SL Green raked in $1.7B in asset sales in Q3

Holliday praises strategy designed to "backfund" 11 Madison acquisition

SL Green Realty
From left: Marc Holliday and Steven Durels

SL Green Realty CEO Marc Holliday used his company’s third quarter earnings call Thursday to herald nine different asset sale transactions in the period that raised $1.7 billion – a “designed and delivered strategy” to offset the company’s record acquisition of 11 Madison Avenue.

The nine dispositions, consisting of 12 separate properties, will generate in excess of $670 million in net proceeds for the company as it looks to “reduce overall leverage and backfund the closing” of the 11 Madison Avenue deal, Holliday said.

The asset sales, transacted at an average capitalization rate of 3.3 percent, “should dispel any notion” of investors cooling off on prime Manhattan real estate assets, Holliday added, rattling off a number of high-profile recent deals that have involved foreign buyers – such as Ivanhoe Cambridge’s involvement in the $5.3 billion acquisition of Stuyvesant Town and Peter Cooper Village.

“Clearly that market seems to be very much there, very much alive,” he said, adding that his real estate investment trust would continue to sell properties to fund future deals. He described asset sales as “the absolutely best form of capital” to fund that investment pipeline.

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The REIT also saw an increase in its leasing pipeline, which has swollen to 1.4 million square feet of deals currently in the works. Around 750,000 square feet worth of those deals “are either in negotiation or out to signature,” he added, giving them a “very, very high probability of closing.” Holliday attributed SL Green’s bolstered leasing activity to a “vibrant leasing market that did not take a pause during the slow and more volatile summer months.”

Most of those leases are in the REIT’s core Midtown office market, said director of leasing Steven Durels, who noted expectations of strong rent growth in the submarket. In total, SL Green signed 51 Manhattan office leases totaling 533,697 square feet in the third quarter, with Manhattan same-store occupancy increasing to 97.3 percent from 95.3 percent at the same point last year.

SL Green also dispelled concerns over a possible slowdown in leasing among TAMI tenants that have driven the city’s office market in recent times, with Holliday noting that such tenants constitute “a very small portion of the portfolio.”

“The way we run the business is oriented toward companies that are largely investment-grade, established companies,” Holliday said. A recent report from credit ratings agency Fitch noted that financial services tenants account for 33 percent of SL Green’s base rental revenue, and Durels said the company has term sheets out on “almost 300,000 square feet of deals pending with financial services-type tenants.”

On the REIT’s prized One Vanderbilt office tower development, which it recently got around to officially filing plans for, Holliday said he didn’t know of “anything going up that is delivering in 2020 that I would call competitive product in a triple-A location.” He added that the 1,500-foot-tall building is targeting tenants seeking between 50,000 and 200,000 square feet of “high-end” space.