Empire State Realty Trust will continue to play it safe: Malkin

REIT reemphasizes "embedded, de-risked growth," talks up Empire State Building observatory
By Rey Mashayekhi | February 23, 2016 11:35AM

Empire State Realty Trust chair and CEO Tony Malkin reaffirmed his company’s strategy for “embedded, de-risked growth” on Tuesday, telling investors he envisioned “no development, no joint ventures, no bidding or buying at current cap rates and no lending” in the near future.

The New York City-focused real estate investment trust said it was “pleased” with its 2015 performance in its year-end earnings call, noting that it had executed 245 new and renewed leases representing more than 1.2 million square feet of office and retail space last year – a 54 percent jump from total leasing the year prior.

The fourth quarter of 2015 saw ESRT sign 39 leases spanning more than 198,000 rentable square feet across its total portfolio – “including several full-floor leases,” according to president and COO John Kessler. The company’s Manhattan office portfolio represented 23 of those deals for more than 111,000 square feet.

Kessler said the REIT is “pleased with the demand we’re seeing from prospective tenants” despite murmurs of a potential deceleration in New York City office leasing this year, and also talked up the positive performance of the observatory at ESRT’s flagship Empire State Building – which saw revenues rise slightly to more than $112 million last year “despite headwinds from international travel.”

Malkin also discussed competition for the Empire State Building’s observatory from that of One World Trade Center in the Financial District. While acknowledging that the observatory at the Western Hemisphere’s tallest building “is a known entity now,” Malkin said ESRT is bullish on “our competitive position versus One World Trade.”

“We like the fact that there has been a reaffirmation of the iconic nature of a visit to the Empire State Building – the connection with New York City and its history and being in the center of New York [in Midtown],” he said.

Empire State Realty Trust’s 7.5 million-square-foot Manhattan office portfolio saw a slight decline in occupancy in the fourth quarter – dropping to 84.9 percent occupancy at the end of December, down 0.5 percent from the previous quarter and down 2.6 percent from the end of 2014.

But the 2.8 million-square-foot Empire State Building saw increased occupancy thanks to several new leases, finishing 2015 at 86.7 percent occupied — up 3 percent from the end of the third quarter.

ESRT director of leasing Thomas Durels also played down concerns about signs of weakness in the real estate market, noting that the company is “not seeing any pushback on asking rents” from tenants.

And while echoing Malkin’s assertion on the REIT’s plans to continue finding growth within its portfolio — rather than through acquisitions – Kessler said ESRT will continue to look at “off-market” acquisition opportunities that would come from “relationship-oriented situations.”

“The market is cyclical,” Kessler said. “We’re going to be patient.”