[NYguy]

A little discussion on the SL Green plans...


https://seekingalpha.com/article/454...all-transcript

SL Green Realty Corp. (SLG) Q3 2022 Earnings Call Transcript


Oct. 20, 2022

Marc Holliday

.....Before opening up the line for questions, I want to acknowledge a few other milestone moments for the company. First, Summit One Vanderbilt is celebrating its one year anniversary tomorrow. We will all be there to recognize the successful launch of this world-class attraction that has quickly become one of New York's hottest experiences, having welcomed 1.4 million guests to summit during the first year of operation with far more expected next year.

During the third quarter, we prevailed in consolidating ownership and control of 245 Park Avenue, a trophy asset in the SL Green corridor of owned properties after a contentious bankruptcy litigation. We have plans to improve 245 Park over the next 24 months to make it one of the most desirable buildings on Park Avenue. Last week, we received the excellent news that Le Pavillon received a Michelin star less than 18 months after opening during the pandemic.

Alexander Goldfarb

Good afternoon. So two questions. First, just taking a look at bringing on converting the DPE positions for 5 Times Square and 245 Park, just want to understand one, the earnings impact. Because I think you were getting close to 11% on the DPE positions previously, and I'm not sure how that equates to a cap rate on the buildings. Two, I think you have some large vacancies coming in 245 Park. So maybe Matt, if you could just talk about how we should think about the economics in impact to earnings from converting those two positions?

Matt DiLiberto

Sure. I'll let Steve address the 245 Park vacancy question you had. As the earnings, obviously we'll be giving guidance for 2023 on December 5 at our investor conference, so you'll get more detail then. You alluded to the DPE balances rolling off that's about $367 million of debt and preferred equity investments combined between 245 and 5 Times that we're rolling off at just short of 11%. You're right, the properties do not generate that equivalent return on their phase five times is in redevelopment and lease up. We only own 30% – 32% roughly of that. And 245 we own a 100% of. There will be finalization of GAAP adjustments and those types of things done over the coming weeks leading into our guidance for 2023. But the roll off is substantial at $367 million a year, 11%.

Steve Durels

And then with regards to vacancy or pending vacancy at the building, we really don't have as much as, I think, you may suspect. The JPMorgan space, which is 17 floors in the building, 15 of those floors were either previously leased to SocGen or while we were doing the leasing for HNA, we had pre let five of the floors to Houlihan Lokey. So that only leaves us two floors to really deal with when we get that space back late next year.

Other than that, there is about 120,000 square feet of current vacancy. There is another block in the building that we get back – late this year – I'm sorry, late next year, Major League Baseball, which had roughly five floors. We had pre-leased most of that space on short term leases to either Rockefeller Group or Houlihan Lokey. So we'll now get it back mid to end of next year.

Other than that, there is a smattering of floors throughout the building. And that sort of roll over the next couple years is what's justifying the capital program that we're in design for the building right now, which we're really excited about. Just to remind everybody, this product is exactly what the world is looking for today. It's side core design has a floor plate design that has actually six corners on it. The way it's configured sits directly catty-cornered to JPMorgan's new headquarters, has direct access to Grand Central Terminal.

Our development plan, which is going to be a spectacular transformation of the building from the plaza, to the lobby, to amenities being added is, I think, a very forward-thinking. And we're already trading paper with prospective tenants. So, I have the greatest confidence that this building will outperform.

John Kim

Thank you. You guys talked about the improvement you could make at 245 Park over the next couple of years and the former owner was capital constrained. So I was wondering if you can comment on how much CapEx will be needed to upgrade the building? And also, if you can comment on the timing of finding a joint venture partner.

Marc Holliday

I would say, needed is – there’s a lot you can work into what’s needed at the property. I mean, the property leases in its current state. And we’ve done actually a lot of lease and how much, Steve?

Steve Durels

Probably 200,000-plus square feet.

Marc Holliday

Yes. We’ve done about 200,000 square feet plus. The building is a very good building. But – and I don’t think needs for much. However, what to bring it up to where we want it to be to its full potential and be consistent with some of the great properties within the portfolio that have extensive amenities, et cetera, we’re going to go in sort of electively and voluntarily, I would expect any program of size to be under $100 a foot. So I don’t mean that to sound de minimis. It’s a big building. That’s up to 1.8 million square foot building. And that’s the beauty of the situation here is we can amortize some substantial improvement dollars over a very large asset and for relatively, I’ll call it, modest incremental investment per square foot.

We can take our already low basis for our Park Avenue asset of, I think, about $1,100 a foot, if I’m not mistaken, maybe even slightly under that. And like I said, make a very large dollar amount, but a small relative per square foot improvement amount for improvements, beautification, efficiencies, new lobby, plaza, amenities and still have a basis very low by Park Avenue standards, and I think have one of the best buildings with one of the best views sitting right on top of access to Grand Central Station. Thanks.

John Kim

And the timing of a JV partner?

Marc Holliday

The – well, I mean, we’re looking. I mean, we’ll begin those conversations in this quarter. And that will – that’s one of our priorities for – will be one of our priorities for 2023 will be identification and closing of a JV partner. But we, I guess, already have begun fielding inbound and will be sort of proactively marketing outbound this quarter.