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Manhattan’s largest office owner is predicting a change in its fortunes in 2024, raising significant capital and giving shareholders more guidance on expected profits this year.
625 Madison Avenue, which SL Green has agreed to sell for $630 million, according to an affiliate report.
SL Green will begin raising capital for a $1 billion opportunity bond fund this month, the company announced in its fourth quarter earnings report on Wednesday. The office giant also reported a net loss of $155 million for the quarter, up from $64.3 million in the fourth quarter of 2022, and operating cash, a measure of REIT cash flow, fell from $100 million year over year. It reported a decrease to $49.7 million. .
However, despite the decline in performance, the REIT revised its 2024 profit outlook upward by $1 per share.
“We believe the market has essentially bottomed out,” SL Green CEO Mark Holliday said on an earnings call Thursday afternoon.
Debt funds will emerge as office owners need to refinance but face high costs of capital and reluctance to lend from traditional sources such as banks. SL Green last year announced its intention to launch an opportunity bond fund this year, but previously expected it to launch within the first six months of 2024, Bloomberg reported.
On the conference call, Holliday said it has not yet been determined how much of the fund’s $1 billion will come from SL Green and how much from outside investors.
“We tend to want to be in the real world. We are both managers and investors of other people’s money, but that has to fit into the overall liquidity program for this year,” he said. It must be done,” he said.
SL Green missed its annual office occupancy goal despite signing 26 Manhattan office leases spanning 505,000 SF. The REIT ended 2023 with 90% of its portfolio leased, up 0.01% from the previous quarter and 2% below its goal of 92% by the end of 2023.
However, office tenants started paying more for space in SL Green properties in the final quarter of 2023. Landlords were able to increase average starting rents on previously leased space by 3.2% during the quarter.
In the last month of the year, the REIT also completed a loan modification on 185 Broadway, a 45,000 SF office building in the Financial District. SL Green will pay $20 million to modify and extend its debt, switching from a floating rate loan to a fixed rate of nearly 6.7% until November 2025, then back to a floating rate until maturity a year later.
The move is indicative of a lending environment in which lenders are reluctant to modify or extend loans unless building owners put equity back into their buildings.
The office giant also spent $963 million on a 115,000 SF property in Manhattan’s most expensive retail district, giving Gucci’s parent company Kering a stake in the retailer at 715-717 Fifth Avenue. Completed the sale. SL Green said it expects to generate proceeds of $27.6 million from the sale of its 11% stake. Jeff Sutton owned his remaining 89% of the property.
“I think these deals are being developed quickly and with confidence and are very exciting for the city,” Holliday said, adding that the deals reverse the long-standing narrative of the demise of Manhattan’s retail industry. he added.
The debt fund rollout remains the most important update on the earnings call, and Holliday said it shows investors are ready to invest in office real estate again in the nation’s largest market.
“Billions of dollars of debt and equity are being built, and a significant amount of that is going to go to the office sector. Those are the first signs.” [of recovery]”There are a lot of other buildings that need attention. I think there will be a liquidity collapse, and the first step in that is the creation of a capital pool. And institutions will follow soon after.”
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