SL Green Realty Corp (SLG) 2011 Q2 法說會逐字稿

Thank you for your patience and welcome to the second-quarter 2011 SL Green Realty Corporation earnings conference call. At this time, all participants are in listen-only mode. We will conduct a Q&A session after management's remarks. (Operator Instructions). I will now turn the presentation over to your host, Ms. Heidi Gillette. You may proceed.

Thank you, everybody, for joining us, and welcome to SL Green Realty Corp.'s second-quarter 2011 earnings results conference call. This conference call is being recorded. At this time, the Company would like to remind listeners that during the call management may make forward-looking statements. Actual results may differ from forward-looking statements that management may make today. Additional information regarding the factors that could cause such differences to appear in the MD&A section of the Company's Form 10-K and other reports filed by the Company with the Securities and Exchange Commission. Also during today's 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 measure is discussed in the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at www.slgreen.com by selecting the press release regarding the Company's second-quarter earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp. I would like to ask that you please mark your calendars for Monday, December 5 for SL Green's annual investor conference. If you would like to be added to the e-mailing list, please e-mail your full contact information to slg2011@slgreen.com. For those of you participating in the Q&A portion of the call please limit your questions to 2 per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Okay, thank you. Good afternoon everyone. Andrew Mathias, Jim Mead, Matt DiLiberto and I will provide you with some commentary on the market and second-quarter performance. I'm pleased that our significant efforts over the past 2 years of the recovery are evident in our reported results for the second quarter. Core earnings from the same-store properties, lease-up of newly acquired properties, high earnings from structured finance, substantial gains on sale and operational expense controls all contributed to a very solid quarter, which exceeded our already optimistic expectations. While credit markets have come under pressure over concerns about domestic economic growth and European countries' debt problems, the local New York economy remains a relative bright spot. And it doesn't seem to be showing any signs of reversal that is any way inconsistent with what we typically experience during these summer months.

In fact, over 11 million square feet of leasing activity has been recorded in midtown alone during the first half of the year, or 1.85 million square feet per month, which is an exceptionally high rate and higher than the 1.5 million square feet a month that we mentioned in the past as somewhat of the threshold amount beyond which we get positive absorption. With over 2.3 million square feet of the absorption, the vacancy rate has broken through the 10% mark and currently sits at 9.8% in midtown and 9.4% for overall Manhattan. Driving the absorption in midtown is the continuation of growth in office-using jobs, which is predominantly made up of professional business firms, and that growth for the 6 months of the year stand at about 13,000 new jobs, approximately 5,000 jobs ahead of the city's forecast, and on track with our estimates back in December of 20,000 to 25,000 jobs added for the full year.

It's interesting to note that Wall Street is on track to greatly exceed the $20 billion of forecasted profits for the year, having already banked approximately $15 billion to $16 billion profits in member firm profits this year to date. New York City payroll and withholding data is running is ahead of projections and hospitality and tourism activity is at or near peak levels. So, this market environment clearly is consistent with what we've described in the past as market leading in performance and balanced performance where we're seeing growth from all sectors of the economy. And while it's been somewhat slower growth than we've experienced in prior recoveries, we think it's a very good environment for us to execute our business plan. The environment particularly bodes well for our New York portfolio wherein we added 12 properties over the past 2 years representing $4.5 billion of transaction values, $2.5 billion of which alone represents SLGs share.

Many of these new additions contain substantial vacancies. I think it was about a 1.8 million square feet of vacancy acquired, to be exact, in those 12 transactions, all of which represent redevelopment potential or lease-up potential, such as 3 Columbus Circle, 600 Lex, 125 Park, 100 Church, and 280 Park. With respect to this last property, 280 Park, we're feeling very confident that we will be able to reposition that property with our partner into one of the leading commercial properties on Park Avenue, commanding among the highest rents. We will have large blocks that will be able to be delivered into what we think will be the exact right time in the market and will be delivered after $150 million or more redevelopment project for that property. So, in hindsight, we're happy with each of the dozen properties that we acquired. We think we played that market exactly as we wanted to over the recovery period. I think we've now moved into the middle innings, and while we still have a pipeline of real estate opportunities, I don't expect that you'll see us transact anywhere near to $4.5 billion of volume over the next 2 years as you did over the prior 2 years.

Looking specifically at our leasing performance, it is clear that we are garnering more than our fair share of the market with 1.05 million square feet of leases signed in the first 6 months of the year, with another 82,000 square feet signed in July and 645,000 square feet of leases that are out and being negotiated and another 750,000 square feet of leases that are under active negotiation where we feel we have a reasonably likely chance to move ahead and turn those into signed leases. These kinds of numbers place us squarely on track to approach 2 million square feet of leasing for the year, ahead of our forecast back in December. While the mark-to-market for the quarter may seem light on first look -- I think it was 0.3% increase quarter over quarter -- or for the quarter expiring leases relative to newly signed leases -- recall our prior commentary about the fact that many of the leases rolling now represent leases that were signed in 2000, and 2001, which was a peak rent time, and those rents have escalated significantly over that time, as a result of operating and tax escalations and base rent increases.

So, what you're seeing now are replacement leases that are at least 20% or more than the peak rents of 2000 and 2001. We had guided at the beginning of year that because the rents, in many of these cases, have escalated so high it would be difficult to replace leases positively and we've given guidance of minus 5% to plus 5% mark-to-market for the year. In fact, year to date we're already at 5.5% positive mark-to-market so that's ahead of our -- ahead of the high end of the guidance. And if this activity had been happening a year ago, I would tell you that instead of looking at plus 5% we might have been looking at negative 10%, or more. So, this market has moved. It's moved to cover escalated peak rents and as we move into 2012 and 2013 and 2014, much of which will represent leases coming due that were signed in 2002, 2003 and 2004, which were trough years, I think you're going to see our mark-to-market gap out significantly in those years if this market continues on the pace that it's currently doing.

I would just make another note on structured finance. We did -- I think the tally shows almost $900 million, or slightly over $900 million of funded originations in that same 4-year period of time in addition to our real estate acquisitions, so the real estate was sort of 4-to-1 ahead of structured finance. I think in these middle innings you're going to see that allocation change as the real estate opportunities are still out there but are fewer, pricing has picked up, largely as a result of incredible demand from foreign investors and foreign capital sources. And you'll see that our pipeline for the balance of the year is going to consist much more heavily of structured finance being done at rates that are consistent with our portfolio and the rates that we've targeted and talked about in the past, but, we do also have a pipeline of equity opportunity.

So, right now we see this as a very balanced market with relatively low financing rates on the secured side. They were relatively low rates on the unsecured side, but that market right now is a little choppy so we'll have to wait and see with all the other corporations how that market settles out. But the mortgage market is showing no sign of letup whatsoever and there's some new financings that I'm sure Jim and Matt will talk about in their commentary, which lowered our cost of funds significantly from prior debt expirations and we also termed out maturities substantially.

So, I think, to sum it up, we've got a very durable balance sheet right now where we've turned out much of our debt. We've reduced our debt-to-EBITDA numbers. We've reduced our floating rate to total debt figures and we're reducing rate and spreads as we go. So, all in all, we're funding this very high level of investment activity with very well-priced capital. We've been active issuers in the ATM market, issuers of equity, in order to keep our new equity investments equity neutral and that's something we've talked about in the past. And I think that with continued low interest rates, continued job growth and starting to roll into rents in the future years that were done at much lower points in the market, it all bodes very well for the Company.

So, with that, let me turn it over to Andrew Mathias.

Thanks, Marc. Good afternoon, everybody. Despite headwinds that are screaming in the headlines every day, the Manhattan market has shown no letup in demand for income-producing assets. Deals continue to go into contract and close, with a full slate of buildings and interest in buildings on the market bucking the usual summer slowdown. Foreign and domestic capital continue to compete ferociously, with no buying sector really dominating. We expect to see another $2 billion of deals go to contract within the next 30 days in the Manhattan market, with buyer return expectations continuing to hover around the 7% to 8% unlevered IRR area.

In our own portfolio, the most notable addition for the quarter was our completion of the equity restructuring at 280 Park. This brought all facets of our platform together. From the tactical acquisition of the mezzanine notes to creativity in structuring the eventual takeover of the equity, through the redevelopment and lease-up of the asset in conjunction with our partner, we're hugely optimistic about this building's prospects in a tightening leasing market. Also this quarter we closed a deed-in-lieu and concurrent mortgage restructuring on 110 E 42nd St., an asset we sold several years ago. At the time we owned this building we didn't own 125 Park next door, which we subsequently acquired. The floor plates on these 2 assets lineup, allowing us to combined floors and offer a flexible and expanded floor plate to prospective tenants.

Our AB restructuring of the senior loan also gives us the time and flexibility to be aggressive in making deals with the building. Early leasing returns are better than expected, and we're happy to have 110 E 42nd back in the portfolio. Also, this quarter we closed on the previously-announced consolidation of interests at 1515 Broadway and the previously-announced disposition of 28 W 44th St in the quarter. Expect us -- we're in the market with a retail condo interest and we have another deal teed up to go into the market, probably shortly after Labor Day, so expect us to continue to take advantage of the sales market in 2011.

We continue to be the dominant player in structured finance in Manhattan, with over $250 million in new deal flow year to date. In addition to being very active in the secondary market, conservative first mortgage underwriting standards continue to create a hole in buyers' capital structures that we are more than happy to fill. It's been some time since we've seen risk-adjusted yields as attractive as those that exist today, oftentimes for positions where last dollar, loan to cost doesn't exceed 70% or 75%. Expect to see us in several high-profile transactions on the market at planning a structured finance, as our origination platform heats up with the dearth of attractively-priced product in the secondary market, where most loans are trading for par or north.

Much of our activity this quarter was centered on the retail business, where patience was richly rewarded with some notable milestones. On the leasing front, we signed a blockbuster lease with Dolce & Gabbana at 717 Fifth Avenue. The lease allows us to take advantage of our previously-negotiated relocation clause with Escada within the building and positions 717 as one of the finest retail sites in the city, with Armani's flagship, Escada's flagship and now a D&G store all on a long-term leases. Cash NOI at this property will be in excess of $32 million when these leases take effect, more than doubling from existing cash NOI when these leases commence.

In addition to retail leasing success, we also contracted to purchase 2 major retail properties. 1552 in the heart of Times Square is directly across the street from 1551 Broadway, where we developed the American Eagle flagship store. 1552 will be vacant, allowing us to unveil a complete redevelopment to a retail tenant market starved for opportunities in Times Square. Additionally, within the last couple of weeks we contracted to purchase the retail at 747 Madison, the current home of Valentino. Valentino's lease is also up, giving us another prime corner on upper Madison to bring to market. Those are these deals we purchased in joint venture format with our partner Jeff Sutton. We continue to scour from more retail opportunities, given our successes to date.

And with that, I'd like to turn the call over to Jim to take you through the numbers.

Thank you, Andrew. I'm going to start the portion of today's call -- my portion of today's call with some overall observations and a discussion of our balance sheet and then I'll turn it over to Matt to review guidance for the remainder of the year. Last night we reported $1.10 FFO per diluted share before giving effect to about $0.02 of transaction costs incurred in the quarter. Now Matt's going to discuss some of the details of the Company's year-to-date operating performance when he discusses guidance, so I'll just touch on a couple of the broader observations. I think it's worth noting that the composition of our EBITDA has become much more heavily weighted toward equity-owned real estate benefiting from deployment of new capital and from converting debt positions. Comparing last-year's second quarter to this year's, NOI from property operations increased $21 million, or 12%, while income from debt and preferred equity positions declined by $6 million. And, despite fund raising that included common equity financings to maintain our balance sheet strength, investment activities were accretive and improved our per-share performance.

Today, though, there's a large difference in our year-over-year identified pipeline. We're now positioned to accelerate our growth in the coming years, as we conclude the final retail and signage enhancements at 1515 Broadway; lease-up 3 Columbus Circle, and 280 Park; complete the leasing of 100 Church, reposition 110 E 42nd Street; redevelop our 1552 Broadway Times Square retail opportunity; and complete our ground-up development at 180, 182 Broadway in conjunction with Pace University. These in-process opportunities will be incremental drivers that will compound on the improving New York City market.

Despite real estate transactions totaling more than $1 billion during the quarter, we continue to strengthen our balance sheet by adhering to a few basic principles. First is what I call balanced funding of growth. We've been disciplined in financing to maintain or improve our credit metrics. This means incrementing our equity base with growth in our balance sheet. The 2 ATM programs that we've used to date have provided $525 million in new common equity and have benefited the Company by allowing us to time financing activity with the actual deployment of capital; to be in the market only when conditions are right, and by incurring low fees and no discount to market.

Next, maintaining liquidity. At June 30 we had almost $450 million in cash and marketable securities on the balance sheet, which when combined with undrawn availability under our line of credit gives us access to over $1.3 billion.

Third, to manage near-term maturities. With the closing of a $500 million 12-year mortgage on 919 3rd Avenue with two life companies -- and by the way, the interest rate on that financing was decreased from 6.9% to 5.1%, while upsizing the financing from $220 million to $500 million, the Company has largely refinanced its material near-term property maturities. Our line of credit that matures about a year from now is next on our list, and Matt and I will be working on a new facility with the objective of replacing the existing facility by year end. Despite a challenging corporate unsecured debt market, the bank market seems less affected and early discussions with our lenders -- our lead lenders over new facility have been well received.

And finally, to lock in the current low interest rates. We're operating in a historically low interest rate environment and have been executing at opportunities to term out our balance sheet. We just closed 12-year financing on 919 3rd Avenue as one example. Our recently received corporate unsecured investment grade rating from S&P opens up a number of additional corporate financing options. However, credit market conditions have been unfavorable for the past few months. We will continue to watch market conditions and evaluate the potential for an unsecured, long-term financing.

So at this point I'll turn the call over to Matt.

Thanks, Jim. Clearly we are pleased with the earnings results we posted for the second quarter, both on an absolute and normalized basis. As compared to the first quarter, where we recognized over $46 million of nonrecurring income, comprised primarily of the gains on our debt positions at 280 Park Avenue, the positive results in the second quarter included very few income items of a nonrecurring nature. On the special servicing side of our business, premium loan services netted $3.2 million of fees in the second quarter upon resolution of an assignment. Given the strength of our servicing business, as evidenced in working out large real estate loan positions, we may realize similar fees in the future; however, that is a fee stream that we do not include in our guidance. Also during the quarter we repaid the $108 million mortgage secured by Landmark Square, in Stamford, Connecticut in anticipation of a new mortgage refinancing later this year. This prepayment was accomplished at a $1 million discount, which was also recognized as earnings in the second quarter.

Turning our attention to the remainder of 2011, during last-quarter's conference call I recapped some of the basic operating assumptions, including the original FFO guidance provided at our December investor [conference]. These assumptions included, among other things, mark-to-market on 2011 Manhattan leasing of minus 5% to positive of 5%, increased operating expenses of 2.5% to 3,5% and flat same-store NOI growth. We then increased direct FFO guidance to $4.65 to $4.80 per share on our first-quarter conference call, primarily as a result of the gains we recognized on our 280 Park debt positions and based on our view of New York City operating trends.

Through June our real estate operating performance continues to trend modestly ahead of our original expectations. As Marc discussed, mark-to-market on these over one million square feet of Manhattan office leases signed through June 30 is approximate 5.5% ahead of our original guidance, and our Manhattan volume is also trending ahead of the leasing goal we established for ourselves of 1.7 million square feet for the year.

Operating expenses are generally in line with our expectations, as our operations team continues to do a spectacular job of controlling our variable costs, managing them to a zero increase for the year, despite market pressures to increase them, which leaves increases driven primarily by areas where they have less control, including union labor, real estate taxes and the portion of utilities costs that are not managed through fixed price contracts. These factors have resulted in combined same-store GAAP NOI increasing 2.6% in the second quarter and 1.6% year to date. This is evidence of improving performance in the core portfolio, particularly properties like 1515 Broadway where NOI increased by $8 million in the first 6 months of 2011 as compared to 2010, as a result primarily of the retail repositioning of the property.

However, it is worth noting that the positive trends we have seen in our same-store operating results during the first half of 2011 will be somewhat offset during the second half of 2011 by recent investments in the lease-up and development plays we discussed earlier that have longer-term growth potential. In particular, 280 Park Avenue, where we look forward to commencing our capital and leasing program, while we'll recognize near-term earnings dilution until that property stabilizes.

With regard to the debt and preferred equity portfolio, our portfolio holdings remain at a historically low level and correspondingly investment income does as well, following the sale and repayment of sizable positions in the first 2 quarters of 2011, including 666 Fifth Avenue and conversion of our positions at 280 Park, and 110 E 42nd to equity ownership.

Of note, during the second quarter we recognized approximately $2.8 million from the bridge loan we provided at 3 Columbus Circle. With the recent refinancing of the property, the permanent mortgage provided by Bank of China, that was position was repaid. However, as was noted earlier, we continue to see many opportunities to put money to work at healthy, risk-adjusted returns within the capital stacks of New York City real estate. If we can successfully execute on these opportunities there is certainly upside potential in this revenue stream.

On the corporate finance front, among the items that will keep us cautious are interest rates. While we continue to see a strong mortgage market, we continue to be conservative in our overall thinking on rates, and project forward, not only using the publicly-available forward interest curves, but also a cushion over and above that curve. This methodology holds true for our in place variable rate debt financing, as well as for purposes of underwriting and evaluating future transactions, also in maintaining consistent balance sheet strategy of appropriately funding our investment activity to remain credit metrics. During the second quarter and into July we've continued to issue common equity in a very efficient manner through our ATM program, completing the $525 million plan. This was not contemplated in our initial guidance, but is a direct, measured response to the heavy volume of investment activity we have consummated in 2010, and thus far in 2011.

All that considered, with 6 months under our belts and a better vision for the next 6 months will hold, we are raising the lower end of our FFO guidance for 2011, from $4.65 per share to $4.75 per share while the high end of our range remains at or dollars $4.80 per share. In conjunction with the revision to our FFO guidance for 2011 we also raising our FAD guidance for 2011 from $2.60 per share to $2,65 per share.

With that, I'll turn the call back over to Marc for some closing comments.

Okay. Well, before closing comments, if today is like quarters past I assume we have a lot of questions in the queue that we should get right to. We're sort of on track, we've allocated about an hour's worth of time to try and get through the entire queue, so let's turn it back to the operator and start.

Thank you, Sir. (Operator Instructions). Our first question will come from the line of Jamie Feldman of Banc of America Merrill Lynch. You may proceed.

Thank you and good afternoon, everyone. I was hoping you could talk a little bit -- you'd provide a little bit more granularity on market conditions, which sectors and tenant types in terms of size and sectors are most active? And then also provide a little bit more color on your discussion with tenants and what their thinking about the debt ceiling and weakening economic conditions out there and why that -- from your commentary it sounds like you're just not seeing any kind of slowdown.

I'm sorry, the last part, Jamie? From our commentary we --?

From your prepared remarks it sounded like things are just plowing ahead and it just seems like, given the economic environment and more concern out there I'm surprised that tenants aren't a little bit more cautious?

Well, I think the tenants take a much longer-term view than the Street does when they're planning big space moves so I'm not -- it doesn't surprise me all that much. The second quarter was actually, by one report's -- by one agency's report, the most active quarter ever. It was like 7 million or 8 million square feet in the second quarter. I assume that included deals like Conde Nast, Nomura, there was the city of New York downtown at Trade Center, there was another one that I'm just forgetting, give me a second.

Wells Fargo.

Well, there was Wells Fargo, Morris & Foster, so that's a pretty broad range of tenants in those 5 tenants, everything from financials to public-sector to media and entertainment, and the like, and law firms. So, I would say to you, quite honestly, Jamie, I've had maybe a half a dozen major tenant conversations in the past few weeks. The debt ceiling doesn't come up in those conversations. It's always about ways in which they can try to update their space to be the most efficient and technologically current as they can be and that always is a big challenge for many of these firms is that after 5, 10, 15 years their installations become outdated relative to their competitors and they're always try to figure out how can you expand, become more efficient, become more technologically up to date, and we work with our tenants in that regard. So, I'm trying to think. In terms of sectors in our portfolio, I gave you market wide just now, looking at major leases, just right off top 5 or 6 come to mind.

We've got deals starting with healthcare, with education, with service businesses, we've got more than our fair share of financial services that are in active negotiations, and legal. So, it's pretty diverse group of tenants that are both in active lease negotiation, and then when Marc refer to the 750,000 square feet of what we think is credible pipeline likely to convert over to a lease transaction, that's an equally broad-based group of tenants.

Yes, I would just sort of finished that up, Jamie, by saying that's not to say over the next 6 months or so we may not see a pullback. That's certainly possible. If companies can't borrow and they're frozen of the markets and we get a big correction in the Dow so they're not raising equity, of course that's going to, I think, limit these financing activities of a lot of New York's big companies and that would have to have some kind of limiting effect on growth and expansion. But, I would say, at the moment, interest rates are still pretty darn low. Jim just talked to you about 5% deal we closed, it's a 12-year deal. Term is extending, the secured markets are very good, the resi markets are good, and, even with the wide-end corporate spread you're still looking at 5%, 5.5% deals largely, if people are brave enough to go in this credit climate. But I think the expectation is, sometime in August or certainly after Labor Day there'll be hopefully be a return to a more normal credit market. It can't be (Inaudible) the stock market, and that fuels a lot of what you see for our customer businesses.

Okay, and then just a quick follow up. How much are conversations about downtown in the Hudson Yards creeping into your discussions with tenants as they're thinking about space?

I'll let Andrew --

We're certainly hearing from the bigger guys who have big requirements upcoming in the next 5 to 10 years downtown and Hudson Yards are part of the consideration. And, I think there is a lot of question with the westside in terms of timing of delivery and I think downtown is certainly -- is more certain that the buildings are underway and there's not massive infrastructure that has to be completed before you see any buildings going vertical. But it comes up quite often and people are considering them as real options.

Okay, great. Thank you very much.

Our next question will come from the line of John Guinne of Stifel. You may proceed.

John Guinne here, thank you. Just to clarify a few things, Marc, first, it looks like something happened on your ground lease at 711 3rd Avenue? Second, can you go over the economics of the 110 E. 42nd? And then third, it looks like you have a new $49 million mezz piece in New York City, can you walk through as much as you're allowed to on that?

Okay, so let's make sure I got the right here. We've got $49 million mezz, we have the 711 ground lease, and what was the third, John?

Just the economics on your --

Oh, 110 E. 42nd.

Essentially what's your stabilized purchase price on that when you bring it back home?

Okay, so let's start with 711. So that, John, is reflective of a FMD reset. So these ground rents stay static. Could be anywhere. Sometimes they're very long term, they could be static for 20, 25, 30 years or sometimes as little as 10 years. Usually, 15 to 20 years and at the end of the period of time you look at market conditions and if the market conditions are better than when the last reset was made, there's an increase that is either done consensually or typically by arbitration. In this case it was done consensually between us, as the leaseholder and 50% the fee owner. All on 711 we own50% of the fee and we own 100% of the operating position. But, in a negotiation with the other 50% of the fee owner, we agreed to a revaluation, which we think was a market revaluation. We then -- it was expected, we had forecasted for it. I don't think we got the better or worse half of the result in that case, I think it was where everybody sort of believed it would come out. And, that did result in an increase but now I think that increase is locked for at least the next 10 years, possibly longer. And the increase is mitigated partially by the fact that we own 50% of the fee, so whatever the increase was it's got a 50% dilution factor. So that's 1.

The other 2, the $49 million structure finance investment is a B note that we made in a new acquisitions of a property on Sixth Avenue. It's a 5-year, fixed-rate instrument with our total return being 8.5% to 9% and that's at that 70% or so, last hour loan to cost. So, similar profile to the -- what I discussed on the call there's about $80 million of cash equity from the sponsor subordinate to us. And then on 110 E. 42nd Street, we took over 100% of the equity interest there. Effectively, our last dollar per foot on that acquisition, if you will, was south of $500 a foot and, we've taken over leasing management and are actively working to lease the property up. The current occupancy's around 73% and there's a bunch of capital escrowed with the senior lender as part of the AB structure to complete the lease of that property from 73% to more stabilized level of 95% to 98%.

Okay, just little follow up, Marc. How was the land, if that's the way to look at it? How was the land valued on 711 3rd when you die your fair market value reset, or is that just too complicated to get into?

Well, I wouldn't say it's complicated, it's generally not thrown out there in the market. I would, I guess, feel comfortable in giving a range as opposed to an exact number, John, it's just not one of those things we stick in the supplemental. That's a negotiation between us and the fee owner. But I would say somewhere in the $200 to $250 range is where we settled on an appropriate value for FAR.

And then are you looking to $200 to $250 per square foot or for the entire underlying land piece?

That's just for the land piece.

For the land, not on a buildable square foot number? You are getting at $200 million to $250 million value for the entire land position or fee?

No, no, no. $200 to $250 per square foot of FAR.

Okay, got you.

But that's determined completely by the language of the lease, which can vary widely lease to lease so, it depends on -- it's an appraised value based on a certain use of the building. So, the art is to try to get in there and negotiate the lowest value possible if you're the leaseholder based on those limitations on value.

And then does -- the $10.5 million, is that your pro rata share in terms of 100% of the fee, 50%?

That's 100%. That's 100% so we receive half of that as -- because of our 50% share as a fee owner.

Okay, got you. And then, what's your pay accrual on the $49 million?

It was $40 million as current.

$49 million mezz position is that pay or --?

Per impact.

Okay, thank you.

Our next question will come from the line of Rob Stevenson of Macquarie. You may proceed.

Good Afternoon, guys. Can you talk a little bit about how rents on comparable space is trending today versus at the end of last year, and where TI's and free rent are also traded on comparable space versus the end of the year?

I think we've continued to see the same trend that we spoke about in the last couple conference calls and that, face rents have risen over the past 12-to-18 months driven primarily by 2 groups. One is high-profile, best-quality space, generally defined as above the 20 or 25th floor, so the tops of buildings. And, also, big blocks of space have clearly seen a premium come back into the market where there's as short supply of big box space. There's more big tenants floating around the market than anyone can identify of big blocks to satisfy that demand. Notwithstanding that, we've seen improvement across the board, really on all types of buildings, whether it's our buildings on the farthest fringe of the portfolio or our best located product. It's just a different level of appreciation in rents depending on which part of a building and which particular property we're talking about.

On the concessions side, I think TI's have stayed fairly flat in the last quarter. Where space needs to be completely gutted and rebuilt the TI packages are generally $60 to $65 a foot. But I think the big differentiator that we're seeing today is we're able to cap the dollars at kind of a maximum of $65, even when we're gutting and rebuilding a piece of space for a tenant, versus 1.5 years ago where we were having to spend more than that to turnkey and installation. And, free rent is anywhere from 4 to 5 of months free rent post construction and if the tenant's doing his own build out it's roughly 10 months of free rent.

And so on an average basis relative to, let's say, 6 or 9 months ago, would you say that rents are up 5% on similar space on average across the portfolio, you think, or more or less?

Well, I think the rents are clearly up at least 10% to 15%, probably on a net effective basis it's bigger than that.

Okay.

You don't see it in the mark-to-market per se because it's really measuring against spaces that are rolling off. Where we see it is by comparison to where deals were being written or where we thought the market rate was for space 1 year to 1.5 years ago and that's clearly had a material increase on both space rents and net effective rents.

Okay, perfect. And then, earlier this year you guys were, I think, shopping 1 of the smaller Stamford assets. Are you still looking to sell? What was the pricing that you guys were seeing, or was it a situation where the pricing wasn't that attractive?

I think we're still looking to sell that asset. We were having active conversations with a couple of different buyers and it's a slower process in the burbs to sell assets, certainly, because the city people sign non-diligent, contingent contracts and the suburbs, they look for diligence periods and inspection periods it's still -- it's a slower process. So we'll see how it unfolds through the course of the summer.

Is there still decent demand for stuff out there, or is it just a matter of getting to terms or is the demand coming and going?

When you say is there still decent demand, do you mean to buy buildings?

Yes.

Yes, I would object to the word still decent, because it's -- I think what we've been saying for several years now, it's been stalled. I'd say it's not decent, it's been a -- there's been -- we've had an inability to -- really to recycle our buildings since, I would say, beginning or middle of 2007. Probably the middle of 2007. And we're waiting for the market fundamentals to improve in our major suburban markets and I think when you see some kind of demonstrated improvement, that's when you're going to see the lenders jump back in and with the lenders jump back in that's when I think you'll see the equity jump back in. But that has not really been the case throughout 2008, 2009, 2010, and we've sold little to nothing really in the suburbs over that period of time.

So, this small property in Stamford was a little bit of a tester and we do see some signs of market improvement and hopefully, over the next 6 to 12 months that'll pick up pace as the rest of -- as obviously New York City does. The job growth in the private sector, exclusive of New York City, is starting to pick up. There's been about 50,000 new jobs created since the trough of the market private sector. Not all office-using jobs but that's generally located in Long Island and Westchester, so that's a bit of a positive result we've been tracking, but we haven't yet seen that really translate to office demand. But I think what it does then I think you'll see a market start to reform. But I would say right now, it's a stable market but less than decent.

Okay. Thanks, guys.

(Operator Instructions). Our next question will come from the line of Alexander Goldfarb of Sandler O'Neill. You may proceed.

Good Afternoon. As you guys have your talks with your financial -- the financial service tenants and clients, how many -- how much do you think or you get a sense from the firm's that the fact that a lot of folks raised base salaries has meant that we've had layoffs perhaps sooner or perhaps more frequently than would've occurred under the old system where it was a low base and a high part of variable comp?

It's a hard question to answer. They have raised base, they have lowered the bonuses and that's reflected in the payroll and withholding taxes. We were talking with the budget guys and they clearly see a change and now they're wondering what's going to happen at year end. Are bonuses really going to be reduced as a result of that increase in salary, or is it the case where the Wall Street firms may make $25 billion plus in profits this year and the bonuses may wind up being big anyway. I don't know that anybody has an answer to that. In terms of driving the layoffs, we've seen relatively consistent but moderate job growth in the financial sector, the layoffs are pretty much subsided. And I know that's firm by firm and that, so there may be examples where that's not the case but I'd say, in total, the data would suggest that there's net additions to those jobs and they seem to be operating at full capacity right now.

There are some firms we talk to that talk about possibility of some layoffs at the end the year, but then that's offset by others who say that they're completely stretched and looking to hire people. We know certain firms that are actively raiding other firms and hiring. So, net-net it seems to be positive but I don't really know if we have a view as to how the -- that kind of restructuring of compensation is going to directly affect that hiring. I think we're all in a wait-and-see mode.

Okay. And then second question is, with the recent ruffling that's going on in the CMBS market and BP [Spires], has that resulted in you guys been able to get more attractive rates on new mezz or new debt positions, or is that not -- or have the 2 markets have been separate from that perspective?

They're pretty separate from that perspective. I think as opposed to -- single-asset lenders like us don't really bench ourselves too much off of diversified pools -- spreads and diversified pools. When those spreads comprised into [$250] over we didn't track it and as they widen back out to [$500, $700] over it doesn't have too much impact and I think we're competing more against pools of capital that are raise specifically for the purpose of making single asset subordinate investments. And, when those pools are raised they're passing along to those investors an expectation of the returns they're going to deliver and that's really what we're competing with.

Okay. Thank you.

Thanks.

Our next question will come from the line of Sri Nagarajan of FBR. You may proceed.

Thank you and good afternoon. The question has to do you ATM programs, if you will. Obviously you're now sitting at about $390 million in cash. From the prepared remarks it appears that acquisitions are perhaps in the middle innings and structured finance is perhaps flat, if anything else. Would it be a right perception that you're not eager to start a third ATM program, or is that a consideration that you're looking at more growth here?

I think, Sri, the answer is -- this is Jim, the answer is that we wouldn't discuss with you whether not we were going to put another ATM program on. But I think that, again, the great thing about having an ATM program is that we can time the usage of the program against what we consider to be balance sheet growth around real estate assets. So I think if -- to the extent that we continue to exercise on the real estate pipeline, you would see us coming back in for a blend of capital to fund that pipeline. So, I think that -- I think, again, you just have to wait and see how the rest of the year unfolds with regard to acquisitions.

Yes, I want to get onto that, Sri. Whether or not we put a third or fourth or fifth in place the issue is more -- it can be utilization that having it in place. I think what we've said in the past -- I think we've said in the past, maybe haven't -- this maybe wasn't discussed in as much detail in December -- was that we were looking to do the ATM issuances generally to keep leverage neutral, not increase, not decrease as we buy new real estate properties. And we found it to be much more efficient product where we don't have to accumulate, accumulate, accumulate and then equitize and bring a great deal. Here you can sort of do it as you go, you get the benefit of a rising stock price in a market like this and you can do it in relatively small amounts. We've been an active issuer but when you really look at the amounts they're modest amounts and they're really just starting to right size the acquisition.

So going forward I just want to make sure what you heard from me was that having just done $4.5 billion of equity purchases, $2.5 billion our share, in 2 years, that our rate of investment would be less than that, but even less than that we'd still -- could still make us one of the top acquirer's in the city. So, just want to make sure I'm clear in that. And when you talk about flat structured finance I think what I had mentioned in the earlier part of this call was that I actually think structured finance will take on a more prominent role in the middle innings and increase in balance as opposed to having a flat balance.

That's helpful, thanks. My second question is on some color on a mark-to-market economy (inaudible), or remarks that you had made specifically with regards to either rest of 2011? It appears that obviously you still have some 2000, 2001 leases rolling and then it's perhaps only in 2012 when we would be getting somewhat of a relief in the empty [m] here?

Well, I would say yes, that's what we said but also, the fact that we're up 5%, midway through the year that's not bad. I don't want to minimize the achievements for the half a year. We've done 1 million square feet of leasing and we've increased 5%, 5.5% over expiring leases, which really kind of peak leases, so I think that's very good. I think that we've done -- with the shrinking concession package, as Steve outlined earlier and we're hoping those concessions continue to shrink, and with vacancy now at about 9% peak, [9.8%] and we talked about 9% being, in our minds, that threshold number, which tips it in the favor of landlords to be able to increase rents back towards an equilibrium against construction costs, which they clearly aren't out now, that's another 80 to 100-basis point away. So I would agree with your comments that 2012 we should see an acceleration but I don't think that necessarily takes away from 2011's activities.

All right, thanks.

Our next question will come from the line of Jay Habermann of Goldman Sachs. You may proceed.

Good afternoon. Marc, just a question on acquisition strategy as you look forward. I know you mentioned the foreign capital and institutional capital, which seems to prefer the more premier class A types of assets, but as you as you look at opportunities near term are you seeing more in that B, B plus realm given some of the deals with perhaps some near-term issues, like Columbus Circle?

Well, let me make sure. When you said -- you're asking is forward capital attractive to A minus, B plus assets, is that the question?

Well, it sounds like you're referencing that class A assets are getting a bit frothy and I'm just curious what you're seeing, perhaps in some of these other deals out there that you've done in the past, whether it's the Columbus Circle or other transactions like 1515 Broadway?

I think they're just as frothy. There's been foreign interest in assets less than just trophy assets. We sold 19 W. 44th St. to Decca Bank, we sold 28 W. 44th St. to a [pru] advised fund -- German fund,

The Starret-Lehigh building is closing this week at a at a sub 5% cap rate. 626 is in the market now, expect it to trade institutional also the sub 5% cap rate. I'm not sure you can really draw a distinction. I think there's competition across property types and class, all really from institutional capital.

1186 5th Avenue sold to a Chinese investor. The list goes on and on so I think that location matters as much as asset vintage and I think some of the better, older assets can command as good or better cap rates than some of the newer product if they're well located and there's a big mark-to-market in the leasing or if there's a big vacancy or repositioning opportunity.

The difference for us, Jay, is our deals are off market. If you go through our list, we don't really compete for marketed deals, so everything we're citing is marketed deals with a broker and a book and a worldwide process and our franchise is off-market deals.

Okay, and maybe a question for Jim or for Matt. As you look at the line of credit can you talk about your expectations as you go into the back part of the year and do you expect to reduce that balance as you move toward year end?

In the investor conference last year we laid out a target of $500 million for the year-end balance on the line of credit, which we're at today -- or we were at end of the quarter and I think that's our expectations haven't changed. It'll depend on, frankly, the uses of capital we have going into the end of the year.

Okay. Thank you.

It's down to --

It's down -- Jim, it's down from where at the beginning of the year.

$650 million at the end of last year.

$650 million at the end of last year and it was reduced to $500 million. That was our year-end target. We're there in the middle of the year.

Correct.

We could, certainly, see it being reduced further or --

Or not, depending on the --

-- or not, but I think certainly we've exceeded our timeline.

Okay, thank you.

Our next question will come from the line of Michael Knott of Green Street Advisors. You may proceed.

Hey, guys. Marc, can you give us a little more color on the comments on the leasing pipeline, I guess, and maybe just in the context of -- your guys' leasing volume this quarter was a little lighter than it's been for a while and maybe part of that is just that 1Q was a big number and maybe it sounds like 3Q might be a bigger number, can you just maybe talk about that a little more?

Yes, look, I been telling Steve he's just got to pick it up in the second quarter, but --

Yes, that's a good question, thank you. (laughter)

Look, I think that it's hard to really parse it down quarter by quarter. I think our annual objective was 1.7 million, okay, so we're -- 105,000 into 1.7 million is dramatically ahead of schedule. I've got another, it looks like 1.4 million, almost a 1.5 million of -- near New York certain or highly likely or reasonably-likely deals. They may not all close or sign-up this year and some will fall out and some will get added. But I said earlier we're on track for, I think, 2.0 million -- want to raise that a little bit from the ones 1.7 million previously. I think the 2 million is achievable unless the market really reverses itself. And, if you can exceed your goals by 15% to 20% I don't know how we could look at the leasing performance as light. I think it's quite strong. The fact that it was 450,000 this quarter and maybe a little more like 550,000 last quarter, I wouldn't read anything into that. That's just the way the chips fell.

And just to add onto it, put into context of remembering that we started 2011 with roughly 880,000 square feet of lease roll and we've already signed leases of 1.4 million with 600,000 feet of leases actively being negotiated and another 750,000 of pipeline, that's a lot of leasing relative to the amount of rollover on a well-occupied portfolio.

Yes, okay, thanks for that color. And then last question would be just going back to the structured finance versus equity investment question, how much bigger could the structured finance book get? Do you still, Marc, think about that in terms of that 10% of assets number, and obviously it would take a lot of origination to get back up to that now, but is that something that we should think about?

Well, I think on the last quarter's call we had mentioned that our prior balances of the $900 million to $1 billion are -- I think a reasonable level that's well under 10%. I think that's 7% or thereabouts. I think what we've said is it's kind of an internal goal of ours to keep it at or under 10%. I don't know that it's ever really been at that level except maybe for the briefest of times. But over the 15 years of the program it's generally been in the 5% to 8% range. That's not necessarily because we would be uncomfortable seeing 7% go to 8%, 9%, 10%, it's competitive. I don't want to make it sound like it's turning on and off a water faucet. You have to compete for these deals, they're structurally complicated deals. We -- there's only so much transactions that are getting done in the city where we're doing more than our fair share of those.

But it's something that you can't exactly regulate so we're estimating that we'll have some real opportunities in the second half of the year to increase that balance. And I mentioned last quarter that I think not necessarily in the immediate term, but in the foreseeable future, getting back to the kinds of balances we had when the program was at its fullest would be $900 million to $1 billion, albeit now that's out on a bigger asset base. So it's a lower percentage because we're a bigger company now.

Great, thank you.

Our next question will come from the line of Michael Bilerman of Citi. You may proceed.

Yes, good Afternoon, Josh Attie's on the phone with me as well. Maybe Mark or Andrew, just wanted to delve a little bit more deeper into structured finance and I guess I was surprised because your comments would seem indicate, at least on the equity side, that asset values have risen substantially, cap rates are down a lot, the mortgage market, in your words there's been no letup and I would say lenders have -- obviously with values going up, the loan to value seems okay, but there's still -- I'd say underwriting certainly has gotten more aggressive over the last 18 months. So why hasn't there been that shift in structured finance market? Why hasn't -- why are you able, in your words, to find decent risk reward? If you don't think there's a decent risk reward on the equity or the debt side I'm surprised that piece of the market is still offering the right balance?

Well, I'll take a shot at a couple that come to mind and Andrew will chime in with his thoughts. But, first of all, I would say we've created a franchise over 15 years and a name for ourselves and we're generally first call and that certainly helps in an ability to get and compete and not necessarily charge a premium rate, but at least we can pick and choose amongst the opportunities we think are best. This is -- I said earlier it's a complicated business, it certainly involves knowing how to structure the docs, how to go through all the various kinds of rights revenues when they're partial interest, mezz interest, preferred equity interest, B notes, servicing agreement, it's just not commodity like. And we have a very good book to borrowers, we do a lot of business, I think we have a reputation as being very fair in this market and we get more than our fair share of opportunities. That's one. The second thing I said on the last call, was that the -- a lot of the banks who were competitive in subordinated debt origination last cycle have been kind of legislated out of the business because of the very large capital requirements so there's just -- the pool of capital for this business is just less. So those are 2 reasons that come to mind.

Yes, there is less competition because the mortgage rates have sort of washed out and they're not competitive anymore and some of the groups have not. And I think the underwriting standards of the seniors has toughened up and it's just created a larger, subordinate piece, even as asset values have risen. You saw last week Goldman Sachs and Citi have to redo subordination levels on their CMBS deal and that's going to just reverberate through and CMBS is going to be that much more vigilant in terms of their underwriting standards and that's create a big need for sub debt. So it's creating a lot of a supply out there of quality paper and we're getting more than our fair share, as Marc said.

With respect to the line of credit, do you anticipate terming that out with fixed rate debt, or rolling the balance into a new facility? Just help us model the interest expense and cash flow for next year.

I think there is a couple points to that. We have been terming out debt as a strategy to extend our fixed rate interest exposure in the Company and I guess -- so we're looking at other term financing options. So part of the answer to that question about where the outstandings on the line of credit are at year end will be affected by our decision on our future financings. But I think that for right now you should assume that we'll just redo a facility -- a credit facility by the end of the year going into next year.

Thank you.

Our next question will come from the line of Suzanne Kim of Credit Suisse. You may proceed.

Hi. Just a quick question regarding at 3 Columbus Circle and 280 Park. What would your gross FFO be if these amounts were in the run rate?

Do you have that, Matt?

You're saying stabilized?

Yes, exactly, stabilized.

We haven't a given any estimates to the Street that would give you an adjusted FFO.

Suzanne, in our investor conference presentation we did put up a slide on 3 Columbus Circle, which is pretty much on top of the economics we're seeing right now and puts a stabilized NOI number out there, as well.

Okay.

And at the 280 it would mean that we can --

We can look at doing that for -- when we -- in December when we do the investor we'll have, I would expect, a full module on each of these properties as that's traditional with how we do it. And then for 2011, obviously, it's little to no contribution.

Correct.

As we give guidance for 2012 talk about the amount of contribution that'll come from these assets and we can talk about it both for 2012 and for stabilization I think that's fine, but I wouldn't want to gun sling an answer to that now before we've had a chance to really internally sign off on those estimates.

How much are you capping interest on these and other projects right now?

The primary area where we're capping interest is down at 180 Broadway, 182 Broadway, our development property, so we have a little bit of cap interest there and a nominal amount at 3 Columbus.

And so you sort of --?

Nothing at 280.

Okay, nothing at 280, okay. And then, when do you anticipate the cap interest being -- sort of start picking up like next year, or --?

On which property, on 280?

Yes.

Well, as with any prop --

Sometimes I guess it depends on where you're going to be going with the asset, I guess.

Absolutely right, that's what I'm saying. As with evaluation of capitalized interest or operating expenses it depends on the status of the asset, the redevelopment plan and whatnot, which we are still finalizing.

Okay, one last question. There was about a $34 million investment in your top 10 investments last quarter that sort of disappear this quarter, I'm just wondering where it went out what was it, and I don't know how much you would be able to disclose but that would be really helpful?

Is that the AFR?

We got paid off on our final mortgage financing investment related to AFR, American Financials. It was a payoff at par.

Okay. And is there -- there's a 0% the yielding the third -- I guess the third-largest investment in the top 10, that 0% yielding right now, what are the prospects of that changing and how you view that investment?

Well, we evaluate that investment quarter to quarter and it's just on a class A Manhattan office property and we continue to evaluate it for the appropriate treatment each quarter.

Yes, Suzanne, that's a fully accruing position so at the valuation it's that we evaluate it every quarter, fell that we don't -- it's not appropriate at this time to take the value up and therefore we've turned off the income stream.

Great. Okay, thanks.

Next question, operator?

Our next question will come from the line of Brendan Maiorana of Wells Fargo. You may proceed.

Thanks, good afternoon. Andrew, the flood of buyers and the $2 billion of properties that you cited in the prepared remarks, the return expectations of 7% to 8%, what you think the -- those buyers are looking at in terms of market rent growth in their pro formas over the next few years and how does that kind of compared to the 20% excess rent growth that you guys threw out last conference call for the market rent growth at SL Green's expecting?

I would say they're looking at -- they're projecting significantly higher rent growth. Certainly, the brokers and their packages to an extent people subscribe to those projections are sort of compounding [10.1%] and then 5% at a minimum, if not a further spike of 7% to 10%. So not on a compound basis it's probably almost 30% over the next couple of years. I think people are generally underwriting more significant rent growth, the purchasers that we are.

And you guys are still comfortable accounted at the 20% excess?

Yes.

Okay, that's helpful. And then just a quick one for Matt. The straight line rent adjustments seemed like it was down a little bit more than I think that you guys were expecting. Should we expect that line item to move back up to around $30 million a quarter, or is the $23 million or $24 million that was in Q2 good run rate going forward?

Well, I think in the first quarter on the call I guided people the somewhere between $25 million and $30 million, toward the higher end of that. In that line item, as you see in the supplemental, straight line, FAS141, those non-cash kind of rent components are not the only items in there. There's convert charge, there's non-cash income on debt investments, things like that. So, if you strip all that out we were on the straight-line free rent FAS141 right at about $27 million, so only slightly below where we thought it would be. So pretty consistent with where we thought.

And that line item is probably likely to be roughly comparable to Q2 in the back half of the year?

Yes. Again, between $25 million and $30 million is a good run rate.

Okay, great. Thank you.

Our next question will come from the line of Anthony Paolone of JPMorgan. You may proceed.

Thanks. You mentioned some signage income of 1515 that needed to make its way into turning still and I think also the full impact of D&G when they take up 717 5th and I think Jimmy maybe even rattled off a couple of others that I missed, so I was wondering if you could just roll that up and give us a sense as to how much FFO is in the offing that just needs to come in still and maybe a little timeline on that?

Yes, Tony, we're not ready to put out a 2012 number yet, so why don't you give us a chance to do our internal budgeting and really give you a thoughtful response to that question when we get to the investor conference?

But are these -- like on 717 5th it sounds like that's just done and just a timing issue and same thing with some of the signage, is there even just a dollar amount as to how much still needs to --?

The signage is not done. The signage is getting constructed now so we really would even know in 717 and we need to complete the move of Escada and have D&G take over possession of the space.

Okay, thanks, and that's all I had.

All right, thanks.

Our next question will come for the line of Jordan Sadler of KeyBanc Capital Markets. You may proceed.

Thanks. I wanted to follow up on a question from earlier about downtown and the Hudson Yards, it sounds like from your commentary, Andrew, with tenants saying that they're real options that it seems like a little bit of a change in tone for you guys even, about those markets, which may have previously been considered lesser or fringier relative to midtown. So, what's your perspective from an investment standpoint on those markets these days?

We're pretty bullish on downtown. We like what's going on there, we've had a lot of success with 100 Church Street, and 388 Greenwich and we're looking for additional opportunities downtown, which we indicated previously. The far west side is not really a -- it's sort of a 1-owner market so there's no opportunity to invest there and I don't know that we would invest there, but downtown, we're actively looking for new opportunities.

Could 100 Church come off of the potential disposition list that you had previously slated it on?

Well, it could. The disposition to us is a sale over JV and that's [Ira's] disposition, so whether we sell it or whether we bring somebody in there, I think we have our options open. 1 of those 2 I would say is probably likely because once the asset's put to bed its mature and our modus operandi is to recycle capital on whole but the best of our buildings. So I don't know that it's going to change our view, it just may change the execution.

Okay, that's helpful. And then on the structured finance book, are there any additional conversion opportunities that may be imminent? It sounds like there's a little bit of talk regarding the CMBS on 5 Times Square, anything additional on that front?

We are always talking to all of our borrowers and trying to explore opportunities, so we've had a great success rate this year so far with 280 Park Avenue and 110 E. 42nd Street and we continue to talk to guys so I definitely wouldn't rule it out.

Okay, and then last one, maybe for Matt. I'm just looking at the preferred equity and investment income line, the other income line, and trying to reconcile that with the $600 million or so that was outstanding and the 6% yield, and I'm coming up with something more like a $9 million current, quarterly pay -- or accrual rate on that investment -- on that investment balance, what would be the difference? I know you -- besides the servicing fee you mentioned, what would make up the gap there in those 2 line items?

The big difference is actually all in one item I mentioned in my commentary on the position -- the bridge loan financing that we provided at 3 Columbus Circle. The number as presented in the financial statements is $5 million, thereabouts, investment income and there's an offsetting -- because we're 50% of the deal the offsetting 50% of that is down in RJB income so it shows up as a net $2.5 million number that I referenced but it shows the investment income higher as a result of the treatment there.

All right, we've got about enough time for a couple questions and then we're going to come to a hard stop at 3.30.

Thank you, Sir. Our next question will come from the line of Steve Benyik of Jefferies. You may proceed.

Great, thanks very much and good afternoon. I was hoping you guys could just provide a little more color. You mentioned a number of the repositioning opportunities you have between 110 E. 42nd, 1552 Broadway, obviously 280 Park, 3 Columbus and a few others. Can you just tell us a little bit more about the projected incremental capital spend expected over the next 12 months and what maybe a weighted average yield might be?

It varies by building. 280 Park, Marc said it was going to be $150 million or so of capital investment there and we'd expect stabilized cash on cost yield there to be in the 7% to 8% range.

3 CC we had announced earlier that we expected total capitalization, inclusive of redevelopment capital, about --

$530 million.

$530 million, so that hasn't changed.

We expect stabilized yields there to be in the 9% to 10% unlevered range.

What was the other --?

280.

110 E. 42nd St., there, I think it's really just lease-up capital, there's no building redevelopment there. And, just leasing that up from 73% to a stabilize occupancy should get us to around a 7.5% or so yield on our investment unlevered

And then on 1552 or 125 Park?

We will talk about-- on 1552 we're not --

1552 is a --

we haven't even closed the deal yet.

It's a development deal.

-- a development deal and we're going to spend some time there working a plan and spending some time with the city and it's way too early to talk about capital expected because we have got a number of different scenarios but we've got to close the deal, get into it and we'll settle on 1 and then we'll have some numbers to put out there. But 125 --

125 is just lease-up capital and there we bought the deal very attractively and I think, with reletting the Meredith space, which was part of our initial underwriting, we should stabilized at around an 8% cash on cost unlevered.

Okay, and then just finally from a liquidity perspective, what are the incremental potential proceeds from refi of 717 5th and Landmark Square? And then, in addition to that, what level of dispositions, you mentioned a few for the back half of 2011 but what's currently embedded in guidance from a dollar volume perspective?

Well, Landmark Square is --

$80 million on Landmark Square -- it's Matt -- and on 717, so we have -- that's a pending maturity for the rest of 2011. We do have extension options built into the existing financing. We're evaluating now whether to exercise those options or seek refinancing, given the (inaudible) [Cabana] lease.

But if we do refinance, there'd be --

Material upsides.

Material upsides, absolutely.

On an order of magnitude.

It's as high as we want to take it. So we have tons of areas of liquidity that we evaluate every time we do a financing and we just trying to optimize cost of funds.

Great, thank you.

Our final question will come from the line of Ross Nussbaum of UBS. You may proceed.

Made it under the deadline.

All right, you got -- it's 120 seconds. (laughter)

Sorry. It's been well-documented that there's been sizable demand for big box space throughout the year, and I'm just curious what the sliding occupancy rate at the Graybar building suggests for the complete other end of the curve for the smallest tenants in the city? Is that -- what's going on at Graybar that that building hasn't been keeping pace with the market?

Well, it actually is right on plan, to tell you the truth. A couple points I guess to understand. One is, we're seeing very good demand on small tenants so even though we didn't speak to it, don't draw any conclusion other than the contrary. Spaces that are, call it, less than 10,000 square feet, which -- or less than 50,000 square feet, plenty of demand out there, particularly if it's a 10,000 to 15,000 square foot full floors, which is not Garybar's market, or partial floors of the sweet spot of 3,000 to 5,000 square feet, in which case that is clearly the natural market place for Graybar, a building that has almost a 300 tenants. We started the year -- we ended last year and it rolled into 2011 with a big -- couple big years of lease rollover.

We knew that we would be confronted with a growing vacancy factor and then add onto that, we had to pretty big blowouts. One was a 25,000 square foot tenant. Unfortunately after tenant being in the building over 25 years, the guy's business tightly came to a crashing halt, so we're dealing with that. And we have another big piece of space there that we've chopped up a in the base of the building. And just to give you a little granular color as to the level of leasing, we have, at this point,15 leases out at Graybar of varying sizes and are seeing a high demand on spaces that we're pre-building.

We sat with a big box space, 25,000 feet, on the ninth floor of the building for most of last year. Finally made the capital commitment at the beginning of this year, because of rents had increased enough to justify an expenditure, to chop it into pre-builds and now we're taking that 25,000 square feet into 7 separate units. And before we've even started construction already have leases out on 5 of the 7 units. So, I think that's pretty indicative of where the velocity is at Graybar and although we're at an unusually high vacancy factor today, I think we're chipping away at it and we'll end up the year in a much healthier place, in line with what we had budgeted, despite the blowouts that we suffered.

Okay. And then Steve, while I've got you, the leasing update at 3 CC, have you signed any leases the summer?

No, No, we have one lease that's out for 35,000 square feet, we have 2 term sheets that are well baked at this point that we're hopeful will get converted into leases for other total of 70,000 square feet. You've got to put that building in perspective. In our minds we really only launched the marketing program about 60 days ago. Since January, we have really been focused on reengineering the capital program and completing the major elements of the redevelopment of the property. There were a lot of -- there was a lot of work that needed to be at tended to before we could really introduce the building back into the market place, and that work is being wrapped up.

The building is a wildly better place today than it was at last year's investor conference. We're getting a lot of positive feedback from the brokers community and the space tours are pretty active at this point so -- but they're big sized deals. The smallest deal in the building will be 35,000 feet up to a multi-floor deal, so those transactions need a good deal of ramp-up time before we're going to get any real progress, but I think we're where we expected to be at this point in the game.

Thank you.

Thanks. Well, thank you, everyone, reached the end of the call. For those that are still on -- I don't know many have legged it out to the end, but we want to thank you for your questions and want to just reiterate how pleased we were with the quarter. It seems to be a little bit overwhelmed by the market today but we're confident in the second half of the year and what it's going to bring and we look forward to speaking with you again on the next quarter's call.

Thank you, Sir, and thank you for your participation in today's conference. You may now disconnect. Have a great day.