SL Green records big loss on Gramercy

By Adam Pincus | January 27, 2009 04:15PM

SL Green Realty reduced the book value of its investment in Gramercy Capital by $133.5 million between the third and fourth quarters of 2008, the Manhattan-based real estate investment trust said in its fourth-quarter report released yesterday.

SL Green founded Gramercy Capital in 2004 as an affiliated specialty finance company created to make and buy loans secured by commercial and multi-family properties. For example, SL Green and Gramercy provided a $200 million acquisition loan for the purchase of Stuyvesant Town and Peter Cooper Village.

The book value of SL Green’s investment in Gramercy had been recorded as $141.5 million on Sept. 30, 2008, and was slashed to $8 million on Dec. 31, 2008, the financial statement said.

SL Green recorded a $147.5 million loss on its investment in Gramercy, “due to market conditions,” the company said.

In terms of all earnings, SL Green reported a 3.4 percent decrease on earnings before taxes, which fell to $141.3 million compared to the same period in 2007.

It reported that average starting rents in Manhattan rose to $71.49 in the fourth quarter from $66.78 per rentable square foot in the third quarter 2008.

During a conference call today, SL Green CEO Marc Holliday said he expected vacancy rates to keep rising over the next two years.

“We think vacancy rates can hit 12 percent or more over the next 24 months,” he said.

The company’s president and chief investment officer, Andrew Mathias, said his firm might consider a write-down for its investment in Stuyvesant Town if owners Tishman Speyer Properties and BlackRock Realty do not provide additional funding for the development.

“Stuy Town ownership has indicated publicly that they intend to contribute additional equity to the project and if that situation changes obviously that would be a good reason to take a closer look there,” he said during the call.

In addition to the financial report, SL Green said today that Wells Fargo Trade Capital, a subsidiary of Wells Fargo Bank, signed a 10-year lease for 44,716 square feet on the third floor of 100 Park Avenue.