SL Green Realty executives Marc Holliday and Andrew Mathias agreed to personally buy stakes in One Vanderbilt that could net them up to 3 percent of its profits, amid rising shareholder skepticism over the company’s $3.2 billion office project.
Holliday , SL Green’s CEO, in December agreed to pay $1.44 million for a stake that would entitle him to between 1.5 and 1.8 percent of the tower’s profits, according to a note buried in the company’s most recent filing with the Securities and Exchange Commission. Mathias, the company’s president, is paying $960,000 for a stake entitling him to between 1 and 1.2 percent of any profits. Neither can sell their stake until the tower is completed and fully leased.
A company spokesperson told The Real Deal that the investment “resulted from discussions involving the board and executives” and was “not in any way driven by third parties” such as lenders.
“It’s putting money where the mouth is, and they’re doubling down on their exposure,” said Sandler O’Neill analyst Alex Goldfarb, pointing out that the executives’ bonus pay already depends on the tower’s performance.
According to the filing, the move is designed “to further strengthen the alignment of the interests” between Holliday, Mathias and the company. It comes as some analysts voice concern over the slow pace of leasing at the project and competition from new development like Hudson Yards and Manhattan West.
SL Green hopes to average rents of $150 per square foot at the 1.7-million-square-foot tower, but has so far only signed one major tenant, TD Bank, for around 200,000 square feet (as well as Daniel Boulud, whose new restaurant will take some of the retail space). At its latest earnings call the company said it doesn’t expect leasing to start until 2018, to the disappointment of some observers.
“Any time an executive makes a personal commitment to a project that’s not well regarded in the market, it makes a statement,” Goldfarb said.
Morningstar analyst Edward Mui cautioned that the move could attract ”even more attention” to the project’s doubters and won’t necessarily benefit shareholders. “Executive compensation should already reflect overall performance and goals,” he said, “so you wouldn’t need this type of arrangement.”
SL Green recently said it expects One Vanderbilt to make $198 million per year once completed and fully leased, with space leasing at an average of $155 a square foot. The National Pension Service of Korea and Hines bought stakes in the project in January.
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