Release Date: October 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SL Green Realty Corp (SLG, Financial) reported strong leasing momentum, highlighted by a significant 925,000 square foot renewal and expansion with Bloomberg at 919 Third Avenue.
- The company successfully completed the development of One Madison Avenue, with IBM and other tenants moving in, showcasing modern and innovative office spaces.
- SL Green Realty Corp (SLG) is experiencing a resurgence in New York City's real estate market, with expectations to achieve over 3 million square feet of leasing in 2024.
- The company has re-entered the debt and preferred equity (DPE) business, investing $110 million in various debt investments, and plans to launch a debt fund in the fourth quarter.
- SL Green Realty Corp (SLG) is seeing positive market trends, with rising rents and strong demand for Class A office spaces in East Midtown, New York City.
Negative Points
- The company faces challenges with its Alternative Strategy Portfolio (ASP), which includes assets perceived to have little current value.
- There are concerns about potential tenant move-outs and rightsizing of office space, which could impact occupancy rates.
- The financing market remains uncertain, with questions about traditional lenders' willingness to lend on commercial real estate and office properties.
- SL Green Realty Corp (SLG) is navigating a complex market environment, with ongoing discussions about office-to-residential conversions and their feasibility.
- The company's SUMMIT One Vanderbilt operations experienced higher operating expenses than revenue in the third quarter, attributed to seasonal factors.
Q & A Highlights
Q: Congrats on the Bloomberg transaction. Was it included in your pipeline, and can you share any details on the rent economics and concessions?
A: The Bloomberg deal was not in our reported pipeline as it came together quickly. We are under an NDA, so we can't share specific details, but it is a 15-year lease with a substantial positive mark to market. Concessions are appropriate for a renewal but significantly below what they would have been for vacant space. The pipeline remains diversified, heavily weighted towards financial services. - Steven Durels, Executive Vice President, Director of Leasing and Real Property
Q: Is the One Vanderbilt joint venture sale still on track, and do you need to sell a stake in the asset given the improved market sentiment?
A: The One Vanderbilt transaction is on track to close in the fourth quarter. We don't have to sell, but it was part of our original business plan to optimize the asset between 50% and 60% ownership. We are in great shape with various capital generation tools at our disposal. - Harrison Sitomer, Chief Investment Officer and Marc Holliday, CEO
Q: Can you comment on the transaction market and whether opportunities are more pronounced in the DPE side than direct purchases?
A: Both debt and equity liquidity are returning to the market. This year, there has been $5.3 billion in SASB loan origination, indicating a different picture from last year. Our focus is more on development-oriented and longer-term opportunities, with most activity expected in DPE. - Marc Holliday, CEO
Q: What are your expectations for cash same-store NOI for the rest of the year and into 2025?
A: We will discuss 2025 at our investor conference in December. For 2024, the portfolio has performed better than expectations, leading to raised guidance in July. The fourth quarter is trending similarly, but we are not changing our full-year guidance. - Matthew Diliberto, CFO
Q: Can you provide an update on the mortgage servicing business and its income potential?
A: The business is growing rapidly, with $5 billion in active assignments and another $6.8 billion where we are named special servicer. Revenues are mostly going to the bottom line, and we are getting new appointments on new originations, making it a sticky business for us. - Harrison Sitomer, Chief Investment Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
