Q2 2025 SL Green Realty Corp Earnings Call

Thank you everybody for joining us. And welcome to ESL Green Realty, Corp second, quarter 2025 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 acts results and events May differ from any forward-looking statements that management may make today.

All 4 looking Simmons 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 mdna sections of the company's latest storm 10K and other subsequent reports filed by the company with the Securities and Exchange Commission.

Also during today's call the company may discuss non-gaap Financial measures as for defined by regulation, g, under the Securities act, the Gap Financial measure most directly comparable to each non-gaap Financial measure discussed and the reconciliation of the differences between each non-gaap Financial measure and a comparable. Gaap Financial measure can be found on both the company's website at www.so.com by selecting the press release regarding the company's second quarter 2025 earnings and in our supplemental information included in our current report on form AK relating to our second quarter 2025 earnings. Before I turn the call over to more holiday 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,

Please limit yourself to 2 questions per person.

Thank you. I will now turn the call over to Marc Holliday. Please, go ahead Mark. Okay. Thank you. Good afternoon and, uh, appreciate all of you joining us.

Very, uh, proud of what we had as a green accomplished this past quarter, and I'm pleased to be able to share some of the highlights, uh, with you today and some thoughts on the market, as well as, uh, field your questions, uh, coming out of these results. Um, the achievements for the quarter were particularly impressive in my view, when you put it up against a volatile economic backdrop and a higher than optimal short-term rate environment, uh, for some firms, the Confluence of these events and the current market environment presents challenges. But SL green is a depth of dealing with the volatility. And it's in these types of situations that I believe our platform, truly shines, the brightest, we are well adapted to threading, the needle finding the best investment opportunities when others are less certain as to where to find that value. Ultimately, it's the diversity of our platform, business lines,

And skill set that keeps us. Well, balanced offensively and defensively, and enables us to outperform expectations quarter after quarter.

In this second quarter alone, we included over 540,000 square feet of leasing. Bringing our year-to-date total to 1.3 million square feet of space, least inclusive of last night's announcement and we have refilled the pipeline to over 1 million square feet uh for near-term execution.

What's notable about the deal is done to date and the deals in the pipeline is that they're not really chunky in size rather. They are a broad cross-section of midsize leases that are renewing expanding and relocating within our portfolio at a rate which is bringing down vacancy levels in class A Midtown buildings

are 25,000 square foot and under, uh, half of that, uh, pipeline is financial services, but the other half is a broad, uh, range of Legal, Professional Services, government and nonprofit Tammy and, um,

Uh, real estate, all of, which is about equally dispersed within that remaining 50%. So very diverse uh very numerous and I think evidence of a very healthy environment, not only for our top top buildings but throughout the portfolio. Uh in fact um half the pipeline by square footage represents non-park Avenue properties. So this is definitely an indication that the demand is radiated out kind of from east to west within our portfolio, from uh Third Avenue, all the way to 7th. And we're going to start to see in the second half of this uh, year is significant occupancy gains as we get towards our projected, 93.2%, by the end of the year, um, as all you also know our ability to source and execute is really a validation, uh, of our pipeline the investment.

We made in the 522 mortgage position last year is perhaps 1 of the best trades of this cycle where we realized nearly 90 million dollars of profit on a 130 million investment in. Well, under a year's time, we also consummated a transaction with a new domestic partner. By selling a 50%, participation interest in the preferred Equity position. We hold in 625 Madison Avenue, which carries a pick preferred rate of about 6.65% when combined with the proceeds of the 522 transaction, the 625 interest sale yielded, over 300 million dollars of fresh cash proceeds into the company that we now intend to deploy into new and accretive opportunities.

And lastly, we announced the closing of over.

500 million dollars of fund commitments. Bringing the total closed to date to over 1 billion dollar, a significant milestone for the company that's an announcement. We just made, it's probably crossing your screens right now. Um, at gives us corporate liquidity and fund availability, combined of over 2 billion, dollars to fund our new opportunistic investment Pipeline and solidify our position as a market maker in Midtown Manhattan. Uh, but perhaps 1 of the most momentous events of the quarter uh was something that wasn't even included in the earnings release.

And that is the, uh, filing of our response to the state's RFP in the casino license bid project. Uh, it represents almost 4 years of work, effort planning partnering, uh, and listening to the community and other constituencies, all of which came together in a 13,000 page document that we was filed in the second quarter, um, at the state's offices.

Near Albany. And, you know, it was a privilege to present to the state, Caesar's Palace Time Square. It's located, in the 1 of the world's most iconic destinations that will provide Far and Away, uh, more tax revenue for the people of the state than most other. And, uh, if not all other proposed facilities while bringing a new attraction to Time Square, that befits. Its location at the center of the entertainment Universe. Caesar's Palace will achieve this lofty ambition without displacing residents, or utilizing land. That could otherwise be developed for much-needed housing. The project has been intentionally and uniquely designed and programmed to uplift surrounding businesses and residents, not to place them. And that makes this project truly unique, among all the proposed projects, Caesar's Palace Times Square. Is set precisely where a global entertainment facility should be Time Square, the world's greatest tourist and entertainment destination.

At the crossroads of the world.

Um, all of, uh, you know, wish us luck in that endeavor.

Um, it's the start of a 90-day process, uh, that with the community advisory committee that was formed and we hope to be uh, through that. And, you know, be able to make it to the next step of the uh, bid process in Albany after. Um, you know, we are able to

Because we have a fantastic proposal uh, on all merits and um more to come on that on the next call.

Speaker Change: This all combined to enable us to raise our earnings guidance at the midpoint by 40 cents a share. Uh, there's a lot of ins and outs that go into that. Uh, but mostly it's reflective of substantial uh, increased profit at the company above our earnings guidance, more on that from Matt D Alberta. Uh, thanks Mark. Clearly been an extremely busy 6 months for this team and because we're a very active company across multiple business lines. There are dozens of items that can affect our results, each quarter, as well as the trajectory of earnings over the course of a year. And yes, some of those income streams are unpredictable, or that was a lot of people use the word lumpy, this is why we set guidance on an annual, not a quarterly basis and use a relatively wide guidance range. When we give guidance, we are confident in it. Needless to say, we are very pleased that our successes so far. This year, allow us to not only increase our ffo guidance range.

Speaker Change: Uh, only 6 months into the year but by a meaningful, 40 cents or 7.4% uh, at the midpoint, the drivers of this upward revision are most easily summarized into 2 basic categories. First in our debt and preferred Equity portfolio. The repayment of our Mortgage Investment at 52255 for million dollars, which was substantially more than what we purchased the position for generated.

Speaker Change: About 69 cents a share of incremental ffo. I say incremental because our original guidance included, various forms of income from holding this investment over the course of 2025 as well as income from other debt and preferred Equity Investments.

Speaker Change: The incremental income is offset by 19 cents, a share of reserves that we booked in the second quarter, on our preferred Equity investment in 625 Madison Avenue.

Speaker Change: This is pursuant to the sale that Mark alluded to a 50% of that investment, which closed earlier this week, the generating incremental liquidity.

Speaker Change: While the transaction closed in the third quarter because the deal was largely known at June 30th accounting rules require us to not only take a reserve on the portion that we sold but an equivalent reserve on the piece that we retained. All told that's 50 cents, a share of uplift just from the debt and preferred Equity book.

Speaker Change: Offsetting this incremental income interest expenses trending, a bit above our original Expectations by about 10 cents a share. This is not necessarily the result of higher rates because our debt is 95% hedged. And the current sulfur curve is not that far off from the curve, we use for our initial guidance, it's primarily related to decisions. We have made around potential asset sales that change the size or timing of them.

Speaker Change: As a result, we carry the debt on these assets for longer. If they have debt, and don't realize the benefit of the proceeds from the sales to pay down corporate debt.

Speaker Change: Cross the rest of the business. We are largely performing in line with original expectations with noi trending, slightly better as you can see. In our second quarter results, offset by Summit where second quarter results were slowly below our expectations, due primarily to taking the extent experience offline, during the quarter which is a premium ticket that generates incremental Revenue, we expect to bring that back online before the end of summer.

From an attendance perspective, overall, attendance at some, it was actually higher than our projections in the second quarter. And we are right on top of our projections, for the first 6 months of the year.

Speaker Change: As it relates to discounted debt extinguishment gains, we have maintained our original Assumption of 20 million, or 26 Cents a share of debt, uh, discounted debt gains in our updated guidance range. But we see a potential path to more than that.

Speaker Change: As noted in the earnings release in affiliate of the company, and a partner have purchased the debt at 1552. 1560 Broadway, for just 63 million as against a total debt, claim of 219.5 million 193, million of which is principal,

Speaker Change: However, the debt is still outstanding for very specific reasons, accounting rules. Don't allow us to record a debt gain until the does extinguished.

Speaker Change: When that debt is extinguished, which could potentially be this year, we would recognize a debt gain substantially larger than the 20 million. We currently have in guidance.

Aside from 1552 Broadway. There are also evaluating other opportunities to take out existing debt at less than par in closing. You know, I read and hear a lot about the complexity of modeling. The company we sympathize with all of you on that because we have to model it too.

Speaker Change: I also see a lot of analysts are investors that want to Discount the unique ways that we generate real cash gains that generate real ffo? That pay a real cash dividend and I'll admit I'm a bit perplexed by that.

Speaker Change: And I'm sure there are plenty other REITs out there that you can model in your sleep and run rate every quarter in perpetuity with laser precision.

Speaker Change: But those are not the companies with the team like ours that will work, like animals to evaluate every opportunity, presented to them with an eye towards generating profits and creating shareholder value.

Speaker Change: And if the price of that profitability is more complexity. We can't be apologetic for that.

Speaker Change: Now, I'd like to open it up to questions.

Thank you as a reminder to ask a question. You need to press star 1, 1 on your telephone and wait for a name to be announced to withdraw your question. Please, press star 1 1. Again, please stand by we can pause the Q&A roster.

1 moment for our first question.

Our first question will come to line of Steve sakoa from evercore isi. Your line is open

Uh, yeah, thanks. Good afternoon. Uh, mark. Look, I I'm sympathetic about, you know, you focusing on the annual and not really focusing on quarterly Trends, but, you know, I I think the market might have been, you know, a little bit surprised at the slight dip in, in occupancy in the second quarter. And I don't know if maybe a couple of deals slipped, you know, from a timing perspective but maybe can you just you or Steve kind of walk us through, you know, the pipeline, the timing and then just anyone move out that, you know, could affect your ability to hit that 93.2 lease occupancy by the end of the year. Thank you. I, I think it's uh, I think it's a silly overreaction. I mean, you know, it's to to measure 30 million square feet on a quarter to quarter. Um, you know, variations, you know, go with go with management guidance. If we feel confident that we're going to be at, you know, at the levels, that's the reiterated guidance. We're not, we're not going to do quarter to

Quarter for lease signs, 3 days after June 30. That pops it up. I mean, we just announced

Speaker Change: Uh, I think, you know, how big was the deal last night 64,000 foot now. So if that's 2 weeks earlier, you know, it, you know, it might drive occupancy it, it's

Speaker Change: It it's something really that I think is not a productive use of time for this call, you know, the leasing volume.

Speaker Change: Uh that we do is is is is the the best and the most in the business.

Um, we have a million square feet of pipeline. We reiterated our guidance for the year. We generally hit our reiterated guidance, you guys. It's only been 27 years together as a public company. You know, we, you know, set these out performance goals. We don't hit all of them, we try, um, we're you know, my my commentary was meant to convey that we see a very, um, you know, strong and diverse, uh, you know, leasing Market out there which is increasing occupancy Market wide and in the portfolio, if we had a couple of Roll-Ups see who rolled off in the second quarter, uh, well, it was the, the blip is really driven by. There was an unbudgeted tenant, default to 711 Third Avenue, so nobody could have predicted its space went dark. So, there we go. Um, the other thing worth noting is you know, where we have that occupancy in same store. Of course. It's

Speaker Change: Is only half the story. Rest of the story is where we're doing a lot of Leasing and Redevelopment properties, like, 1, Madison Avenue. So, you know, the the pipeline is full, the leasing velocity is strong.

And the focus on 1 narrow part of the portfolio is, you know, I don't think giving A True True Justice to to, to the accomplishments. Let let me give you a stat. That's interesting. Steve on uh, you know, sort of expanding on what superl just said the the the AI and Tech demand in Midtown, South is just starting to get revved up. We, we had 2 deals done in the quarter. 1 with Sigma 1 with Pinterest and we've got 2 more pending in pipeline 1 at 1. Madison 1 at uh 11 madisson in total, that's 287,000. Square feet of net, new demand in those 2 properties both done and you know, part of pipeline um, inside that are all driven by Ai and Tech. And that's only, that's only increasing, you know, uh, in our opinion.

Speaker Change: And you know, Financial Services is still half the market and the money being made in financial services as a result of the profitability. Uh, I'm sorry as a result of the volatility that you saw in the first half of the Year people. Look at that volatility and say, oh my God, what's that doing to the economy? Well, look at the trading profits.

From that the New York City does. And you know, that's why the city budget passed a few weeks ago, unanimously, fully funded, you know, credit ratings airmed, um, tax receipts at like all-time highs, uh, private and public sector employment at all-time highs tourism trending towards all-time high, you know. Um, I don't, you know, there's, there's no Narrative of weakness that we see, and if we did, we'd be the first to tell you.

Speaker Change: Next question, please.

Thank you. 1 moment for our next question.

Our next question will come from the line of John Kim from BMO Capital markets, your line is open.

Speaker Change: Thank you. Um, congratulations on the the gain that you had, its 5225.

I guess my question is if you uh when you made the investment, did you expect it to be monetized so quickly?

Speaker Change: And also um the disclosure on the investment was a little bit murky. Uh, we couldn't find it on your balance sheet, it's not in your DP. Uh, investment disclosure uh wondering why that was the case. And then finally should the game be larger than, uh, than the amount that you raised guidance. What do you say? Who's last name? Oh okay. Those are from a so, uh, the answer is, uh, you know, uh, I mean we had when we,

Speaker Change: Uh, take these kind of positions which are, you know, on the more opportunistic, range of the scale, we have a range of outcomes, some of which are expedited, some of which are long and protracted. Uh, so I don't, I don't think we had a singular uh, resolution in mind, when we made the investment. We had a range of outcomes that we projected anywhere from, you know, DPO to restructuring to, you know, sort of ultimate, uh, enforcement of Remedies. That's typically the full gamut in any uh non-performing.

Speaker Change: Loan acquisition this 1, you know happened to be uh, uh, you know, a relatively rapid resolution, uh, which I think, you know, also plays into the strength of the kind of collateral that we that we identify its collateral. That is, you know, capable of being, you know, refinanced, sold or recapitalized. Uh, and not, you know, looking at deals that you have to hang in for long periods of time, you know, for Market improvements. It gets ultimate resolution. So you know, probably, uh,

Uh, a little faster than expected. But, you know, certainly within the range of expectation, Matt on the uh, accounting. Yeah, uh, disclosure wise, this is a cmbs cmbs investment, which we make a lot of and we don't put the disclosure that we do for cmbs Investments that we do for the Denver for Equity portfolio. Uh, you know, and and that's, that's that, um, that's we do a lot of Investments that don't get that disclosure. And by the way,

Speaker Change: The disclosure is going the other direction with the fund, but we're not going to, you know, go to the level that we did on the, on the DPE book. Um, your last question was, is the gain larger than the guidance increase?

Speaker Change: Is that what it was? Yeah.

Speaker Change: Yeah, yeah definitely. But remember we had some income office investment for the balance of the year? So it's not all my point in, my commentary was not everything we got off. 522 was incremental, right? We expected to get income off of the investment. Um, we got repaid on it so that generates, you know, a big gain. Uh, but there was income expected to receive of the, uh, off the investment over the course of the year.

But where could we find this on your balance sheet and are there other CMS Investments, like this? That are there are, there are there are 2 lines and you're not going to get any more details than this 2 lines, called Consolidated, cmbs, vehicles, or securitization Vehicles. There's an asset line, a liability line, the net of those are investments.

Speaker Change: And we can't disclose more than that.

Okay, thank you.

1 moment for our next question.

Speaker Change: Our next question will come from the line of Alexander Goldfarb from Piper Sandler. Your line is open.

Hey, uh, good afternoon. Good afternoon and, uh, congrats ma'am on the, uh, on closing this, the first billion on the fund, uh, 2 questions here. Mark, uh, you got, you know, the city. Well, you know, Albany well and uh Obviously good pulse on the city. Have you noticed any change in tenant discussions since the primary the mayoral primary just? Obviously it's impacting the stocks as people think about New York and just curious if tenants are talking about it and if it's impacting, you know, their leasing decisions or thoughts of expansion.

Speaker Change: No, we've not seen a single instance of, uh, of that being an issue or I'll even say a discussion Point Steve. I mean a discussion point, no, nothing. I mean, maybe it's too early to tell but, uh, doesn't seem to be a driver of any kind of decision. Yeah, no, so, uh, you know, look New Yorkers love their politics. So this, you know, no shortage of discussion about, uh, you know, uh,

Mayoral race and other races. But uh, nothing that we've seen uh that's impacted at least.

Okay? And the second question is uh Matt and and sort of your response to Steve's question on, you know, the the guidance and the Cadence and just look at the full year. You guys have spoken for some time about all the aggressive Leasing and the capital spend you're doing now, which will then show up over the next few years and increased docu and, and obviously, increased noi, uh, and that's what you know, that's what definitely we we are focused on. My question is, is that, is that sort of that trajectory remains on track that we should think about next year being where we'll start to see a lot of this aggressive leasing start to take hold with meaningful upticks of occupancy or the time. It takes for these leases to take effect and show up in the p&l and earnings May take longer than than that. Well, generally speaking you would expect to see the economics of a, of a new lease. Uh, renewal lease are faster new lease uh, in 12 months. That's just rough. Average how long it takes to pretend it's to.

Speaker Change: Build that space. And at that point, we could recognize, uh, Revenue which shows up in in gap. Noi. So, if you take all the leasing, we did in 24, which was a lot, and we increased, uh, same store occupancy by a lot. You would expect that to materialize over the course of 25, and then be, uh, more fully apparent in in 2026. And if you look at where our economic occupancy Trend, which is based on Comin leasing is is, uh, headed between now and the end of the year. Uh, that holds, I'll, I'll Reserve any other commentary on 26 until we get to, uh, putting out our 26 guidance in December.

Speaker Change: Okay, thank you.

Thank you. 1 moment for our next question.

unknown: Our next question will come flying of Nick ulo from Scotia Bank. Your line is open.

Hello, this is Victor. Fedio on with Nico, uh, on your uh, other income, uh, line item. What draw the 15 million quarter report to decline and what is your expectation for the second half of 2025 for this line item.

unknown: Uh, we have not changed our other income expectations for the full year on that line item. Uh quarter of a quarter. We I think we just had less fee income this quarter than we did last

unknown: Got it and then quick question on your uh, 1 billion disposition Target. Uh, is it still intact? And are there any assets on later stages of negotiations? As of now,

unknown: Touch it. I'll, I'll touch it. It's hairy. Uh, we're still, you know, working through the disposition plan this year, as you've seen us accomplish the past 4 to 5 years. Uh, you know, through this Market, we we set out of off the goal and we usually try to get every single 1 of those opportunities done. You may see a shift 1 or 2 of those opportunities to something else. That's more suited for this Market or a specific buyer. But, you know, the investment team here is, you know, working tirelessly to get done, our business plan and uh, no specific changes at this point.

unknown: Got it. Thank you.

1 moment for a sec. Our next question.

unknown: Our next question will come from the line of vicram model, Ultra, from mizuho. The line is open.

Uh, afternoon, thanks for taking the question. Um, I just, I was wondering if you could build and give us a bit more color on what this, uh, I guess you said strengthening and widening out of demand into the sixth. Third Avenue, Etc. What what this could mean? Uh, for sort of your investment opportunities and how you see that sort of filtering into, uh, ultimately effective, rent codes? Well, um,

unknown: Peripheral corridors. There's a lot of uh, conversions of office to resi that are happening and uh space is

unknown: Rapidly being taken off the market. So tenants in those buildings. No. Different than 750. Uh, third have to relocate and they typically relocate, you know, on those same corridors. So there's more deals getting done as, uh, inventory is kind of coming off the roles as buildings are, being converted compounded by. The fact that mid, you know, core core Midtown has gotten very expensive and compounded by the fact that there's just more tenants looking for space and there's no new Supply really forecasted for the next 4 years of delivery. So, uh, you know some of it is is immediate demand. Some of it are people accelerating their decision timelines because they don't want to be left. Uh, out in the cold come 26 and 27 when the market could be, you know, much tighter than it is today.

unknown: Okay, that's helpful. And then just um,

Speaker Change: I guess assuming you know the casino uh process goes your way. Um you know what what does that does that mean or or would you think then that submarket becomes sort of a broader opportunity set for a green?

Speaker Change: I I, I think the casino would be absolutely transformational for Time Square Times. Square. Is the Beating Heart of New York. Um,

You know, it's it's it's 1 of the you know greatest entertainment Assets in the world. Uh you know, and it certainly has

Speaker Change: Uh great attraction of Tourism, people. Coming through the square, uh, which is not really a square. Um,

To, you know, sightsee and you know, to sort of be in the moment, uh, those Instagram moments. Um, but Times Square can be much more than that. And that's really what we hope to achieve with this project is making Time Square. Again, a place where people stay shop eat, you know, continue to go to Broadway, but also you know, other forms of live entertainment, music comedy, uh, non Broadway live performance. I mean, you know, the, the potential is so great and the halo effect of what it means. Uh, for small businesses, um, for the community, uh, for, you know, hundreds of millions of dollars which we've committed in and around the area to, um, you know, daycare centers and, uh, Safety and Security enhancements, decongestion strategies, um, you know, um,

Speaker Change: Mental health awareness. It just goes on and on that. I think, you know, the way in which 1 Vanderbilt kind of helped to transform uh Grand Central into, you know, the experience it is today, partly, because the development partly, because of the enabling zoning, I think you're going to see that exponentially exhibited in, uh, you know, the surrounding areas Times Square Health, kitchen Westside Manhattan, New York City, you know, it's, there's no limit to, um, I think the benefits that will come from a very high-end world-class destination oriented, uh, casino. And, um,

You know, we're we're very hopeful to make that happen and we have, you know, lots of properties, uh, in and around that area, that will benefit, uh, but that's a tangential benefit. The, you know, number 1. You know, goal is to really, uh, make

Speaker Change: Caesar's Palace Time Square, 1 of the greatest localized, Economic Development projects, uh of you know this decade.

Speaker Change: Thank you.

Speaker Change: 1 moment for our next question.

Our next question will come flying of Blaine hack from Wells, Fargo. Your line is open,

4 million square feet, a year of new space, it was half a percent 2 million square feet a year. You know if you only look at Midtown 1 million square feet a year, you know, 4 years, 4 million square feet, we're talking about you know just somewhere over a million square feet in the next 4 years of delivery. So you know part of what I think you're seeing is um there's not a lot of space to do deals. There were a couple, you know, a couple of big deals to Lloyd did a big deal over uh uh, in Hudson yards. I think that was what 800,000 feet or something and Steve was there. Another big 1? Um um and my third couple is but but to Mark's point I mean, I think the the real way to look at it is what's overall

Speaker Change: Tenant demand in the market and there's, there's a known 28 million square feet of active, tenants searches right now as compared to a year ago. It was only 22 million square feet. I mean, that's a big stat to say it's 6 million square feet of known active tenant searches and to to, you know, what? He was really trying to hit on, okay? The Big Blocks, there's plenty of big tenants floating out in the market. I've got proposals on my desk, they're not on my pipeline because they haven't matured to a point of a conversation where I would add them yet, but they're indicative of big tenants searching the market for, you know, several hundred thousand square feet. I've got 3 of them on, uh, proposal stage at 2 245 by itself. I don't have the space to satisfy all those, so those tenants will land somewhere, but a lot of these guys will end up renewing because there's

A Durst of quality, Big Blocks, you know, just to put a pin in it. If you looked at the, you know, best building category, in our 400 square foot Marketplace, there's only a 200,000 to 100,000 square foot contiguous Direct. Availabilities in that category, it shows you how tight the market is. That'll drive more renewals and in place, uh, um, expansions by a lot of these tenants, that will then drive the other tenants to be overflow into the rest of the market, which is really what Market was driving home earlier. When he said that's why we're seeing this proliferation of a small to medium-sized deals. There's no in there's no room left at the end for these guys.

Yeah, another example on the investment side is going back to 522 with Amazon, buying 522 Fifth Avenue. It's just another example of when box of space come available which they rarely do. Um, tenants are trying to gobble them up and even buy them in many instances.

Speaker Change: You've got 525,000 square feet.

Yeah. No, that's great color, uh, and all makes sense. Thank you. Um, second question. Uh, can you talk about any progress, you've made on, securing the development site? You alluded to at the investor day? You know, whether you still think that that's a priority for the company this year and you know, whether you're seeing any increased competition for those those potential development sites. Yeah. So I I think the

Speaker Change: Goal was development, Andor large-scale Redevelopment site. The good thing is, we're working on both and, uh, it's among the highest priorities of things we're working on right now. Uh, it's not I would say 1, I'd say we're working on multiple opportunities. Uh, these deals take time, uh but we're sticking to our guns and uh, there's still a lot of runway in the second. You know where it's just July. What? 16th guys, something like that. Um, you know, and we got some time and we've got opportunities well, within our sites and we're going to work hard in Q3 and 4 to put them under contract.

Speaker Change: Great. Thanks guys.

Speaker Change: 1 moment for our next question.

Ronald Camden: Our next question will come flying at Ronald Camden from Morgan Stanley. Your line is open

Hey, just 2 quick ones from me. Uh, just 1 on on Capital markets. If you could just comment on what you're seeing in the transaction markets and cap rates and specifically sort of post Liberation day and the tariffs just any signs that you know, foreign buyers or maybe pausing or are not participating in the market. Thanks.

Ronald Camden: Assets that for a little while you weren't seeing clearing or trading. Um, now trading again and and getting big Capital demand. Um, the capital behind those deals in the case of Blackstone is obviously Blackstone in the case of rxr, uh, mostly private Equity Capital, uh, is our understanding

Ronald Camden: Great. Thanks so much. And then by uh, second question was just going back to the same store.

Ronald Camden: Um noi sort of targets for the year. And um you know, obviously we're not talking about 2026. But if, if you're, if we're following your logic in terms of occupancy, building in the second half of the year,

And into sort of 26 is that should the same Source sort of follow the same trajectory in terms of the building, the second half of the year and into 2026. Is why is that? Why is that logic not make sense? Thanks.

That logic makes sense.

That's, uh, you know, the the trend into the end of the year, from economic occupancies, I talked about earlier is upward such that the, you know, the

Ronald Camden: Spread between lease occupancy and economic occupancy. Um, is, you know, few hundred basis points tighter than it was at the end of 2024, uh, that sets. And and a lot of the noi off, 2024 is leasing is therefore not in 2025. That is the setup for same store. Noi increases along with the leasing. We're expected to do this year because you know, same store.

Document is going up in other 100 plus basis points this year. Uh, that is the setup for, um, same store. I know, I increase in 20126. Yes,

Ronald Camden: Great. Thanks so much.

1 moment for our next question.

Our next question comes from the line of ammo T made, okay? From Deutsche Bank, your line is open.

Speaker Change: Hi, yes, good afternoon everyone. I just wanted to go back to Gold Farms, question a little bit about I've been in general and and the New York City mural, its kind of the Lexington race just, you know, just kind of curious.

Speaker Change: You can just kind of give it out in New York City. Real estate seems to have reacted to the idea of mom, Danny, becoming the next mayor to to look how you guys are thinking through that scenario or thinking through any other kind of moral, uh, scenario when we eventually get a new mayor.

so,

Question is.

What are we doing here? At the, the company is that? What, what? You thought? If mom thought it went? Well, what's the company doing and again? And how do you kind of think through that scenario? Like, if, if a lot of, like the mom Donnie type, you know, socialist events, uh, uh, uh, policies become reality for New York City. If he becomes a mayor, like, how, how, how do you do anything about operating in in that environment? Well, I

Speaker Change: I don't I mean we already operate in an environment, that's

Speaker Change: You know, 1 in which, we have to be very, uh, adaptable to, um, you know, a city council. That's very Progressive. Uh, you know, very, um,

You know, very has a high level of representation of uh you know, Democratic liberal and Progressive. Uh uh Council people that, you know, make the laws we've had uh, we've been through 5 Administration. I think as a public company 5 different mayoral administrations and uh, you know, we flourished under all of them. So I mean, you know, we uh, we've been uh, supportive

Uh, of Mayor Adams. You know, from his time before he was a mayor. Um, you know, we think he's done a very good job at with taking, uh, situation in New York City in 2022 and, uh, bringing you to a place today. That's you know, much better on almost all metrics, uh, including you know, supply of affordable housing and, and safety and crime, Etc. Um, you know, but the voters are going to determine the outcome. And I'm very confident in our ability and giving our relationships, uh, across the board, uh, spectrum of the political ideology to, uh, continue to, um, you know, operate and succeed, in whatever, you know, political environment that we're facing. Um,

Speaker Change: um, you know, but you know

We've been pretty uh clear in what we you know look for in a mayor in terms of be you know both Pro business but also you know uh active and social causes and um and affordability. And uh we think mayor Adams has has achieved that but, you know, the voters will have their day in November.

Helpful. And then 1 other quick 1 on Summit and any update on uh additional locations what progress is being made there

Additional locations Paris. Oh, for Summit. Uh, you know, Rob shiffer is not here at the moment. He's the 1, you know, Rob and Mike Williams, and the team are the ones who and Kenzo of course are, uh, I would say on the road almost every other day, um, our Target cities,

Speaker Change: Are Tokyo London. Um,

Speaker Change: Soul and others. And, uh,

Speaker Change: I think we're, you know, very optimistic that we'll have, uh, something hopefully to announce by end of year, um, you know, with respect to a uh, a new location obviously Paris. You know, you guys already know about, um, you know that's proceeding along, well, we're still on track for a q127 open, uh, the plans are absolutely spectacular. Uh, if for those of you that have seen some at 1, Vanderbilt, I think Summit Paris is just yet a whole new level and, uh, can't wait to unveil it. Uh, we should be in construction by q1 126. Uh, we're finishing up our plans and CDs right now.

Speaker Change: Great. Thank you.

Speaker Change: Thank you. A moment for our next question.

Our next question, will come from the line of Peter abramowitz from Jeffries. Your line is open.

Yeah, thanks for taking the question. Uh I I think earlier in the call Mark mentioned that there were some sort of mid-market tenants, um, that were, were coming back to the market, because they had sort of overcorrected and and space reductions, uh, post-pandemic.

Speaker Change: Because the New York has has had a stronger recovery and, and utilization is much higher than a lot of the rest of the country that, um, maybe we're kind of, in in sort of the, the late Innings of the Tailwind from return to office. Um, but just based on your comments, I guess I'm curious on, um, you know, how much incremental absorption or or demand is, is still out there that you think you can capture kind of, uh, as companies, um, you know, come back to the market and, um, possibly correct some of their, their prior, uh, over Corrections for space reductions. Well, I don't think you can quantify it because it's, it's a, it's an ever-changing.

Speaker Change: Dynamic. As far as tenants coming into the market and you know where their businesses are going. But the trends that we see are, you know,

Um, all of our major industries are active in the market. As opposed to, you know, us being relied upon just 1 industry like Financial Services right now. We're seeing tenant demand from financial services from Tech from General businesses services. Like whether that's, uh, um,

You know, accounting or engineering or something like that, Health Care, governments education, uh, all all are active in the marketplace right now. You know, the in the biggest change from a year ago was clearly detect demand. And and, and in that world we're seeing tenets of size. You know, it's Mark laid out some of the activity that we're seeing, just in our portfolio, in the Midtown, South Market, where we've got

Speaker Change: 2 deals that were signed 2 deals in the pipeline all 50, to 100,000 square foot type deals.

And we couldn't have said that a year ago. I mean that's that is a game-changer for the overall Manhattan market and certainly for for um, where we think we're headed with our portfolio, on some of our big, uh, big buildings.

Speaker Change: Um, the other thing I'll say is, you know, with the return to office, uh, initiative. You know, this idea of hybrid work environment stuff like that is really out of the narrative. It's and I say that not to promote our uh our industry. But more to just as an observation we're not hearing that from our tenant base. It's all about bringing the employees back to the office and I think it's trending more that it's more square footage per employee than it was for 5 years ago. Sure. You know densification and going to open Point layouts is still there but the introduction of more amenities and giving people more space at their workstation is resulting in more square footage per employee. So I think there's a there's several different trend lines that are all positive um and that combined with Supply coming off the market because of the 13 and a half million square feet of resi. Conversions that are either actively in construction or announced

Very healthy, uh, leasing Market.

Speaker Change: Okay, that's helpful. Thanks, Steve. Uh, and then just wondering if you'd comment on concessions, specifically, um, sort of Class A or a minus assets kind of below that, that trophy space. But, uh, the kind of group of assets across the market that are, um, benefiting from, from the trickle down of, of lack of trophy availability. Um, just how how concessions are sort of trending in that space? I still think, uh, you know, the concessions of have been flat, have been flat for the past, I don't know, a year and a half or so. Um, I think what you're really seeing and you know I've said, is the last couple of calls is, uh,

Face rents are going up and that's true. Not just for the best buildings but you're seeing it in some of the tighter submarkets. So, if you look at, uh, Grand Central, right? Or you look at Park Avenue or 6th Avenue? Uh, you're starting to see, you know, rent appreciation. So face rents are going up. Before the concessions come down, I think ultimately, will. We will see some tightening in the concessions.

Hard to say whether that's whether that's, you know, this quarter next quarter or whatever. But first thing that that happens is, you know, rents will go up in a material way before the concessions come down. No, that's C is giving you that uh perspective for the market generally I'm just looking right now at the uh supplemental page. I guess this is your new supplemental table that right? The and um

Speaker Change: I find it very useful, so good job on this. Um, you know, this shows free rent, uh, for the quarter at 6.3 months, average, free rent per I guess per lease, you know, done. And that's the lowest it's been in the last, uh, 5 quarters. The ti was 78, uh, close to 79 a foot, uh, which is the lowest it's been in the last 4 quarters, um, and equal to what it was 5 quarters ago. And, you know, the uh, Mark to Market over the past 5 quarters have been positive in 4 of those 5 quarters. So, you know, there's

Speaker Change: The trend in the market and then there's the trend in the portfolio and the trend in the portfolio at this moment seems like it's, you know, decidedly, uh, in the nature of what Steve said leveling, or in our case, possibly tightening and improving, uh, concessions combined with increases in rents. So, you know, you get sort of a double compounder on the net effectives. Now, you know, next quarter might be different and, you know,

Speaker Change: And you know, there might be a blip up a blip down but you know looking at it over 4 or 5 quarters. I think you start to really see the trend and so uh you know we hope and expect to see that Trend continue

Speaker Change: All right, it's all for me. Thanks.

Thank you. 1 moment for our next question.

Speaker Change: Our next question will come from the line of Seth Burge from City. Your line is open.

Seth Burge: All right, thanks for taking my question. I guess just giving your comments on, you know, the strong demand environment and the 1.3 million square feet of leasing activity to date. You know, just kind of how comfortable are you with the 2 million square foot leasing goal? And is that something you could look to kind of, um, you know, do better than expected on

Well, I think we're I think we're feel very confident that we'll we'll hit that goal and uh there's a lot of reason to believe that we'll exceed it.

Seth Burge: Okay, great. And then just pipeline right now.

Do remember there's going to be more addition to pipeline in July of September October so and Steve's going to be under enormous pressure to get all of that signed by these 31. So you know uh I wouldn't look at the million is finite uh you know we will be adding to pipeline as time goes on.

Speaker Change: Thanks. That's how Paul and just a second 1, kind of going back to the mayoral. Um

Primaries. Um,

Speaker Change: Uh there'll be time in the future and I think Step 1 is to figure out first, you know, see where things shake out. I think it's going to be a tight race, we'll see. Uh and you know when we have better visibility into you know, where things are in the fourth quarter of this year. Certainly in December, we'd be able to address that much more head-on and specifically but you know, we are not in the rent stabilized business, I'm going to Hazard to say, we have

No rent stay. I mean I don't I don't think we have a single rent stabilizer rent controlled unit in the portfolio. So you know, if you're asking specifically about the impact on us, I would say

Speaker Change: Negligible to none.

But it will have an impact on other building owners and renters, I don't think it's a healthy, um, you know, thing for the market, in general, I think that, uh, rent freezes are only going to cause, you know, landlords to Warehouse more units than they're already warehousing. Which puts, you know, further pressure on the availability of units. Um, you know, I don't think it, uh, I don't think it, it helps the affordability issue as, as attractive as you know, it may sound to some, um, I think, you know, in the long term, we've seen that, if there's no fundamental economic basis for improving and, you know, redelinghuys

Speaker Change: You know, won't do it and, uh, there'll be pressure on those landlords, but we, we don't, we don't have investment in that sector.

Great, thanks.

Speaker Change: 1 moment for our next question.

Our next question will come from line of Brandon Lynch from Barclays. Your line is open.

Great. Thanks for taking my questions. I want to ask about Trends with the special servicing designation uh, are most of the distress situations known at this point, or do you still think there's some more to come?

Speaker Change: The the you know, I think as you'll notice as we noted in the earnings release, uh, we grew our special servicing, uh, quarter over quarter. I think that's been a consistent Trend in the past 6 or 7 quarters. We now have about 17 billion of, uh, current assignments. 6.1 billion of which are active, 10.5 billion are not active, but could be at any time or we get called, upon for specific assignments. Um, I would expect to see continued to see those numbers grow over the next few quarters. And there are a handful of uh, deals that we're working on now, where, you know, resolutions are imminent, uh, and that will lead to additional fees paid to the company.

Great. Thank you. And then also on um, office to resi conversions. Uh, have you identified any additional opportunities within your portfolio or has the tightness in the office Market made that a less attractive opportunity than it might have appeared a couple years ago? Well, it it's not I I mean our our buildings are almost entirely least you know. So those are not the most attractive candidates. Uh, we do have some that may have some, uh, near-term role or forget about the words near-term role coming up in the portfolio where we could consider such a move. Uh, but I would say that, you know, beyond 750, we would expect, uh, most of our participation either as a converter or a financier of conversions, to be for, uh, new Pipeline and new property not necessarily coming out of a portfolio. That's close to 92%. Least, uh, for reasons I think are you know,

mostly obvious, uh, you know, successful Office Buildings, uh, don't make great conversion candidates, it's, you know, uh, you know, either, uh, you know, Antiquated or

Speaker Change: Um, you know, obsolete or where there's full building or significant role. Those are the those are the best candidates and, you know, we don't, we don't really, uh, have a deep inventory of that.

Okay, thank you.

Speaker Change: Thank you. 1 moment for our next question.

Our next question, on line of Caitlyn Burroughs from Goldman Sachs. Your line is open.

Hi. Uh maybe just 2 quick ones following up on the discussion about um pricing and strong demand limited Supply. As you look across your portfolio. Um, what are the in place, uh, at least escalators that you guys have? And as you're signing new leases, I guess. Have you seen any shift in that over the last

Speaker Change: Plus years.

Speaker Change: In the building's operating expenses or or real estate taxes, um, then typically there's a anywhere between a 5 and ten dollar a foot base rent, increase in addition to those uh those pass throughs uh every 5 years of lease term.

Speaker Change: Some of our leases, we've gotten away from a pass through of operating and we've used a CPI escalator, but that's, you know, small percentage and typically smaller sized deals. But, you know, when we do that, that's a profit center for the firm.

Speaker Change: uh got it and then just um oh on the casino bed, do you guys have any idea like how many bids are still being reviewed and whether you're 1 of 5 or 1 of 20 at this point

Speaker Change: Well, we've got a pretty good handle. We're either 1 of 8 or 1 of 7, because the 1 of the bids is I think in question as to whether uh,

Speaker Change: The uh, you know, land use uh, will enable it to continue on but I I think of of filed applications I believe we are 1 of 8 for 3 licenses, got it. Okay. Thanks.

Thank you. That's all the time we have for Q&A. I would now like to turn the call back over to more caller today for any closing remarks. Thank you. And, uh, it's great, uh, catching up have a good rest of your summer, everyone, we'll be back to you in October.

Speaker Change: Thank you for your participation today's conference. This does conclude the program. You may now disconnect everyone have a great day.