SL Green preparing $1B coronavirus cushion

Landlord eyes refinancing, joint ventures, debt sales to become “impenetrable”

SL Green CEO Marc Holliday and CFO Matthew DiLiberto (Credit: SL Green)
SL Green CEO Marc Holliday and CFO Matthew DiLiberto (Credit: SL Green)

The coronavirus pandemic has emptied SL Green’s office buildings and killed a big sale, but New York City’s largest commercial landlord has a plan.

The goal: Beef up its balance sheet and its buildings to weather several months of uncertainty.

On the operational side, the company is making plans to welcome tenants back as early as the second half of May, CEO Marc Holliday said on a first-quarter earnings call Thursday. On the financial side, SL Green is putting together the biggest pile of cash it has ever had.

“In the current environment, cash is king, and we have taken our desire for liquidity one step further by looking to increase our cash balances from the $580 million we had at quarter end to at least $1 billion over the next 45 to 60 days,” CFO Matthew DiLiberto said. “We actually call this the billion-dollar plan.”

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Later in the call, Holliday elaborated on their reasoning. The $1 billion target is “a measured number, but it’s also an arbitrary number,” he said. “It’s the number we think if we have that kind of liquidity in the bank, with our liability structure and our asset structure, it makes us as close to impenetrable as we can get, and that’s where we want to be.”

If SL Green’s $815 million deal to sell the former Daily News Building at 220 East 42nd Street had not fallen through late last month, the billion-dollar target would have already been reached, Holliday acknowledged. “All we’re doing, really, is substituting different forms of capital for a sale that didn’t go as planned,” he said.

The prospective buyer, Jacob Chetrit, pulled out of the Daily News Building deal in late March after lender Deutsche Bank withdrew its support. The bank had planned to sell financing for the deal on the commercial mortgage-backed securities market, but it froze in the pandemic.

Chetrit forfeited a $35 million deposit as a result, though SL Green must go through a “long process” to get that money, DiLiberto said.

Quest for cash

To reach the $1 billion target, SL Green has already drawn down its credit facility, though it expects to pay down that balance quickly with cash from other sources. The company is close to securing a roughly $500 million refinancing for the Daily News Building, and another refinancing for 410 Tenth Avenue near Hudson Yards, where Amazon inked a 335,000-square-foot lease in December.

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Bringing in joint-venture partners for developments at One Madison Avenue and 126-132 Nassau Street can generate additional liquidity for the company as well, DiLiberto said, as could the sale of parts of its debt and preferred equity portfolio.

SL Green executives view the current strategy as an extension of the firm’s approach over the past several years, as it has shed non-core and suburban properties and de-leveraged its portfolio.

“We couldn’t have predicted the current moment, but we’re comfortable with where we sit today with substantial cash and liquidity, generally long-dated assets and liabilities, and a stable base of credit tenants,” said Holliday. He noted that the company had collected more than 92 percent of office rents and 60 percent of retail rents for April, or 86 percent of total rents, with a number of tenants still expected to pay in the final days of the month.

Chetrit’s withdrawal has also forced SL Green to pause its $3 billion share-buyback program. The company had bought back 2.6 million shares of common stock this year and claims to still views its own shares as a great long-term investment, especially given current low prices.

Welcome back

On the operational side, the landlord is waiting for New York state to lift its ban on non-essential work, which has been extended until May 15. And construction at One Vanderbilt, which was previously ahead of schedule, may still finish on time — especially if work is permitted around the clock.

“With our buildings and construction sites secured, we have turned our attention to the business of welcoming our tenants back into the portfolio as soon as the workforce limitations are eased,” Holliday said. “While no one yet is certain how or when the restrictions will be lifted, we are planning for a partial return to offices some time in the second half of May, with ramping up occurring over June and July.”

On the call, COO Edward Piccinich spoke at length about the many aspects of office management in the age of coronavirus, from communications and safety to cleaning and social distancing, that SL Green is addressing.

Holliday also discussed another hot topic in real estate: Whether companies that have adapted to remote work decide they don’t need as much office space in the future? His response was, predictably, negative.

“Work-from-home has proven serviceable at best. However, businesses are currently operating far below full capacity and capability, and there is simply no substitute for working in purpose-built environments, free of home-life distractions, in a collaborative setting which nurtures creativity, camaraderie and collaboration,” Holliday said.

“Count me out as someone who believes the future of work will be at home, in a bedroom, with a laptop computer and spotty Wi-Fi connections, with family members doing video bombs.”