The Real Deal New York

Headwinds, schmedwinds: SL Green reports robust Q1

REIT signed 850K sf of Manhattan office leases, or 43% of 2016 target
By Rey Mashayekhi | April 21, 2016 04:00PM

Marc Holliday Steven Durels

From left: Marc Holliday and Steven Durels

In January, SL Green Realty CEO Marc Holliday bemoaned economic “headwinds” that he predicted would hit the leasing market in 2016. But on the real estate investment trust’s first-quarter earnings call Thursday, he struck a more exuberant tone, lauding an “outstanding” first quarter that saw SL Green sign nearly 850,000 square feet of office leases in Manhattan.

Some of the notable lease deals included Credit Suisse exercising an option to renew more than 186,000 square feet at 11 Madison Avenue — where the banking giant occupies around 1.2 million square feet in total — and a 104,000 square foot renewal with Wells Fargo at 100 Park Avenue in Midtown. Holliday also said the REIT, Manhattan’s largest office landlord, had a “near-term leasing pipeline” of around 1.3 million square feet.

SL Green’s previous Manhattan leasing target for 2016 was roughly 2 million square feet. An analyst on the call noted that with those first-quarter figures, the REIT has already hit about 43 percent of that target.

Holliday attributed that performance to strong private sector job creation statistics for New York City through the first three months of 2016 that ran contrary to previous forecasts for this year, albeit still “lower than record-setting [job] growth rates” seen recently.

He also said the company was “very pleased to see asset values in New York continue to hold up from their record levels in 2015,” and cited continued strong demand from foreign investors who “regard New York as the safest and most attractive place to invest and diversify their holdings.”

Holliday added, however, that “certain asset classes like residential condo projects, hotels and land will see values fall,” while “noncore or transitional office assets may see some downward pricing pressure.” Real estate research and advisory firm Green Street Advisors reported a slight decline in U.S. commercial property values last month coupled with a slowdown in transaction activity — though it noted that property values at large “appear to be holding their ground.”

Asked about recent reports regarding a softening in Manhattan office rents in SL Green’s core Midtown market, Holliday said the REIT had previously “pushed rents extremely hard” at some properties and had “probably brought those back $10 [per square foot] or so” in response to market conditions.

Steven Durels, SL Green’s director of leasing, said that at properties where the company had adjusted asking rents, “those adjustments were done on a select handful of spaces in only a few buildings” and not across the board – with the company “actually increas[ing] the rents on some of our other spaces.”

The REIT also commented on its 1.6 million-square-foot One VanderbiltTRData LogoTINY office tower development near Grand Central Terminal. The company is “still on track” to seal a construction loan “by the end of the summer,” Holliday said, and will then focus on finding a joint venture partner for the project.

On Wednesday, SL GreenTRData LogoTINY said it had agreed to accelerate its $2 billion sale of 388-390 Greenwich Street to Citigroup, which operates its global headquarters out of the 2.7 million-square-foot Tribeca office complex.