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Like much of the large commercial real estate industry; SL Green (SLG) Both are showing signs of recovery, even amid alarming indicators of unmanageable suffering. At the same time, the company says it plans to take advantage of that very predicament across the landscape.
New York City’s largest commercial landlord reported poor cash flow numbers on Thursday’s fourth-quarter 2023 earnings call, but the company also reported strong lease totals and the sale of several buildings that generated hundreds of millions of dollars in revenue. also announced.
SL Green reported funds from operations (FFO), a number used by real estate investment trusts to show cash flow, of $49.7 million in the fourth quarter of 2023. This is down from the $100 million FFO the company reported in Q4 2022. Additionally, the company reported full-year 2023 annual FFO of $341.3 million, which is significantly lower than the $458.8 million annual FFO reported at the end of 2022.
“Look, nothing is ever easy in this market,” says SL Green CEO mark holliday he said at the financial results conference. “But what we showed you last year and what we continue to show you this quarter is that there is a lot of differentiation in this market between sponsors that partners and lenders want to work with and sponsors that lenders and partners don’t want to work with. It will be looked after.”
Amid the downturn in the office market, SL Green signed 160 office leases totaling 1.7 million square feet in 2023. This compares to the 141 office leases the company signed in 2022, totaling 2.1 million square feet. The company’s office occupancy rate generally maintained the same level in 2023, remaining at about 90% compared to the previous year.
“[This] It happens every time there’s a market disruption like this. There’s a weeding process, and then the market recovers, and then it happens again,” Holliday explained. “As a company, we are happy and fortunate to have the reputation, platform and resources to work productively with our trading partners to create the best solutions available for everyone.”
Part of SL Green’s solution to inherent market pressures was to recapitalize some of its older assets or sell others outright in the final quarter of this year.
together Jeff Sutton‘s wharton propertiesSL Green has sold the 115,000 square foot retail portion. 717 Fifth Avenue Holliday described the deal as “seismic news” and said the distribution to SL Green and Wharton Properties was equivalent to $8,000 per square foot of sale price. The company’s retail space is 21 East 66 Street Sold to a Swiss company for more than $40 million Akris The same goes for the fourth quarter.
“Obviously, 717 Fifth Avenue was not an anomaly,” Holliday said. “I have confidence in Fifth Avenue. [that] High street retail is on the rise again. ”
SL Green was also on sale. 625 Madison Avenuea 17-story office building, related For $633 million. As part of the transaction, SL Green and its joint venture partners agreed to provide his $235 million preferred equity investment in the building. This transaction also closed on December 4th.
SL Green also acquired 95% of the leasehold interest. 2 Herald Square For virtually no consideration, the company’s previous joint venture satisfied its existing $182 million leasehold mortgage with a $7 million payment from SL Green.
“There’s certainly work to do, but we’re on track to stabilize this asset,” Holliday said.
When asked, Evercore ISI‘s Steve Sakuwa In an earnings call, Holliday explained why the bank, which has a $182 million mortgage on 2 Herald Square, forced SL Green to repay its debt for next to nothing, and that this was a violation of both the lender and the sponsor. This is just another indicator that the US is seeking compromise amidst a sea of problems. dislocation.
“Everyone in this market is trying to come together to make sure these assets land safely,” Holliday said. “This is a great asset. We love this location… but it’s also an asset that we’ve got to really start thinking about what’s the best use for it.”
Holliday hinted that 2 Herald Square was built in 1910 and that mixed-use tenants include: Mercy University, capital one bank and ultra beautymay be ripe for conversion into housing.
“It has the ability to be flexible as a residence, both as a dormitory and with the potential for conversion to other residential uses,” Holliday said. “That’s what we like, deals that give us options. But we have to roll up our sleeves. Right-sizing the capital stack is only part one, and it’s a deal that gives us options. Executing your business plan is part two.”
Finally, the REIT also announced its intention to launch a $1 billion debt fund focused on investment opportunities in New York City’s distressed real estate, or offices. Holliday said members of SL Green’s senior leadership will travel to Asia this week to meet with investors to leverage the plan through fundraising.
“Billions of dollars of capital have been announced to be formed from credit and equity, with a significant but certainly not exclusive amount being targeted at the office sector, including our own efforts. “There are,” Holliday said. “It’s a playbook you’ve seen a few times, but it’s not everyone’s first rodeo.”Four years into the pandemic, he said, “the foundation of business in this city is very much It’s getting stronger.”
SL Green said it was not ready to announce how much stock it would invest in its planned $1 billion credit fund.
“There’s real skin in this game,” Holliday said. “But it has to fit within the overall liquidity program for this year. Once we feel very good about the level we’re going to be working at, we’re going to show confidence and belief in this program.”
Brian Puskas can be contacted at: bpascus@commercialobserver.com
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