SL Green Realty Corp (SLG) 2007 Q2 法說會逐字稿

Welcome to SL Green Realty Corp.'s second-quarter 2007 earnings results conference call. This conference call is being recorded. At this time the Company would like to remind the listeners that during the call management may make forward-looking statements; actual results may differ from predictions that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the Company's Form 10-Q and other reports filed with the Securities and Exchange Commission.

Also during this conference call the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed in the reconciliation of the differences in each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at www.SLGreen.com; select the press release regarding the Company's second-quarter earnings. Before turn the call over to Mr. Marc Holliday, Chief Executive Officer of SL Green Realty Corp., we would like to ask those of you participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. Go ahead, Mr. Holliday.

Thank you and good afternoon, everyone. Welcome to SL Green's second-quarter earnings call. With me today are Andrew and Greg who will be addressing you later in the call as well as Steve Green, Steve Durels, Andy Levine, among others of us here to answer your questions at the end.

We've just concluded what I believe to be one of the strongest if not the strongest quarter ever in terms of company performance. I know I've said that on previous conference calls, but given the strong fundamentals in New York City, our top tier management team and a very opportunistic business strategy, we have once again combined all of these factors to produce sector leading results and record earnings for our company.

What differentiates this quarter from prior periods is that this high level of outperformance was achieved within a very volatile capital markets environment which has injected a level of concern and uncertainty into the commercial real estate markets and has had the effect of raising the cost of debt and equity capital. As I said on last Wednesday's Gramercy Capital Corp. earning call, and I'll repeat it here again today because it's applicable as well, we at SL Green welcome the opportunity to execute our business plan in a market that will make it more challenging for our competitors.

Our ability to meet these challenges head-on with a prudent game plan that will substantially insulate the Company from the risk of a market dislocation while having a very liquid position makes us ready to capitalize on opportunities as they present themselves in the market. The commercial real estate debt markets continue to upwardly reprice risk as actual and anticipated sub prime losses take their toll on hedge funds and other fixed income investors that are exposed to this area and liquidity is exiting the market for bonds below the AA level as a result of repurchase facilities that are being reined in.

While losses in CMBS and other commercial real estate paper continue to hover at extremely low levels of below half a percent per annum, there is an expectation that these losses may increase to roughly 1 to 1.5% per annum. But even at these levels most investment grade classes of bonds would not realize any actual losses. Our belief is that the spread widening has been fairly indiscriminate and that while risk is being repriced upwards there are clearly opportunities to arbitrage deals in better markets with sound fundamentals and with properties that are well seasoned.

I don't think there is any office REIT in the sector that sees these developing trends as clearly as we do given our daily oversight of the Gramercy Capital Corp. finance platform. And that insight is particularly useful when optimizing SL Green's business strategy. One of the most important observations to note for SL Green shareholders is that we are still seeing a steady stream of aggressively priced debt and equity capital in select markets with favorable underlying supply and demand metrics. Nowhere is this more evident than in Manhattan where the demand from businesses for well located space continues unabated, demand from equity players for prime office buildings is voracious and supply of debt capital to get those transactions done remains plentiful.

In fact, year-to-date there has been $26 billion of total office sales in the market, that's as reported by one of the market participants and we track as well. And that volume has been transacted at what is reported to be 3.3% going in cap rate. But I'm more focused on what has transpired since the outset of the market volatility which first appeared in February of this year. And since then over $10 billion of real estate has been contracted in Manhattan in just a sampling of the 10 largest deals. That comprises almost $8 billion of purchase price done after the market volatility set in in February, half of those properties pricing in excess of $1000 per foot and all such properties averaging $950 per square foot.

So, obviously, there is a clear signal and indication from the market that notwithstanding the headwinds there is still an enormous volume of deals that are pricing as recently as June and July at weighted average cap rates of approximately 3.6% while many of those 10 properties were under 3.5% and one has actually done a sub 3% level, that's all very recent current statistics.

Back in January and February of this year such deals were eye-popping such as the Macklowe transaction where he acquired the EOP properties and Charlie Kushner's acquisition of 666 5th Avenue when they were first announced. But even more startling now is that this volume of transactions has ensued at the same or higher price points right in the headwinds of difficult capital markets. This paradox can only mean that there is and continues to be a strong belief that rents in Manhattan will continue to evidence sustained growth for the next two to three years before any meaningful addition to supply can be achieved.

Clearly this is not just a hunch, but is solidly evidenced in SL Green's earnings results for the second quarter where average office starting rents rose by 40% over previously escalated in place rents following our reported 37% increase in the first quarter. Same-store NOI growth of 9.2% in the second quarter following first-quarter growth of 5.8% clearly is providing the market with reason to look past the increases in borrowing costs and seize the opportunity to continue to acquire properties, even those with significant negative carry, in order to make total levered returns of approximately 8% to 10% which on a risk-adjusted basis looks very good to institutional investors who can't readily replicate those returns in an asset class and a market as favorable as Manhattan Class A office.

It is specifically because of these factors and a belief that we have assembled the best of class management team that is ready to take advantage of market dislocations while having an underlying portfolio containing substantial organic growth that we again expect to see differentiation among companies in our public market office REIT sector just as we saw in the late 1990s and early 2000. With that as a background it is incumbent on us to look anew at our business strategy and make modifications and refinements to anticipate the market, not simply rest on our accomplishments to date.

Obviously the strategic plan we implemented last summer has paid enormous dividends when we made the seminal decision to acquire the Reckson portfolio and specifically the 5.6 million square feet Class A office product in New York City which had a cost then of around $650 per square foot and has a value today in excess of $1000 per square foot. As part of that strategy we embarked on the sale of 10 Class B assets aggregating $1.8 billion of total value and yielding gains and incentive fees to SL Green of approximately $825 million.

Enviably all of these gains, most all if not 100% of these gains were reinvested on a completely tax-free basis into the Reckson portfolio and several other assets we've accumulated since that time. Since our capital raising efforts exceeded the bridge capital we incurred to acquire the Reckson portfolio we have used the excess proceeds to significantly pay down the leverage on our balance sheet and buy back stock. These moves prove to be fairly prescient as rents for Class A buildings now routinely exceed $100 per square foot, prices for Class A buildings routinely exceed $1000 per square foot, and the low debt levels gives SL Green the financial flexibility to be very adaptive in the face of volatile markets.

As a case in point, our combined balance sheet leverage was as high as 52% at a point in time, but we now expect to have paid that down to under 40% on a combined basis based on pro forma transactions and our consolidated indebtedness will be roughly 33%. These results are not merely coincidence but part of a well-designed strategy to mitigate risk within the portfolio, maximize earnings potential with the highest quality assets and increase balance sheet flexibility heading into what could be a more opportunistic environment.

Now I would offer on this call the 10 points that serve as the basis of our current business strategy which I will review briefly and would be happy to take questions during the Q&A component of the call. First, maximizing organic growth through aggressive management of the rent roll. Simply stated, we have a team of leasing professionals that aggressively manage their portfolios in order to maximize, blend and extend opportunities and create situations where tenants compete for space to maximize mark to market on old leases. The current low vacancy rate of approximately 5% plus or minus and limited development pipeline deliverable before 2011 forms the right foundation for our continued success in this particular area.

Two, renovate and develop existing inventory to achieve very high return on capital. Many of our properties are A Class properties but constructed in the 1960s and 1970s. Therefore there is an extraordinary opportunity for us to embark on capital programs of anywhere between $50 per square foot and $100 per square foot and achieve immediate uptick in obtainable rents of $5 to $10 per square foot or higher resulting in double-digit yields on capital deployed. 485 Lex, 100 Park Avenue and 521 5th Avenue are perfect examples of this strategy in action.

Three, continue to buy opportunistically. Notwithstanding the heated market environment we have proven again in 2007 our ability to buy properties opportunistically and frequently on an off market basis. Through the first half of the year alone SL Green has transacted on 11 different deals with an aggregate gross value of $2.75 billion, where in the equity component for SL Green is around $600 million. Notable deals included 1745 Broadway, 1 Madison Avenue and 333 West 34th Street.

Fourth, buy back stock. The combination of a stock price that is roughly equal to its opening level in January 2007 and the sizable expansion of net asset value through the Company's enormous activity highlighted in Q1 and Q2 and its exceptional strong organic growth has proven to us to be an excellent buying opportunity and one that we have taken advantage of. Through the date of this call we have acquired roughly $49 million worth of stock at an average price around $128 per share. We have authorization from our Board to go to $300 million and we would expect to continue to be in the market buying shares at levels we deem appropriate given our belief that a sizable discount to NAV exists and our belief that such actions will be long-term accretive to shareholders.

Five, continued harvesting of gains. Notwithstanding we have completed our recycling of B buildings into the Reckson portfolio, we now have acquired a whole new universe of 1031 receivers in Manhattan that will enable us to aggressively sell more properties during the second half of the year and reinvest those proceeds on a tax-free basis into product that we have recently acquired or are under contract to acquire. We believe that are disciplined adherence to this recycling program is an inherent hedge against a market downturn and continues to be our most efficient cost of capital when acquiring new buildings.

Sixth, we continue to reduce cost of capital, great success in renegotiating our lives of credit in the second quarter to upsize capacity to $1.25 billion and reduce our spreads by 30 basis points on average combined with cycling out of floating-rate obligations into fixed-rate obligations where we saw better value all combine with accessing cheap equity capital through asset sales to drive down the Company's cost of funds and enables us to compete with the most aggressive of market participants in our sector. While we continue to enjoy very low cost of capital we are using that capital very judiciously for deals that we think will provide the highest returns rather than expending such moneys on transactions that are very much back end loaded and uncertain.

Seventh, we've expanded the retail program. The success of this incipient program has been evident in transactions like the Apple deal on 34th Street, the Spotlight deal in Times Square, and most recently in the second quarter the massive lease with Giorgio Armani at 717 5th Avenue. Andrew will expand on that transaction in particular, but in the aggregate the retail program is producing some of the best returns for SL Green on a pound per pound basis and we will absolutely continue to acquire new inventory to reposition and maximize along with our partner, Jeff Sutton.

Structured finance, number eight. Given the market dislocation SL Green expects to be able to participate in a manner generating very opportunistic returns either directly in structured finance positions like participating pref equity that we do on balance sheet or through continued investment in Gramercy Capital Corp. which itself had record earnings in the second quarter announced last week and is also poised to take advantage of excess returns in the market given its sound capital foundation with existing term CDO financings in place.

Ninth and lastly, we have an enhanced suburban franchise. We will look to identify within our portfolio of properties in Stamford, Westchester and New Jersey which ones will have the greatest velocity in mark to market and then focus our management efforts on those properties while shedding or joint venturing other properties in those same markets where we believe organic growth will be harder to achieve.

There are many other opportunities we expect to realize over the next several years that don't fit neatly into these several categories such as consolidation of JV interests like we achieved in 1 Madison Avenue, 485 Lex and 19 West 44th Street, and development of our pipeline consisting of air rights at 1 Madison Avenue and a development site at 317 Madison Avenue, all which will provide additional growth in future years.

I think it's obvious to see why we continue to be very bullish on the outlook for SL Green due to the strong internal growth and the harvesting of properties which in some cases has resulted in incentive fees. We are upwardly revising our earnings guidance for a second time this year to $5.50 per share. This amount is derived from our projection of operating performance for the balance of the year as mitigated by the effect of the restructuring of the Graybar ground lease which I alluded to on the last call and other refinancing opportunities that may have the net effect of reducing earnings in the near-term but benefiting the Company greatly on an earnings basis going forward.

As it relates to the Graybar ground lease restructuring, I believe the transaction represents one of the highlight transactions for this Company whereby a roughly 23-year remaining ground lease was extended for as much as 75 years in total which is financially equivalent to the ownership -- fee ownership on a net price and value basis. In an attempt to keep things moving along I will stop here and turn the call over to Andrew Mathias who will take you through some of the specific investment achievements during the second quarter.

Thank you, Marc. Against the backdrop of a Manhattan investment sales market which continues to achieve new highs on the price front in the face of shaky capital markets, SL Green continues to execute on all fronts of its value added investment strategy. This strategy includes off-market negotiated acquisitions, fully marketed dispositions, our retail and suburban platforms and our structured finance business.

The highlight of the quarter's activities was our announcement of our acquisition of Gramercy Capital Corp.'s 45% interest in the office portion of 1 Madison Avenue. Our joint ventures continue as in the case of 485 Lexington and 19 West 44th Street previously to be among our best off market pipeline for acquisition opportunities. Gramercy's board and management team decided the time was right to take profits and liquidate their interest in the asset and the timing couldn't have been better for SL Green.

Our initial goals in venturing the asset with Gramercy were to move the relatively highly leveraged asset off our balance sheet and own the asset more efficiently while we explored potential development upside in the air rights of the property. As SLG's balance sheet has grown considerably since 1 Madison's acquisition over two years ago we're now in a much better position to consolidate this asset onto our balance sheet as a wholly owned investment.

Additionally, we've made strides toward making the potential development over the Eastern portion of the building a this cycle event rather than a next cycle event. As we continue advancing this exciting opportunity with the air rights we wanted to be fully in charge of decision-making at the office portion of the property. We continue to see enormous long-term upside in this asset on the office front as well and the gains from the dividends and incentive fees from Gramercy will further amortize our basis in this building. At a north of 5% cap rate going in on the finest institutional quality real estate funded with 3.5 to 4% dollars from our sales of properties you got to love that trade, as Greg Hughes would say.

The other highlight of the quarter was the restructuring of the ground lease of the Graybar building which we announced in June. In terms of long-term value creation, restructuring this lease has been one of our primary goals since our acquisition of the property in 1998. With that said, with land values in New York escalating daily and tracking with property prices the negotiation of rental levels could have been prohibitively expensive. However, given our relationship with the fee owner and some fortuitous timing on shaking hands on a rental level we are able to negotiate a rent based on a land value of less than $250 per square foot, a discount of 50% or more from where comparable land cites are trading in today's market. The long-term extension ensures this asset will continue to generate enormous cash flow for our shareholders for the foreseeable future.

Additionally this quarter we disclosed a material expansion of our proprietary fee acquisition business with our announcement last week of our acquisition of the fee interest in the Lipstick Building at 885 3rd Avenue in partnership with Gramercy. This program continues to allow us to earn very attractive returns for what are essentially super senior positions within the capital structures of these property acquisitions. When combined with Two Herald, SLG has deployed over $250 million of capital into these highly attractive and accretive positions.

In other activity we announced our acquisition of 16 Court Street in Brooklyn Heights, Brooklyn. Our unique relationship with this seller allowed us to secure this asset at what we believe to be an opportunistic price which we quickly validated by bringing in City Investment Fund as our joint venture on the asset at a markup to our contract basis. With current occupancy of under 80%, a major retail repositioning possibility, and a going in cap rate at least 100 basis points wide of comparable Manhattan cap rates we're excited about the prospects of this, our first opportunistic purchase in the Borough of Brooklyn.

In the suburbs we also continue to use our market position to secure off market deals as in our acquisitions of 500 West Putnam in Greenwich, Connecticut and 1010 Washington Boulevard in Stamford. As we were net acquirers in the suburbs this quarter, as Marc highlighted, I would expect to look for some strategic dispositions to follow in these markets in the second half of the year in our Westchester and Connecticut portfolios.

In addition to a full acquisition agenda on the disposition front, we managed to complete our previously announced portfolio repositioning, all executed in a completely tax-free manner and reinvested into the Reckson transaction. These included the sales of 110 East 42nd Street and 125 Broad Street closed in June 2007 and 292 Madison and 1372 Broadway closed this month. Each of these sales generated enormous gains for the Company allowing us to take some chips off the table and redeploy into the superior quality Reckson assets.

On 1372 Broadway we announced this morning our strategic joint venture with Wachovia. Given the credit quality of that asset further bolstered by our announcement this week of a nearly 50,000 square foot lease with Wal-Mart and the enormous prospects for long-term value creation, we elected to maintain an ownership stake in 1372 while still achieving our goal of tax-free redeployment of 85% of the proceeds of the sale. We are excited to welcome Wachovia to our growing stable of equity partners and believe we will continue to benefit from the long-term upside in this asset.

Our other major announcement on the disposition side this quarter was the sale of the clock tower at 1 Madison Avenue. There were a number of factors that contributed to our decision to sell this asset rather than continuing with the development, primarily a sales market that was willing to give us much of the projected profit without having to take any development risk. The aforementioned pace of planning for the additional development on the Eastern portion of the site and the relatively small scale and increasing cost of the potential development of the clock tower.

With internal rates of return on our investment approaching 20%, we and our partners felt the opportunity was just too good to pass up not to exit the investment at this time. In the retail portfolio our major announcement of the quarter was our more than 40,000 square foot lease with Georgio Armani for his world flagship store at 717 5th Avenue. This lease was made possible at a concurrent buyout of Hugo Boss who previously had the store at the site. Within the lease is over 20,000 square feet of office space at the site which will be converted to retail use entirely at Armani's expense.

Concurrent with the execution of the Armani lease we are able to exercise a purchase option embedded in our ownership structure within the retail condo which allowed us to purchase two floors from the office condominium at a fixed price of approximately $400 per square foot, enormously below the market value for those floors. Blackstone continues to own the office property -- the office tower at the property through their acquisition of Equity Office Properties subject to certain rights which continue to inure to our benefit as retail condo owners.

In addition to big activity at 717, we also announced this quarter the recapitalization with nonrecourse financing of 1604 Broadway where we had previously announced the execution of the Spotlight Live lease. This recapitalization increased SL Green's economic interest in that property by almost 20 percentage points because of incentive fees we had vis-a-vis our partners in that property.

On the structured finance front, we continue to originate the vast majority of our business through our Gramercy Capital Corp. affiliate who had another very strong quarter. Asset spreads have quickly adjusted as costs on the liability side have widened out and we anticipate a continued favorable investment environment with a robust pipeline for third-quarter transactions already in queue.

And with that recap, I'd like to turn the call over to Greg Hughes to take you through the quarter's operating results.

Thanks very much, Andrew. As the Company approaches its 10-year anniversary here in the next few weeks the change in evolution since our IPO has been dramatic with just two assets now remaining from the original portfolio. Nowhere have the changes been more pronounced than during the last 12 months and so it is worth repeating that we have successfully redeployed $1.8 billion of sales proceeds in the last month which has generated gains for shareholders of $13.30 per share. At a weighted average cap rate of 3.4%, these sales once again demonstrate how capital recycling generates our cheapest cost of funds and is the primary reason our balance sheet is in such terrific shape.

Property sales during the quarter helped to delever and liquefy our balance sheet. The other major balance sheet initiative during the quarter which Marc alluded to was the amendment of our corporate credit facility. While not scheduled to mature until September 2008, we took the preemptive opportunity to access the commercial bank mortgage which to date had not seen the dislocation experienced elsewhere. Our amended facility increased to $1.25 billion, provides for a five-year term including extensions, and reduces our borrowing spread to L plus 80 and quarter end from L plus 110 at March 31st.

The new facility coupled with our asset sales allowed us to simplify our capital structure and retire the Reckson bridge, which bore interest at LIBOR plus 110 and the loans secured by our 1221 partnership interest which bore interest at LIBOR plus 125, as well as repay certain Reckson unsecured notes which were scheduled to mature during 2007. With the closing of 292 Madison and 1372 Broadway last Friday and the resulting $430 million paydown of our line, we now have close to $1 billion of practically priced debt to fund future investment activity.

Our facility was close to 2 times oversubscribed, which bolsters our belief that there is good liquidity in the market for well-sponsored transactions with good assets. Additional financings during the quarter included the upsize of the lawn on 717 Fifth Avenue, which funded the acquisitions of the second and third floors that Andrew alluded to, and the financing of our investment to Two Herald Square, a ten-year interest only loan which funded 85% of our acquisition price and bears interest at just 5.36%.

Other items of note on a balance sheet include the following. The increase to investment in joint ventures reflects the addition of 1745 Broadway, Two Herald Square, One and Two Jericho Plaza, and 1604 Broadway which is now unconsolidated as a result of its recapitalization. Our stock repurchases are accounted for under the treasury method and are reflected as a reduction to our shareholders' equity. Please note that approximately $9.6 million of the purchases referred to in our press release settled just after quarter end.

Third, I would point out that the assets held for sale listed at June 30th consist just of 292 Madison. Capitalized interest for the quarter was $3.6 million, down from $4.6 million last quarter as 485 Lexington Avenue was placed fully back into service and 1 Madison Clock Tower was sold with interest no longer being capitalized there. We've seen (multiple speakers) were up 175% from a year ago reflecting the benefits of tax efficient capital recycling and being able to retain those gains. Lastly, in response to many inquiries, we have added the gross book value for our retail and development properties on page 35 of our supplemental disclosures.

Turning to the P&L, it was a quarter that can best be described as an embarrassment of riches with each of our growth engines making significant contributions. The quarter included gains on sale of $3.98 per share which helped drive NOI per share for the six months to $6.93. Our earnings multiple, when evaluated based upon our NOI per share over the trailing 12 months, is just 12.6%. Interestingly enough private equity firms, which are highly dependent upon asset dispositions to generate earnings, traded twice these multiples. One could debate what the appropriate earnings metric is and what represents recurring versus non-recurring income.

What is not up for debate is that the New York City office portfolio which drives our earnings is performing exceptionally well. The mark to market on the leases signed during the second quarter was a robust 40.5%, a continued validation of the embedded mark to market we have been advertising in our supplemental for the past few quarters. In this regard it is worth noting on page 41 of our supplemental that we have once again increased our estimate of the embedded mark to market in our portfolio which we currently estimate sits at approximately 45.3% reflecting our belief that the market continues to strengthen and should provide continued growth in future quarters.

Equally important is our ability to accelerate the recognition of this mark to market given that our portfolio is 97.6% occupied. Nowhere is this more evident than during the second quarter where 50.2% of the leasing activity represented renewals. Interestingly the mark to market on the renewals was higher than the overall portfolio at 51.1% reflecting tense desire to lock in space often well in advance of scheduled expirations.

The renewals were highlighted by a 103% mark to market on a lease at 100 Park Avenue which also just became the first building south of Grand Central to realize $100 plus a foot rents with assigning one of the top floors at an average rent of $105 a foot. The continued strong leasing activity has resulted in strong NOI growth of 14.3% for the consolidated properties and 9.2% on a combined basis.

Operating margins for our consolidated same-store properties have increased to 51.7% from 50.2% during the same quarter last year reflecting strong operations and the increased quality of our portfolio. With all this good news one might actually be surprised to learn that a number of our assets are behind budget for 2007 including 485 Lexington, 521 5th Avenue and 100 Park Avenue. This is not as a result of poor performance, but rather the conscious decision to perpetually evaluate the market and not blindly manage to a budget that may be outdated in a rapidly changing environment.

The decision to negotiate buyouts and the surrenders of space coupled with more patient leasing have created short-term negative budget variances which will more than be offset by higher rents that we've been able to achieve. A great example of this is at 485 Lexington where we just signed a deal at a rent just below $80 per foot on an average basis. While this lease came in later than expected during the year, the rate was 12% higher than we had budgeted and 49% higher than our original underwriting when we acquired the asset.

Finally, as it relates to property operating income, it is worth noting, as we have talked about in previous quarters, that the following properties include leases that have been signed and disclosed but where revenue recognition has yet to commence pending completion of TI work. At 485 Lexington we have approximately 62,000 square feet of space with an average rent of $67 that has not started income recognition and 1350 6th Avenue we have 40,000 square feet at an average rate of $89 that has not started revenue recognition.

At 625 Madison we have 35,000 square feet with a $71 average rent that has not started revenue recognition. And at 521 5th Avenue we have our new retail space for 25,000 square feet at an average rent of $162 where rent recognition has not yet commenced. We expect these to come on principally in the fourth quarter and early next year which will obviously provide further NOI growth.

In addition to the strong same-store performance our 2006 acquisitions are performing well. Rents on the Reckson assets have been exceeding underwriting. This coupled with better than expected sales execution and our convertible notice issuance that contributed to higher accretion than originally forecast from this acquisition. Note that this accretion is being achieved without the benefit of a FAS 141 adjustment which has yet to be booked in connection with this acquisition.

Moving away from the core property operations, it was also a very successful quarter. Our other income included approximately $5.5 million of incentive income from the disposition of the 1 Madison clock tower, $9 million in fees from GKK, $3 million in lease cancellation income and $1.3 million of fees related to the acquisition of 1745 Broadway. SLG's share of FFO from its equity investment in GKK was up 52% over the same quarter last year and 15% over just last quarter.

For those of you who missed GKK's call last week, FFO for the quarter exceeded consensus estimates by over 20%. These results exclude the $92 million gain to be recognized by GKK from its sale of its 1 Madison Avenue and new interest. We would expect to receive a substantial investment fee from GKK during the third quarter that could be as much as $15 million as well as a substantial special dividend which we expect would be paid sometime between now and the end of January 2008.

Our structured finance investments which Andrew alluded to benefited from $4.8 million of exit fees and new quarterly originations totaling $62.7 million. We do expect approximately $100 million of additional redemptions over the balance of the year on top of the $90.4 million that we received this quarter. Well, there was much press given to one timers included in the second-quarter results it is important to remember that these amounts are produced with great regularity.

Last quarter's earnings included an incentive fee from 1 Park; the fourth quarter of 2006 included an incentive fee from 485 Lexington; and the second quarter of last year, the comparable quarter for this one brought incentive fees and exit fees from the liquidation of the [Gail Belmeade] preferred equity investment. While harder to forecast than other components of our earnings, these amounts are decidedly recurring.

As anticipated, our G&A for the quarter was down $10 million from last quarter which included the cost associated with various new employment contracts. Our combined interest for the quarter includes $8.1 million of charges associated with the early extinguishment of debt. Our new financings coupled with the debt repayments should resulted in meaningful interest savings going forward. Note that the in place debt at 420 Lexington and 625 Madison represents fairly inefficient financings especially in light of the substantial value creation associated with the ground lease extension at 420 Lexington which makes that asset much more financeable. These are positions that we may seek to refinance depending on the investment activity over the balance of the year.

Our revised guidance of $5.50 represents a 19.3% increase over our 2006 results. While one could make the case for an even higher estimate there are several variables that we will watch that could affect our third- and fourth-quarter earnings. We expect our results to benefit from continued strong core real estate operations, additional growth and incentive fees from GKK, new leasing activity in our retail portfolio and reduced interest costs.

These gains may or will be offset by the following items -- the full year impact of the ground lease modification at Graybar has yet to be felt with just one month being reflected in the earnings through 6-30. As mentioned, we'll look to see what the impact is and the timing of the $100 million of redemptions that we're expecting in the structured finance portfolio.

As a reminder, the expenses that we experienced during the third quarter are always generally seasonally higher which will increase the expense load during the third quarter. You should expect to see additional downtime from buyouts or negotiated surrenders of space. There could be costs associated with the early extinguishment of debt should we choose to refinance 420 or 625. We don't have a specific timing as yet for when or if we would record a 141 adjustment on the Reckson acquisition this year, although that will likely be a fourth-quarter event or first-quarter of 2008 event.

And as Marc alluded to, we may see additional property sales which could offset some of the aforementioned increases. Before I turn it back over to Marc for some closing comments I want to take the opportunity to recognize certain people within the finance and accounting group who work closely with our chief legal counsel, Andy Levine, who have been instrumental in processing a massive amount of transaction volume and effectuating the Reckson transition.

These individuals include Steve Kahn who oversees our reporting and tax efforts; Maggie Hui, our Corporate Controller; Brian Morris who spearheads our budgeting and forecasting efforts; Jim [Rasso] and Steve Weymouth who cover the property accounting side; Susan Higgins who covers lease administration; and last but not least, [Matthew Roberto] who we recently elevated to our Chief Accounting Officer and who will become more involved in ensuring that we maintain the most timely, accurate and transparent communication with our investors and analysts.

And with that, I'd like to turn it back over to Marc.

Thank you, Greg. I guess there's no brief way to summarize a quarter like we just had because it's now 10 minutes of 3 and we're just going to be opening up to Q&A. But hopefully we were able to answer a lot of the questions that you would have been asking amongst the three of us. Before turning it over I'd just like to add one other thought.

The Company had the opportunity last week to demonstrate its operational prowess in addition to the investment leasing and financial prowess we always like to talk about, but the explosion of an underground steam pipe in Grand Central last week just two blocks south of our headquarters in fact put our operation and construction group to the test.

I'm pleased to report that there were no injuries to any SL Green employees or tenants. Our buildings suffered no material harm and all tenants in proximate buildings were evacuated safely and that obviously is a very satisfying thing to see and witness because we have taken great pains to put in place the procedures to ensure that kind of orderly conduct whenever we have an incident such as a steam pipe explosion which can be pretty scary if you're in the wrong place at the wrong time.

My kudos to Ed's operational team that worked through the night again to ensure that all SL Green buildings were open for business the morning after the steam pipe explosion. And with that, I would like to open it up for questions and answers.

(OPERATOR INSTRUCTIONS). Michael Knott, Green Street Advisors.

Good afternoon, guys. Marc, can you just link your comments today with your comments on the last call about the strategically enhancing initiatives you're pursuing? Obviously we saw some of those -- I would assume the Graybar ground lease reset was one of those. Can you just link those two comments?

Well, I can expand on Graybar if that's what you're asking. That clearly is -- I think what you're alluding to is on the last call I said, look, we have some longer-term and longer range activities we are undertaking which might be dilutive in the near-term, but platform enhancing in the overall term. And Graybar is clearly one enormous example of that where we showed our ability to execute a very complicated and tricky restructuring extension of an existing ground lease -- I believe there was about 23 years remaining.

We've locked in our rent for the balance of the 23 years and then created options thereafter that take the lease out for a total term of 75 years inclusive of options. And I think the ability to get that none, while near-term dilutive, the dilution is somewhere around (inaudible) $0.08 per annum. It's something that I think had enormous cap rate compression in terms of the value of what we now operate and will operate hopefully for the next 75 years. And therefore I view it as a complete win and strategically important transaction for the Company notwithstanding its near-term dilution. Is that --?

That's helpful, but in general the 10 points you talked about today was sort of the natural extension of the comments from the last call?

Yes. I think why I tried to take a little time to set forth those points in some detail is we see a shift and we don't shift our strategy that dramatically over the past 10 years, we nip and tuck. But right now we are really orienting ourselves in a way to maximize the inventory in terms of what we own. We're doing that in the face of excellent underlying fundamentals on the rent side.

We're buying back stock because we view that there's just an enormous opportunity, an attractive opportunity do so in addition to all the other activity you saw us pull off in Q1 and Q2. And we're keeping ourselves nimble and ready for markets that we think will show some excess returns over the next maybe year or two.

So that's all -- maybe it's subtle, but it's certainly strategically different in terms of how we look at our opportunity set and we think it's going to be a very expensive opportunity set because we think we're better positioned than our peers.

Okay. And then lastly, Andrew, could you talk about what other buildings might be on the disposition docket?

We're evaluating a small handful and certainly focusing on the older product, the two properties that are left from the IPO portfolio are certainly under consideration. And then we're looking further at some other assets, but haven't specifically decided which we're going to roll out next.

Kristin Brown, Deutsche Bank.

Good afternoon. I just wanted to ask -- you talked about cap rates in Manhattan. Are you seeing any difference between sort of Manhattan and in the suburbs?

Well, there's clearly a difference, which you're aware of, between Manhattan and the burbs. I guess your --.

In terms of movement.

In terms of trend -- Andrew, what do you think?

I think the suburbs have tightened up significantly, although I would say probably not as much as Manhattan. And we saw the Blackstone trade of the EOP assets in Stamford traded at a sub 4% cap rate on our numbers. That was an extraordinary price, probably an anomaly, but it clearly demonstrates depth of market. And then there have been other trades. In Westchester in the high 4% cap rate range which for those markets which have more traditionally been 5 and 6% cap rate ranges, represents buyers looking for a similar rent growth in the suburbs as to Manhattan.

And that last deal, Andrew, is referencing -- is very recent data, I would say within the last 30 days, where there was just kind of a startling execution up in Westchester for a pretty good asset.

That was north of $300 a foot which is pretty close to approaching replacement cost up there and at a high 4% cap rate.

Okay. And then I just wanted to ask about TI for the quarter. They were a little bit down. I know it bounces around from quarter-to-quarter, but can you just talk about trends that you're seeing and leasing packages in Manhattan?

It was driven largely by the fact that we had a 100,000 square foot renewal at 100 Park Avenue in Seligman that was done with zero TI. But across the board, TIs have been fairly stable to slightly dropping, they've moved down from 50 to 45 and now I'd say more typically space that needs to be built from scratch is getting as high as $40 a foot and in many cases is pushing much lower.

Renewals are carrying very little TI typically -- $5 to $7 -- $8 a square foot is kind of the rule of thumb. I guess the biggest statement of that is that as construction costs have continued to raise the proportion that the landlord is contributing towards the tenant buildout is reducing because our contribution is flat to slightly reducing, but the overall cost is increasing and the tenants are bearing the greater portion of that burden.

Okay, thank you.

(OPERATOR INSTRUCTIONS). John Guinee.

Can you refresh us on new starts in Midtown?

New starts in terms of development pipeline?

Yes.

It would take too long to go through all the rumored or projected or planned and I don't think it's a worthwhile exercise because you really don't know how long it's going to take for a lot of these projects to get off the ground. In terms of stuff that is coming out of the ground as we speak, there's the SJP site on 42nd and 8th Avenue which is a roughly 1 million square foot 40 story development which will probably be completed toward the end of 2009 but I think more likely in 2010, with floor plates ranging in the 40 some odd thousand per square foot floor plate.

So that is one property located on 8th Avenue that looks like it is going ahead on spec. Boston Properties has a site on 55th and 8th which they have not yet started construction on, but I guess they are rumored to be proceeding on a site that I think has floor plates in the 25,000 square foot range if and when that's developed. There is a Harry (multiple speakers).

-- which is Madison and 52nd Street, which is a small floor plate boutique office building that will probably have 300,000 feet or so.

That's 300,000 feet. And I'm trying to think in terms of -- there's a development site where the Roosevelt Hotel is, but that's a long ways off. There is the Drake site on Park Avenue which again right now is an existing hotel, that hotel is going to be demolished. It's unclear how that is going to be developed whether it's condo, hotel, office, or a compilation of those three. Those are the ones that come to mind most readily.

Okay. And then just some clarifications. On page 26 where you come up with your property level NOI of $110 million for three months, have you carved out your consolidated JV partners or is that a --?

Those are gross numbers and you can see elsewhere where we reflect a minority interest for them.

Okay. And then also is Two Herald Square in page 35 and 36 of your supplemental?

It is not currently. It's a land investment that we don't have any really operating data at this point on the leasehold. So we'll likely add that in in future periods when we have more meaningful information on the leasehold which of course we don't own at this point.

Got you. Thank you very much.

Jonathan Habermann, Goldman Sachs.

Good afternoon. Marc, your success at 100 Park and I guess your plans at 1515 Broadway, how much do you guys plan to spend on the redevelopment say over the next two to three years?

Redevelopments in total or --?

In total, yes.

We haven't quite quantified that yet. I think 1515 is clearly the most obvious, best and biggest redevelopment candidate that's in our portfolio right now. And that one deal alone, that building is about 1.8 million square feet total, that could easily be $100 a foot depending on the scope, but that could be a very significant redevelopment onto itself. 521 we're in process with. I think that scope is roughly $25 million in total. We're going to be executing a program at 16 Court Street which we just brought in venture with our partner City Investment Fund. That could be a $15 million to $20 million redevelopment of an older building.

1350 Avenue of the Americas, even though we are already obtaining very high rents in a building formerly owned by -- well, owned by our predecessor Reckson Associates Realty, that's a building we may put upwards of $5 million to $10 million into. 810 7th, 555 West 57th -- these are all -- and 711 3rd Avenue -- these are all great, well located big buildings, '60s-'70s vintage, that on the low end $50 a foot, high end $100 a foot.

Okay. And then any updated plans for your land assemblage on Madison? Maybe obviously selling that just to take advantage of the value of creating land.

Looking at it, working in and I know nothing to report now but clearly something that we're going to be focusing on for the balance of this year to try and advance the ball because the market is right for it now. So we are very focused on it, but nothing really to report to you at this moment.

Okay, thank you very much.

Ian Weissman, Merrill Lynch.

Good afternoon. A question on the Lipstick Building. That deal was I think originally cut back in April and it wasn't I guess three months later that you guys were brought in for a sizable fee interest. Is that at all an indication that some investors are out there having trouble lining up financing for assets in New York?

I think the structure itself is a bit of a response to people who are paying very low cap rates, they're going to suffer going in low returns for the first three to five years of their ownership and their structure allows them to more easily ride out those lean years before they get to turn some of the below-market leases. We actually signed up that deal simultaneous with Metropolitans contract acquisition. So we didn't come in later on, it was just a longer closing time frame. And there was no issue with us coming in at a later time.

And what were the economics on that deal for you guys? I don't know if you disclosed that in terms of the initial return.

Ian, we haven't because it's kind of a proprietary product that we've developed and structured. But I guess in rough numbers, I mean the right way to think about it is we're kind of getting -- and it changes over the course of the life of the lease. But on the Lipstick on a 15-year lease we're going to realize kind of 7.5%'ish free and clear GAAP returns and the debt on it is 6.25. So on a super senior position as Andrew described it, we'll be getting kind of a 14% ROE on our money there.

Is that comparable to how you structured the Two Herald Square?

It is. Two Herald Square I think was even more (inaudible) than that.

It's a little longer, Two Herald Square is a little longer lease.

And finally, I don't know if it was mentioned, but you kind of touched on redevelopment at 1515. Has it been decided what Viacom's plans are there?

No, I don't think Viacom has decided on its plans specifically, but we have certainly decided that in all outcomes there are various redevelopment projects we have planned and will undertake from modest to complete depending on where we ultimately wind up with Viacom. So we should have better color on that over the next 12 to 18 months, which is when Viacom has times within its parameters within its lease to make decisions and finalize arrangements one way or the other. But we're sort of ready with our plans in all events.

Okay, thank you very much.

Jordyn Sadler, KeyBanc Capital Markets.

Marc, in your opening comments you mentioned taking advantage of some of the market locations as it relates to the repricing of risk within the commercial real estate debt market. But you also talked about New York City cap rates and the attraction to capital competition for assets still being pretty tight. So where or how are you guys planning on taking advantage of the market dislocations, is that outside of New York?

It's a good question. Outside of New York we're always -- we're always looking for opportunist activities, we've made very opportunistic returns I think we'll see more of that. But what I was really referring to was that the high leverage buyers in New York who are still competing at these same high cap rate levels with buyers like us and others who are less debt reliant, there's going to be a lot of very profitable lucrative structured finance opportunities coming out of that on spreads that may mirror the kinds of spreads we were receiving several years ago pre Gramercy kinds of time periods, early 2000 to 2003 and 2004.

And those opportunities will be first and foremost taken advantage of by Gramercy, but some of those opportunities which may take the form of pref or participating pref may be at such a level that they would be candidates for venturing with Green or Gramercy may pass entirely based on exposure and Green may do it more out of its equity or equity like program. So those are the kinds of opportunities I'm referring to. We're seeing them already, they're very compelling and those may or may not convert into equity ownership opportunities like they have in the past for us.

Okay. And then secondly, you mentioned buybacks and you've obviously already started buying back some shares, I think almost 50 million or so. How do you stack up a buy back opportunity at these prices versus an alternative investment?

Well, I don't think they're exclusive. We have over $1 billion of equity capacity right now with our lines of credit and we're going to enhance that through the asset sales that Andrew and I mentioned earlier. So I look at everything on sort of a stand-alone basis and the stock buyback opportunity relative to where we think current values are and should be and the notion of buying back into our portfolio which is predominantly A Class today at per foot prices of 625 or 650 a foot and cap rates of 4.25 and 4.50 going in cap rates with the kind of growth we're receiving is a very compelling metric in our eyes.

So we are definitely focused on that, we're definitely making high levered returns on some of these other external activity that you see us doing. So I don't see as exclusive, but I see them both as very compelling.

Should we expect you to get more aggressive at these levels?

That I can't really say. So I think, as I said earlier, we have a lot more authority left, we intend to continue to do it. These prices as we sit here today look very compelling. So I certainly wouldn't be surprised to see us with a bigger stake on the next conference call.

Thanks.

Michael Bilerman, Citigroup.

Good afternoon. John Litt is on the phone with me as well. Greg, can you walk through a little bit more granularity on the guidance change? You went up $0.10 but you got the $0.24 1 Madison incentive fee, you had $0.16 between clock tower and the structured finance fees. So you had about $0.40 of upside. It sounds like you had already talked a little bit about the debt refi cost last quarter. So I'm just trying to put all the pieces together to really understand that 550 number in context?

In context of the current quarter you had some debt retirement costs first quarter, you had another $8 million, $8.1 million coming through this quarter resulting from the Reckson bridge and the 1221 partnership note being retired. So those serve to offset in part the clock tower gains and some of the exit fees on structured finance this quarter. And then again it's highly dependent upon number of things on the -- that could be dilutive in the third and fourth quarters, probably the biggest of which is if we were to elect to refinance the Graybar position there's a $10 million to $15 million May call that would be due. So obviously that's an enormous number.

It could make a lot of sense because at $100 million the loan balance is probably $200 million to $300 million shy of where you could efficiently finance this asset. So it might make a lot of sense but we'd have to think long and hard before we stroke the May call for 10 to 15, but if we did that would serve to offset a significant piece of the incentive fee that we'd recognize from Gramercy.

And it is the case that the investment market is still very hot and so we want to preserve the opportunity to sell some of those assets that we talked about which could be, again, near term dilutive. And I know that a lot of people had -- also I mentioned a lot of people had in their estimates a significant 141 adjustment for the Reckson acquisition which at this point in time we would expect probably not to record.

Not to record at all in this year and effectively we should have somewhere in the magnitude of $10 million to $15 million of refi charges if we're doing comparable to your 550. I just want to make sure that I can relate guidance to the actual results?

That's correct.

And then looking at that FAS 141 going into next year, as you sort of improved and now get a better handle on it, what do you see for that for next year?

Again, it's going to be a little bit dependent upon -- the adjustment might not be as pronounced depending on the amount of leasing activity that we push through on the Reckson assets. We have estimates that range probably in the $12 million to $15 million range on an annual basis.

Okay. And just the last one. It's on the $100 million of redemptions for structured finance. I assume there's some negative spread just on that capital being at 10.5 and paying down your line. Do you assume that you're going to get any fees from those redemptions or it's strictly the dilution from the investment spread?

There's probably one investment in there that has an exit fee associated with it, but otherwise I think your analysis is correct. And of the $100 million, I think it's probably a $30 million position that has an exit fee.

And how much accretion do you get or how many fees do you get off of that (multiple speakers)?

It depends on when it pays off.

Okay.

(OPERATOR INSTRUCTIONS). Brian Legg, Millennium Partners.

Can you talk about what the dislocation in the debt markets, where are you -- if you could get secured debt for your assets today where would be the terms both as far as getting an IO and also what the spreads would be versus where they would have been before the dislocation?

I think we're still seeing a fair amount of interest only financings done in the market. Where it's probably been affected most is at very high leverage levels which wouldn't be where we borrow on acquisition financing. But I think likely spreads are out between 10 to 20 basis points at lower leverage levels and at higher leverage levels I think you're seeing more 40 to 50 basis point type increases.

Brian, it's more in the 70% to 90% LTV part of the capital stack where you're seeing the principal widening take place.

And could we -- overall, if you were to -- if you had a big opportunity to make an investment where could you -- how much dry powder would you have on the balance sheet and how much could you -- what type of overall spread to the treasury would you probably get for your portfolio?

In terms of how we look at dry powder, our goal is to on a pro forma basis have a clean line of credit with a full borrowing base available so that would be $1.25 billion kind of available as our equity component which is LIBOR plus 80. The financing in the market that you can then lever that $1.25 billion up to would depend on -- the cost of that would depend on whether you're going 60, 70, 80% deep on the capital stack. I think most investment grade load breakevens today are swaps plus 60, swaps plus 60. So I think that's a good number to use for the debt component which would be how much leverage, 3 to 1 roughly? 2.5 to 1 -- figure 2 to 2.5 to 1 at swaps plus 60, and then you've got the equity component at LIBOR plus 80. So that's still pretty damn efficient capital in this market to go --.

With treasuries rallying, particularly.

And just last question --.

Alexander Goldfarb, UBS.

Good afternoon. I'm actually filling in for Jamie Feldman who is caught on traveling. First question -- I had two questions. The first one is, were you surprised by the low suburban leasing spreads, and what are your expectations for the future? As far as Greenwich and Stamford are concerned, do you view those as always being separate markets or do you think that Stamford at some point will start to catch up with the Greenwich type rents?

Just taking it in reverse order, we view Greenwich as an anomaly. We don't expect -- Stamford I think has its own supply demand metrics, which we view as pretty favorable right now, given the Greenwich capital construction project there and UBS's continued expansion. But we don't expect to see the type of real supply-constrained aggressive hyper rent growth that we have seen in Greenwich.

The rent spreads this quarter, the negative rents spreads, were sort of overweighted to one property in Stamford where there were some very high in-place escalator rents which rolled down to market at renewal. So that was -20% on some of the leases there, which skewed the numbers down. We are confident that we are still on track for our projections for the year, and we think in the next quarter you will see some of that more positive spread come back in with some of the leasing activity we have pending, both in Westchester and at Stamford.

The second question is on the special dividend that you spoke about earlier. Would that just be from the $15 million Gramercy capital gain, or what would be other items that would be included in that special dividend?

It would be principally related to the gains, the Gramercy will cede to shelter and retain as much of it as it possibly can. But even given that planning, we think as a result of that gain that you will see a significant dividend.

That's a special dividend from Gramercy to SL Green, not an SL Green special dividend.

Oh, okay. So it is purely intercompany between the two entities, not outside the shareholders.

We will be on the receiving end of that dividend as a 25% owner of Gramercy's side.

But SLC Green shareholders will not be getting a special dividend.

Yes, they will.

Oh. Can you quantify how much that may be?

Not SL Green shareholders, SL Green the company.

Okay, great. Thank you very much.

Chris Haley, Wachovia.

It is Brendan Maiorana with Chris. Just a quick question with respect to the 317 Madison and the 48 East 43rd site. Can you guys give us an update in terms of what you're thinking with regards to the development potentially you have there, and whether or not you're thinking about doing that on your own balance sheet or JV'ing it possibly?

We are still -- I think as Marc said earlier, we're still evaluating the right course of action there. We have three income-producing pieces of real estate on the site, which happen to be fairly tenanted and performing very well.

Obviously, we are in a market environment where the highest and best use may be a development, but we are actively evaluating all our options, including holding on to the site for the long-term, bringing in a partner or selling the site outright.

If you look at the occupancy at the end of the quarter on 317, it is not really surprising that it is one of the lowest in the portfolio at 89%, because Steve has been working diligently to make sure there's demolition clauses in all of the leases that we sign. So there's been a little bit of pushback with respect to that, but all with an eye towards long-term value creation.

Okay, thanks.

Anthony Paulone, JPMorgan.

First question is just on the Madison Avenue site, if you move your air rights over from 110 and do those things, what is the total buildable square footage there?

As of right, the total buildable is about 900,000, but that is with the purchase of those 110 East 42nd Street air rights and with additional air rights purchased to bring it up to the full potential of the site.

Okay. Then my second question just, Greg, on the guidance, just to understand some of your comments around that. The $5.50 a share, is that a best guess or worst case?

Again, I went through the five or six items, the five or six items that could negatively impact. But listen, we've obviously tried to make a business of underpromising and overperforming, but I would say best guess based upon all of the information that we have currently.

Okay, thanks.

John Stuart, Banc of America. Please proceed. I'm sorry, Credit --.

Credit Suisse, thank you. Greg, just out of curiosity, what is the reason for the pushback on the FAS 141 adjustment?

Well, as we have talked about a lot of times before, we are generally uncomfortable with that adjustment because it artificially flatlines your future rent growth that comes out of the asset.

So it's just coming to terms with the auditors?

Yes, you're afforded the flexibility under the accounting literature to take up to a year to implement that, and so we are continuing to work on it, but in no rush to record it because we think it artificially and negatively impacts your perspective growth from the portfolio.

Then one quick question for Steve Durels. Clearly, based on Marc's comments at the outset of the call, the investment market in Manhattan is very strong, but to what extent do you become a bit concerned that leasing velocity may slow down, particularly when you start to see tenants priced out of Midtown and some of the same dislocation in the debt markets that you referred to could also impact the financial services tenants in Midtown?

Well, you know what, the reality is if people get priced out of Manhattan and they start to take space in Connecticut or Jersey or across the river, that is only a good thing for our assets. There is more demand then there is supply.

As far as demand from a variety of different types of industries right now, financial services is clearly driving the boat, but there is also a lot of demand from other industries as well. We did a lot of deals this portfolio with law firms, accounting firms; healthcare industry had a big position this quarter and some from the entertainment industry. So it is fairly broad-based as far as industries go.

It is also where financial services are generally in the A product and fairly tightly grouped geographically in Midtown, we are experiencing strong demand across in all parts of town. So whether it is 9th Avenue or Midtown South or in our better product Uptown, all of the buildings seem to be firing on all cylinders at this point.

So I am still very bullish that businesses are growing and want to be in Manhattan and are stepping up to pay the price, and that their earnings justify the rents that they're paying.

Just to amplify on that, we are not looking for nor do we need continued rent growth, even though it's likely to occur. If the rents kind of stop where they are today and supply/demand was in balance, we would be rolling up materially for the next seven years to get to our in-place rents equal to the today current market rent. So you may see further increases and that is what is being projected by most of the people in this market.

But that, in our eyes, it is just excess earnings beyond how we are currently projecting things. Of course, at some point, rents get too high and people have to look at secondary locations. We don't view that as a bad thing. Hopefully, they're going to look to Westchester and Stamford, and we will capitalize on it.

I will just add one more point to it, which is that of the 700,000 feet of leasing that we did this quarter, there was 250,000 feet of renewals or early renewals where tenants had a couple years left. But on top of that, there was 150,000 square feet of deals where we took space back and were then able to re-tenant it with a new tenant.

So we either bought out or let out -- or the tenant bought out of their leases who may have had years left to go on their lease, and brought in a new tenant to replace them at current market rents. So I think that goes back to earlier points made, which is harvesting the opportunities in the portfolio.

Thank you.

Mitch Germain, Banc of America.

Just, Marc, on your disposition strategy for your suburban assets, are you going to be looking at an asset-by-asset basis or will it be more geographically?

I think asset by asset, because again, there are certain assets where we think the rent rolls can be worked and we can bring it to a higher level. There are others that we think we should deliver today. I'm not sure you get any benefit from a pooling strategy when you are selling suburban assets as opposed to one-by-ones, so we may do mini pools, but --.

We have some parks out there, obviously. So when you're talking about an asset out there, an asset can be a park.

Right. But I think there is opportunity within there, but we also want to demonstrate some gains that we think we have embedded over and above where we acquired the properties.

One last question. Greg, just quickly. I apologize if you already mentioned it on G&A. Is this quarter a good barometer of the run rate?

You know, again, I do my standard caveat. With Gramercy growing as rapidly as it can, you might see increases from over there, but otherwise, I would say it is a good barometer.

Thank you.

Michael Knott, Greene Street Advisors.

Greg, could you just remind us why the operating expenses in the wholly-owned same-store portfolio have been up so much more than the unconsolidated same-store pool? Then my last question is could you just give us an estimate of what the same-store growth would have been in the unconsolidated pool had 100 Park not been dragging it down?

In the unconsolidated pool, the NOI growth was roughly 2%, and 100 Park is probably negative for that period. So it is probably closer to 3% if you [dialed out] 100 Park. Remember, the biggest component that keeps that as flat as it is is that 1515 Broadway is fully occupied to Viacom. So when you straight-line that, you're getting zero growth out of that asset until it resets in 2010.

In terms of the expenses on the wholly-owned assets, again, I'm not sure what period you're comparing. It may just be a function of the larger assets that have been -- am I looking at same-store numbers or just for the entire --?

Same-store.

(multiple speakers) It would be the addition of the higher price point Reckson assets being introduced into the entire mix.

Reckson is not in the same-store pool, though; is that right?

Not in same-store. So on the same-store numbers, we have to get back to you as to why they are growing more quickly than the JVs.

That would be great, thanks.

Okay, that is it for today. Thank you for all of the questions and for dialing in, and look forward to speaking with all of you in three months. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.