SL Green Realty CEO Marc Holliday credited New York City’s robust economic climate as a big reason for the real estate investment trust’s strong first quarter, in which it signed leases totaling nearly 600,000 square feet of space and announced nearly 1 million square feet of deals in the pipeline, during the company’s first quarter earnings call today.
Almost half of the business done in the first quarter of 2013 involved new leases, Holliday said, adding that the REIT maintained this momentum in the first three weeks of April, with 164,000 square feet leased so far this month. Of the square footage in the pipeline, Holliday said that over half came through leases with new tenants, as opposed to renewals.
“Relative to last year in particular, there has been a lot of activity and success in filling vacant space we acquired in the growth portfolio,” he said.
During the same period last year, SL Green signed 64 office leases in its Manhattan portfolio, totaling 674,983 square feet, with the most notable deal being the 361,044-square-foot renewal with Random House at 1745 Broadway.
Lease concessions were also down in the first quarter, Holliday said, something he attributed to being “very prudent” on renewals and new leases.
Holliday cautioned against market pessimism stemming from the downsizing of the large financial firms, traditionally the biggest consumers of Manhattan office space. Speaking of the “vibrant business and leasing environment” in the mid-size leasing market, he noted the growth of demand in sectors such as business services, technology, healthcare, advertising and education.
SL Green-owned properties that saw an uptick in Activity Included 125 Park Avenue, 3 Columbus Circle, the Graybar Building at 420 Lexington Avenue, 919 Third Avenue, Tower 45 and 304 Park Avenue South, Holliday said.
SL Green and Vornado Realty Trust also inked new deals with two financial services firms, Blue Mountain Capital and Promontory Financial Group, at 280 Park Avenue, a 1.2 million-square-foot, 43-story office building located between East 48th and 49th Streets, as previously reported. The combined deals accounted for 99,082 square feet, SL Green and Vornado said earlier today.
On the retail front, SL Green signed CVS Caremark to a 15-year lease for 21,159 square feet at 3 Columbus Circle, a 26-story, 768,565-square-foot office building located between Broadway and Eighth Avenue, as previously reported. CVS was the anchor retail tenant “we had talked about landing as an important goal and objective for the year,” Holliday said during the call. SL Green owns the building in partnership with the Moinian Group.
The company also signed deals with Urban Outfitters and TD Bank at 180 Broadway, an under-construction mixed-use development by SL Green, Jeff Sutton and Harel Insurance. The deal, Holliday said, brings to 100 percent occupancy a “tower we developed from the ground up.”
The REIT’s dealmaking intent was perhaps best highlighted in Holliday’s response to a question about its acquisition strategy.
“Almost exclusively, the time is spent looking at acquisitions,” he said. “Acquisitions we don’t pursue, we tend to look at [as] structured finance opportunities. That’s why this duality works so well for us,” he said, referring to SL Green’s financing expertise that helped the firm secure $925 million in financing for the Sony Building at 550 Madison Avenue earlier this year.
SL Green’s president Andrew Mathias addressed the company’s growing residential portfolio, and singled out 1 Madison Avenue, which the company acquired in 2005, as a potential conversion project in the company’s portfolio. The site has 450,000 square feet of undeveloped air rights, Mathias said, and a lease with Credit Suisse that expires in 2020.
“It’s very feasible, very desirable,” Mathias said.
In response to a question about two SL Green-owned buildings in Williamsburg, an unidentified SL Green executive said that the townhouse component of the project would be sold off as condominiums and the balance rented as apartments.
SL Green executives including Steven Durels, the director of leasing, said that new developments in Hudson Yards and Downtown would be healthy for the market in the long-term, but would not affect SL Green’s immediate competitive landscape.
“For the 55 leases we signed in this quarter, I’m going to hazard to say somewhere between none or less than 10 percent viewed the new developments as viable, competitive spaces relative to the deals they made with us,” Holliday said. “We compete against the buildings in our submarket, almost exclusively.”
Chief Accounting Officer Matthew DiLiberto said that guidance – or projection of financial performance — would remain consistent with what was predicted at the beginning of the year.
“Part of our guidance assumes additional investment,” Holliday added. “We don’t run a static book. That’s not our profile.”