Holliday predicts “headwinds” for city’s real estate market

"Rollback in job creation" could slow down commercial leasing velocity in 2016

One Vanderbilt Marc Holliday
From left: Rendering of One Vanderbilt in Midtown and Marc Holliday

SL Green Realty CEO Marc Holliday struck a more bearish tone than usual on his company’s year-end earnings call, noting that New York City’s largest office landlord sees economic “headwinds” that could slow down job growth and possibly dampen the office leasing market.

The real estate investment trust reported 44 signed Manhattan office leases in the fourth quarter of last year representing roughly 416,000 square feet of space, with total leasing activity in 2015 exceeding 2.2 million square feet.

SL Green has added another 310,000 square feet of leases to that total this January alone, Holliday said, citing several deals announced this week – alongside Citigroup’s $2 billion acquisition of its Tribeca headquarters complex at the REIT’s 388-390 Greenwich Street – as “a good way to kick off the new year.”

But Holliday was more cautious regarding the city real estate market’s prospects at large, saying SL Green expects “to see a rollback in job creation in New York City” that will likely impact leasing velocities, particularly toward the end of the year.

While the city created nearly 90,000 private sector jobs last year – including 30,000 “office-using” positions, according to Holliday – SL Green projects those numbers to fall between 50,000 to 60,000 new private sector jobs and 12,000 to 16,000 new office-using jobs in 2016.

And while describing the city’s investment sales market as “alive and well,” Holliday said he reckons transaction volumes will slow down in 2016 and forecast coming softness in the residential condominium and hotel sectors, where the market “will probably take a more strict view of pricing.”

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He noted, however, that “well-leased and well-located commercial assets will still be in demand,” and pointed to MRP Realty and Deutsche Bank’s reported $240 million acquisition of 405 Park Avenue in Midtown, at a projected price of $1,450 per square foot, as boding well for assets like the REIT’s 280 Park Avenue office building.

The 405 Park Avenue deal “doesn’t just flatter 280 Park, it picks it up and puts it on a pedestal,” Holliday said.

Current market conditions also “flatter” SL Green’s $2.6 billion acquisition of 11 Madison Avenue last year, according to Holliday, who called the Flatiron District office building “the kind of investment that has attraction in good markets and bad.”

The REIT may capitalize its position on 11 Madison through a potential joint venture, he added, similar to its strategy for One Vanderbilt. That 1.6 million-square-foot office skyscraper development near Grand Central Terminal is slated to cost $2.2 billion, according to a recent analyst’s note from investment banking firm Sandler O’Neill + Partners, and Holliday hopes to have a construction loan in place in the first half of 2016.

If SL Green is unable to find a partner to team up on One Vanderbilt, the company’s “plan B” would be to “sell other assets” and “fund the remaining equity out of cash flow,” Holliday said – dispelling any notion that the company would have to issue additional equity to finance the development.

Holliday also refused to be drawn on the company’s reported interest in an entity-level acquisition of fellow city-focused real estate investment trust New York REIT. An SL Green spokesperson recently told The Real Deal that the company is not in negotiations to acquire the beleaguered, city-focused REIT.

“I have nothing further to say on [New York REIT],” Holliday said. “We’re not at liberty to get into it.”

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