Six months ago, SL Green Realty’s CEO Marc Holliday spoke of a “dark cloud” hanging over Manhattan’s commercial real estate market. Since then the weather appears to have cleared up considerably.
The office REIT more than doubled its funds from operations (a measure of cash flow) year-over-year in the second quarter to $357.8 million on the back of stronger-than-expected leasing velocity, the company said in an earnings call Thursday.
SL Green, which owns and develops office and retail properties in Manhattan, has leased out 1.47 million square feet in the first half of the year and said it has a leasing pipeline of another 1.6 million square feet.
“Most people are still in the midst of expanding their businesses,” director of leasing Steven Durels said on the call, adding that the office market is in better shape than market reports and macro data indicate.
Cheap debt was another boost to profits. Holliday said the annual savings from continuously low interest rates would likely exceed the $30 to $40 million SL Green had initially projected. In July, the company signed a $300 million interest rate swap deal to take advantage of lower rates.
The company’s executives spent a large portion of the call talking about One Vanderbilt, a $3.1 billion office development next to Grand Central Terminal. Demolition of existing buildings on the site is under way, and Holliday expects the site to be clear and ready for excavation in three weeks.
SL Green recently signed a term sheet for a $1.5 billion construction loan, which the company expects to close within 60 days. The company is also still holding talks with potential joint venture partners, which Holliday said “have gone exceedingly well” but are unlikely to lead to a deal this year.
Meanwhile, the future of SL Green’s 19,000-square-foot retail space at 1515 Broadway is still in limbo. Aeropostale is set to leave after filing for bankruptcy, and Durels said the company is currently marketing the space.