and as we as we think about these refinancings.
Alright Thats helpful.
My second question, Matt you talked about the fixed charge coverage ratio on the last call and your expectation for it to tightened relative to your covenant before expanding can you just comment on the movement quarter over quarter and whether that magnitude was in line with your expectation.
Whether we should see the third quarter is likely to be the bottom for the metric and I guess any stress testing you've done relative to kind of where rates would have to go to trip that covenant.
Yes.
Youre right on the last call I did say I would expect to trend down into Q3.
I'll remind people have this calc works, it's a consolidated only calculation. So there's only a handful of properties that flow through it.
Layered on top of that is our preferred equity income offset by G&A.
And then essentially corporate debt and any consolidated debt yet.
The other side of the equation, so that metric and it's done on a trailing 12 month basis. So that metric has been and will continue to be for several more quarters weighed down by $245 and a higher corporate debt load. So we got $577 million of proceeds from our partners at one Madison, we got that towards the <unk>.
End of the quarter that had no effect on the quarter, but will obviously benefit the forward quarters as that flows through over the next 12 months.
At the same effect as 245 park, which is a consolidated property for the better part of a year before we sold the JV interest. It comes out of the consolidated calc, but does so over a 12 month period. So it has to roll through over time.
Trajectory. We're on was third quarters, we would trend lower into third quarter, and then bounce off of that obviously, the timing of things could affect that.
I referenced one Vanderbilt that has an effect.
Because that is an income generated for the fourth quarter. If we did that in the fourth versus the first that might have an effect, but the trajectory of this is to be naturally higher through EBITDA growth and also through.
Lower interest expense as a result of consolidated interest expense as a result of reduced corporate debt and reduced consolidated property debt.
Great. Thanks, Andrew Thanks for the help over the years and best of luck with everything.
Thanks very much.
Thank you one moment far next question.
Our next question comes from the line of Peter Abramowitz from Jefferies.
Thank you Yeah I, just first wanted to ask within that leasing pipeline.
What's the interest in the remaining space at one Madison and what sort of coverage you have on that.
And how are the rents that are trending relative to your expectations.
We are an active term sheet negotiation with four different tenants right now covering.
Let's see.
200000 square feet of space.
It's a.
Mixed between.
Check fin tech type tenants.
Sort of the dominant theme there all of the rents that are being discussed are at or above underwrites.
I'm not going to do to follow them, but other than to say that I feel feel really.
Really positive about our prospects on at least two or three of those of those tenants and hopefully we will have more to report if not by the end of the year then very shortly thereafter.
Got it thanks, Steve and then one other.
As we kind of look forward in our models thinking about 24, just a reminder, in terms of the moving parts any large expirations.
To think about in the portfolio are known move outs.
Okay.
Well two things I would say that.
We have I think absolute transparency.
All of the explorations in 'twenty, four and probably even into 'twenty five quite frankly.
As to whether or not the tenants are staying or going certainly the tenants of size all of those are built into our current.
The only one of the maybe new news to people is CBS downside it renewed and the downsized a little bit of 505, five but its not really moving the needle anywhere.
Alright Thats helpful. Thank you.
Thank you.
One moment for next question.
Our next question comes from the line of Ronald Camden from Morgan Stanley .
Hey, congrats.
Matt.
Great great.
Great job.
Just really quickly my two quick ones as a seven day and 185 Broadway I think where previous planned sales.
I know the loans maturing this quarter.
What's the update there are you most likely to extend alone.
On that on those two assets.
With respect to the debt.
We are very close to finalizing.
Multiyear extension there on very favorable terms so.
We'll be wrapping that up hopefully shortly.
And then with respect to.
The joint venture partnership.
We're in active negotiations and discussions with groups.
That they are very interested in resi product.
There's a lot of interest we're seeing throughout the globe on that.
And we'll be looking to get something done there soon after we wrap up today.
Great and then just coming back to the.
I think last quarter, you talked a lot about a potential JV at one Vanderbilt just was wondering if we've had obviously a pretty big rate move maybe can you provide just a little bit more color on your thinking.
There is it still the same size.
You investors come in versus dropped out.
What sort of happened in the past month or two with the rate move and how thats impacting the conversations in your thinking there on one Vanderbilt.
I think.
For.
For foreign investors have an appetite for core product.
It almost makes the asset stand out as one of one if you will in terms of two or three attributes that are almost an equal.
We are in the country, it's got size.
Not very long weighted average lease term it has incredibly.
Favorable locked in low rate debt for I think another eight or eight years.
It's obviously.
It's a great building and.
I think as the rates are moving up its differentiated is I would say one of let's say the only but certainly one of the best core investments.
People with core money can put to work.
The remainder of this year early 'twenty for it when we get that deal done we're working hard on it and we have not seen any Jimmy mission and interest.
As rates rise, obviously, the embedded debt becomes more valuable.
On a mark to market basis, and the lease stream is unaffected.
And I don't think you can make any extrapolation as to interest rates or cap rates 10, or 15 years out I guess, you could but it would be conjecture so in that way.
The buildings as well insulated as any and.
We've we've had great reception.
Hoping to be able to conclude something there.
Thanks, so much.
Thank you.
One moment for next question.
Our next question comes from the line of Caitlin Burrows from Goldman Sachs.
Hi, Good afternoon, everyone, maybe just on the occupancy front you mentioned earlier in response to the guidance question.
Parts of the business are going better than expected it does seem like to meet the occupancy target.
For the same store Manhattan portfolio, you'd need a significant pick up in the fourth quarter. So just wondering based on where we are today and the visibility that you have kind of the outlook for occupancy increasing materially in the near term.
Yes, So we had a very heavy go north of 92%, we will not make that goal mark alluded to in his comments that we have a good pipeline.
We've already done one 3 million square feet of leasing we have $1 1 million square feet of pipeline, but deals are taking longer to get done and therefore, the occupancy is picking up but at a slower trajectory than we had anticipated. So we do expect it to pick up into 'twenty, three and into 'twenty for us.
Close on the pipeline, but we will be short of the 92% that we had laid out at the beginning of the year and I just wanted to be clear on that debt.
I know, it's maybe it's too nuanced, but what we have internally projected versus what our goal is that we set for ourselves in what I call stretch goals.
The 92, whatever it was.
Was a ambitious goal.
Get to seven 5% occupancy in a market, that's 18% vacancy I'm, sorry, 75% vacant and the market that's 18% vacant.
I mean, obviously.
In doing that where we're trying to be realistic, but we're trying to push ourselves.
Said anywhere from I.
I don't know 18 to 'twenty to 'twenty, one goes a year.
And if they were all projected or tap ins, we meet them every year and in fact, we generally meet anywhere from about 60% to 75% of those goals that's by design.
So the fact that I think as we sit here this year our.
Occupancy is trending up and will be in the nineties, we will have to see where we cross the finish line at a point in time at December 31.
Isn't it is an amazing achievement in a market that otherwise has been relatively flat.
Vacancy at around 18% throughout the year.
I do think the pipeline is more telling than where we are exactly at December 31, because what it is saying is we're going to have a big December January and February because we have a $1 1 million square foot pipeline and typically those deals take three years to five months to close from the time they are in that pipeline.
So it sets up really well for next year so.
I know how it works in the headlines youre going to be well SL Green gold 92, and they come in it.
90 point, something 91, who knows.
But the reality is it.
It's all about the trends, it's about the pipeline and it's about our confidence that we bottomed out in vacancy in second quarter third quarter turned the tide fourth quarter I think we're going to do the same on into 'twenty, four and kind of March our way back.
Fully to 92 above.
Next year, we don't have those numbers until December investor.
And we will see but.
That's where it is.
No more or less relevant than saying, we set a stretch goal of $1 7 million square feet of lease signed today, we sit at almost $1 3 million signed actually how much if you add in your post quarter.
I don't want to remove about 1 million three so there's a good chance we will be over.
And our leases signed which also sets up well for 24.
But.
We're dancing on the hedge of tens of basis points and.
I am not throw an Intel, yes, let's try and mid 92 and let's.
Keep added the pipelines there we just got to close those deals quick.
Got it and I. Appreciate that you guys have mentioned that does cause can be stretched Gulf. Maybe then separately on the dividend I know last call. You mentioned you want to keep the dividend is close to the current levels as possible. So just wanted to see if you thought the G&A savings youre pursuing could help you maintain the dividend next year or any updated thoughts to share.
Yes.
My comments I think on the last call.
As it related to dividend, where there were some companies that were in the process of cutting or eliminate dividends was along the lines of we think the dividend is.
Important.
Almost fundamental reason that people invest in REIT stocks.
I still believe that to be the case.
We're going to work hard too.
To maintain that dividend as best we can always in light of where our <unk> and <unk> for the year. So that's the one thing I just we don't have next year's numbers published yet so we couldnt.
On this call begin to give you a sense of.
Where that is.
About <unk>, it's about <unk> of our taxable income.
But our goal in everything we do when I mentioned earlier about.
Cutting our capital to only that we need to spend next year cutting our expenses is all for the basic reason of meeting our obligations and paying a dividend.
And we will do everything possible, but you got to wait till December or maybe it's just before December when we announced we meet as a board will set the level for next year it will be based off of.
Taxable income.
And.
We recognize the importance, we're all aligned with shareholders, we will try to maintain as best we can.
Thank you one moment far next question.
Our next question comes from the line of Michael Griffin from Citi.
Great. Thanks, maybe getting back on the potential asset sales I'm curious if you can give some color around return hurdle their IRR that potential investment partners are looking for in order to get interesting.
Well, yes.
Michael it's broad because.
The market coming up.
He is going to be so many ways to play it and therefore, the return hurdles would be a lot different I mean there'll be people.
Trying to take position in first lien positions that'll be more debt and credit like humira there'll be mezzanine positions there'll be equity positions I think it's fair to say whatever the return hurdles were.
Sort of.
Before the rate increases if you will that the return hurdles sort of generally across the board are probably up $2 50 to 300 over.
And for various positions.
In that range. So maybe what was low teens might be mid teens mid teens high teens, whatever what might've been a seven five unlevered discount might be a turn in that range is kind of.
The level of movement, but it just.
It depends what's the asset class where is it.
Where are you investing in that asset class.
Is it from an ownership perspective or from a mezzanine origination perspective et cetera, but I think $2 50 to 300.
<unk>.
In.
Return requirements is probably.
A good number I don't know Andrew if you think of.
So I would agree.
What you're seeing.
I think thats, probably a good number.
Great. Thanks, and then Mark I know you mentioned in your prepared remarks at the time that it's been taken a signed lease.
Kris.
Should we take this as maybe the new normal for signing leases going forward or was there something specific about these later this year getting sign in terms of being elongated that kind of put it was a drag on occupancy.
Yes, I don't know its a good question and for that you got to kind of have an economic forecast for what next year will be like I think the the decision timeline.
Is less about uncertainty and more at the moment about having more choice. So people are just more so than in past they are exploring all their choices because.
They have more choices.
And there's no sense in my mind that the people who are out there that are serious that are in the inventory of tenants that we would say our real tenants that will be signing leases whether its this year next year.
We will cross the finish line in signed leases.
Plus or minus the amounts they are looking at I think they just have more opportunities and they are taking more time to vet those opportunities before they narrow in on the one they want and.
So what.
Might have been.
Where it might've been a six month exercise might be eight or nine months now something like that.
But I don't think I think as the.
The better space becomes more fully leased and it will.
And a lot of the vacant overhang.
Pre pandemic.
<unk>.
In terms of plan development is leased.
Then I think the options become fewer and then timeline comes in again.
Thank you I would now like to turn the conference back over to Marc Holliday for closing remarks.
Okay.
Only closing remark after today is.
Special day for Us coming up in December I think it's December quarter for December 4th nine nine.
And I am here at one Vanderbilt.
In person weighs invitation only but the entire presentation will.
It will be webcast and available via our website and.
Safe safe to say, we are busy at work preparing.
A lot of <unk>.
Good information and strategic vision for that session to make it meaningful.
Meaningful for people. So hope everyone has a chance to call in or.
Except invites and come and we look forward to it every year and.
For those that are coming are listening and look forward to speaking with you then.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
[music].
Okay.
Sure.