SL Green Planning $2.5B in Manhattan Property to Offset High Interest Rates
Efforts to “fight against interest rates that are too high,” has led to plans by New York City’s biggest office landlord SL Green Realty, to sell “about $2.5 billion worth of properties in Manhattan.” Decisions to sell were prompted by a loss in income as a result of too high interest rates according to reported statements by the REIT’s Chief Financial Officer Matthew DiLiberto, Included among the mix of office and residential buildings within the December 5th presentation to investors are “1350 Sixth Avenue, a 600,000-square-foot Plaza District office tower; a 25% stake in 245 Park Ave., a 1.8 million-square-foot tower acquired out of bankruptcy three years ago; and a 65% stake in the office building at 750 Third Ave. that’s being converted into apartments.” SL Green is hoping to take advantage of the recent surge in demand for Manhattan real estate at a time when “Manhattan’s 13.1% office vacancy rate is well below the national average of $19.3%” according to a recent report by ratings firm Moody’s. Steve Sakwa, an analyst in the equities division of independent investment banking advisory firm Evercore reportedly estimated “a sale of 1350 Sixth Ave. would produce more than $300 in proceeds, while a 25% stake of 245 Park would generate almost $500 million. A sale of the Olivia, an apartment tower SL Green owns at West 33rd St. [315 West 33rd Street], would produce almost $400 million.” Moody’s report further revealed that SL Green is highly leveraged, carrying nearly $7 billion in liabilities, however, it has been reportedly stated by BMO Capital Markets analyst John Kim that, “property sales should help SL Green shave off $1.2 billion in debt next year.”
A related November 24th article by Crain’s New York noted that both SL Green and Empire State Realty Trust’s (ESRT) stock prices fell by 35% this year, while Vornado Realty Trust, the city’s second biggest commercial landlord saw a 20% drop despite improving fundamentals as “office leasing in New York is on “pace to exceed 2019 levels, and new towers are soaring around Park Avenue that are expected to command rents of up to $300 per square foot.” One explanation for Manhattan office stocks performing poorly in such a strong market was provided by JPMorgan, which believes it is due to the heavy spending by developers on “the fastest elevators and the most amenable amenities,” resulting in “increasing overhead and depressing cash flow, meaning shareholders must wait longer to see returns.” In response to that prospect, institutions are putting their money elsewhere. JPMorgan real estate analyst Tony Paolone provided an example scenario to Crain’s New York, citing Vornado Realty Trust’s more than $1 billion investment for the transformation of Penn 1 and Penn 2, noting that “new tenants will receive roughly one year of free rent at the start of their leases, a common perk among New York’s office towers;” and as a result, “Vornado’s ‘actual cash flow is pretty depressed,’ until those tenants start paying rent,” which according to Vornado President Michael Franco, the inflection year for when investors are expected to see the full benefits of redeveloping Penn Plaza is in 2027.
Source: https://www.crainsnewyork.com/real-estate/manhattan-landlord-sl-green-planning-property-sales
Source: https://www.crainsnewyork.com/real-estate/manhattan-office-stocks-sink-amid-steep-spending-amenities