SL Green Realty Corp (SLG) 2015 Q1 法說會逐字稿

Thank you, everybody, for joining us and welcome to the SL Green Realty Corp. first-quarter 2015 earning 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 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 the SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and 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 first-quarter 2015 earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I would ask those that are participating in the Q&A portion of the call, please limit your question to two per person. Thank you.

I'll now turn the call over to Marc Holliday. Please go ahead, Marc.

Okay. Thank you and good afternoon, everyone. We are pleased to have the opportunity to give all of you our perspective on the state of the market now that we are nearly four months into the new year. And I can sum up our excitement for SLG's year-to-date performance in essentially two words: leasing velocity.

As of today, we have concluded over 900,000 square feet of commercial leasing in over 60 individual lease transactions. Most notable among these by size are the leases to Bloomberg at 919 Third Avenue; Franklin Templeton, a new advisory, at 280 Park Avenue; and WeWork at 315 West 36th Street -- a balance of financial, media, and technology uses.

It seems likely that having completed this amount of transactions in less than four months we are on track to exceed our full-year leasing projections. The Manhattan office and retail leasing teams are taking full advantage of vacancies in the growth portfolio and rolling up rents to market in the stabilized portfolio, and also by taking advantage of our deeply embedded mark-to-market in our retail portfolio. And by doing this it should allow us to meet or exceed this year's goals while laying the foundation for strong future growth in 2016 and beyond, when these newly signed leases generally will kick in.

Clearly this market is benefiting from overall Midtown vacancy rates of under 9.5%, on leasing activity that is on pace for between 35 million and 40 million square feet of new and renewal leasing this year.

From an employment perspective, the first quarter of 2015 was the strongest quarter since the year 2000. New York City added 16,400 office-using jobs; and the distribution of jobs among the three primary office-using sectors -- professional and business services, financial activities, and information -- were about equal.

Usually professional and business services accounts for most of the increase in office-using jobs of late. But you can see now that's equally distributed between the three main office-using sectors.

The good news for our shareholders is that the leasing pipeline also remains robust, even after coming out of the gate strong in 2015. We now have over 500,000 square feet of lease documents that are either out for signature or are pending and being negotiated. That compares with about 575,000 square feet at the same time last quarter, end of the fourth quarter. And you see how we were able to convert these opportunities into signed lease transactions and then some.

These leasing achievements helped to drive a 3% same-store NOI increase in the first quarter that was actually ahead of our budget and is expected to be exceeded for the balance of the year, such that we feel on track to meet our goal of between 3.5% and 4% for the full year.

On the investments front, we were active closing out year-end deals like the additional ownership interests that were acquired in 800 Third Avenue and the closing of the Stonehenge residential portfolio, along with the successful disposition of 180 Maiden Lane and the net new origination of about $145 million of structured finance investments. This net investment activity, along with the unencumbering of 711 Third Avenue, enabled us to access the ATM and DRIP for modest amounts of equity issuances that were completed to continue to improve our balance sheet.

This steady improvement resulted in an upgrade in credit rating to investment grade from Moody's and an outlook upgrade from S&P. For the balance of the year, we are expecting to roll out several assets for sale, which will be used in large measure to fund our pipeline of investments for the year without reliance on larger equity issuances.

Turning now to other main objectives for the second quarter and balance of the year, we continue to move forward through the approvals process in support of the Vanderbilt corridor rezoning and to obtain a special permit for the development of a new commercial tower at One Vanderbilt Avenue. The project has the support of the Borough President Brewer, the City Planning Commission, and our partner organizations at the Coalition for a Better Grand Central. We are now before City Council, who is expected to vote upon the project in May, at which point the land review process will be concluded and we hope and expect that we will receive the special permit that we've been working on for some period of time now, as most of you know.

Other Company recognitions, just to make note. During the year -- I'm sorry, during the first quarter, actually; this is just in the past three months, SL Green was recently recognized by the US EPA as a 2015 ENERGY STAR Partner of the Year on Monday, April 20, during its award ceremony in Washington, DC. We got that award for sustained excellence in energy efficiency and the development of market-leading sustainability programs.

So we are very proud of that. Not only proud of the performance of the Company, the balance sheet, and then our stock price, but proud to be able to achieve all of that while doing it in a very responsible and environmentally sustainable way, which has now been recognized at a federal level.

Also, as I think many or most of you know at this point, we were given admittance, if you will, into the S&P 500, which I think is basically a confirmation of the strategies and direction that we've taken with this Company over the period of years to grow and diversify, but diversify within our market, and create a level of size, stability, performance, and return that we think is now on par with some of the best and biggest public companies on the New York Stock Exchange. And for that, we are very pleased and proud.

So that is a quick snapshot of how we're looking at this market as it is shaping up now. I would say it's basically on par or slightly better than our comments to you back in December at the Investor Conference, which you'll remember we had focused on basically 10 drivers of growth. I think those drivers of growth are evidencing themselves in significant degree.

And I think we've called the market fairly correctly for our shareholders, which obviously we try to do. Because we look -- as much as we're in this market, we view that maybe we only have a six-, to nine-, to 12-month advantage over people not as deep in this market. So we always want to be as transparent and as early with you on how we see market trends developing.

I think, as I said, the first four months of the year I think we've called it pretty well, so we're happy about that. And with that, we'll take your questions.

(Operator Instructions) Nick Yulico, UBS.

Hi, it's Ross Nussbaum here with Nick; we are going to tagteam you. At One Vanderbilt, are you guys contemplating doing a joint venture on that project ahead of putting shovel in the ground? Or can you talk a little bit about how you're thinking about the long-term capital stack for that asset?

Well, the answer is yes. We are considering JV alternatives for that asset. I think the question will just be when.

Shovel is in the ground already, in terms of just starting some interior demolition. So the big money spend starts in probably 2017 and beyond; and by then I think we'll have determined our capitalization of the project with or without JV partner -- but obviously, that has high consideration right now.

Although sitting here in early 2015, it's being financed right now out of cash flow and it's not something that needs to be, in our opinion, dealt with right now. Nor should it necessarily be, because I think there is real value to be created between now and call it the next 12 to 24 months.

Okay. I think Nick had a question.

Thanks. Yes, Steve, could you just give us a little bit of an update on the leasing market in the city in the first quarter? Not just your activity, but how you are thinking about the whole market.

I mean, it seems like there's now some bigger tenants in the market looking for space. Small-space trends seem pretty positive as well. And maybe relate back to your portfolio, how you guys might benefit from that over the next year.

Well, if you break apart the various submarkets, you've seen strength across the board, both on the small space type tenant, but also on the big tenants and on the high price point tenants. I would say from the tenant profile perspective, financial services seem to be more active today than any time in the past couple of years.

As we look at our leases that are out right now, nine of our 10 largest leases that were negotiated are financial service related businesses. And there doesn't seem to be a pocket in town where there is a dearth of activity; it's just sort of guns blazing across all submarkets.

And we've been pushing rents up every 30, 45 days as far as where our taking rents are, in most of our buildings. So I don't think it's unique to our portfolio. I hear the same thing back from the brokerage community, which I think is one of the big things to understand: that the brokers are out there telling their clients that the balance is shifting towards the landlords, that the market is rising, and they don't see it slowing down in the near to intermediate future.

Just lastly on 919 Third and the Bloomberg lease, can you give us some perspective on the rent mark-to-market there? Is that replacing an expiration in coming years? Thanks.

We are under a pretty detailed confi with them on that. It replaced several tenants that Draft -- which is part of Interpublic -- had rolled out of the building over a year ago. So they took five of their floors; and then we had another three floors of tenants whose leases will be expiring over the next immediate to year or so.

So it's a pre-let on that. So it's a combination of floors.

Again a reminder, two questions per person. John Guinee, Stifel.

Great. Thank you very much. My two questions may expand a bit, so -- but very quick answers. Weighted average share count increased by 2 million shares; a little background information on that.

Other assets also popped this quarter; any color on that?

And third, can Andrew or David talk about why -- how the underwriting for your structured finance investments has changed over the last two years as capital has become readily available in that part of the world?

Sure. Matt?

John, it's Matt. I get the first two. Marc alluded to in his commentary the use of our ATM and DRIP plan to issue equity during the first quarter for some investment activity and repayment of the 711 Third Avenue mortgage. So that's the increase in share count.

As to other assets, this quarter we booked the popular FAS 141 adjustment for 388 Greenwich, an acquisition we did last year. As you know, that bifurcates the real estate asset into real estate and then other; and so that's the increase in other assets.

On the structured finance side, I would say the underwriting parameters for a subordinate financing have held pretty stable. We're benefited by the fact that a lot of the buildings that are being purchased are redevelopment type opportunities without a lot of in-place cash flow.

Where you've seen lending get a lot more aggressive is where there is significant cash flow in place on assets. Most of the assets that we are financing are lease-up, lease-to-market, redevelopment-type opportunities, so we've been able to hold our underwriting standards pretty static from last year and the year before.

Great, thank you.

Tayo Okusanya, Jefferies.

Yes, just a quick question on the Suburban markets. Again when you exclude Long Island, you still have fundamentals that seem to have weakened a little bit versus prior quarter. So I was hoping you can expand on what you are seeing in the Suburban markets.

Hi, this is Isaac. That was really driven by one particular lease. The year-end was obviously very strong. The first quarter we saw robust leasing activity of over 200,000 square feet.

We are wildly outperforming the market. Our occupancy is about 85% on signed deals. In both Connecticut and Stamford, the overall vacancy is about 23%, 24%; so that mark-to-market, if you exclude Jericho and that one particular deal, on commenced deals it was actually positive 4.4% and on signed deals about 1%.

So the fundamentals are still -- while not the city, they are still improving.

Yes, that's helpful. Then just another quick question on TIs and leasing commissions going forward. How should we be thinking about that for other development projects you are working on?

Should we think of them as potentially being as high as at 280 Park? Or there's something very unique to 280 Park?

Well, it's generally a function of the rent, more so than development or not. We could do a development deal downtown and we wouldn't be offering the kind of concession packages that you might offer at 10 East 53rd or 280 Park.

So I think you have to look at it, as we look at it and I am sure shareholders look at it, on a net effective basis. The higher-rent, higher-margin deals are going -- and the bigger deals for savvier tenants are going to traditionally carry higher TI levels.

So Steve, at 280 and 10 East, where would you peg those kind of new TI deals?

On the high side they've been as much as $75 to $80 a foot. But typically they are more in the $65 to $70.

And to add to the logic of that, one, it's a function of price points. So big rents therefore support a bigger TI contribution.

But also the profile of the tenant that's going into those high rent paying buildings have extraordinarily expensive buildouts. So they'll absorb a bigger rent, but they need some level of added support as far as a TI contribution because their buildouts, aside from what the landlord may be contributing, they could easily be putting another $100 a foot into the buildout on top of our contribution.

Yes, and you have to look at least term, obviously. Some of those bigger deals are 15-year terms, so there is 50% more term; but there is clearly not 50% more TI associated with those deals.

So it's actually -- doing a $75, $80 deal on a 15-year basis is better than I guess a $60 deal, $65 deal on a 10-year basis. You have to adjust for term; you have to adjust for rent and rent margin.

The only thing I would -- and construction costs are going up. You hear that from everybody in New York City. So real TIs -- TIs are holding flat to maybe contracting a bit.

So the real TIs are actually going down as construction costs go up.

Thank you very much.

Jamie Feldman, Bank of America Merrill Lynch.

Great, thank you. I was hoping you could spend a minute on the street retail business and just demand. We've got Westfield and Brookfield opening their space up downtown. It sounds like Times Square will have some vacancy with Toys R Us and certainly with the stronger dollar and tourism slowing a little bit.

What are you guys seeing just in terms of tenant demand in the pipeline? And which submarkets seem to be standing out?

We are seeing very good demand in Times Square. We just had a smashing success with our space at 1515 Broadway with the leases to Skechers and Swatch.

We're seeing very strong demand in SoHo, and we have got a lot of active discussions on our vacant or available properties in SoHo. We don't have any vacancies; we have some future availabilities which we are talking to tenants about.

And prime Fifth Avenue and Madison continues to be strong as well. We did the Diesel lease at 625, which we spoke about on the last call.

So we really haven't seen any abatement of tenant demand due to stronger dollar or any impact on tourism. Thus far there is still a lot of strong tenant activity.

Then sticking with retail, what about on the underwriting side and capital flows and asset values? Is that changing at all?

Continued strength. Incredibly competitive, to get sites -- both leased and available sites -- anywhere. And we've continued to see values escalate.

Okay, thank you.

Vincent Chao, Deutsche Bank.

Hey, good afternoon, everyone. Just curious if you could just comment on capital flows you are seeing into New York. Obviously the rental markets are strong; clearly still seeing some capital coming in.

But just curious what your thoughts are over the balance of the year, particularly from the foreign capital side. Do you expect that to be higher than last year in 2015? And just thinking about that in relation to the dollar move and things like that.

Well, we continue to have a very strong volume of incoming calls looking for opportunities. I would say the Chinese are very much making their presence felt. The purchases of 717 Fifth, the office portion of that tower which traded to a Chinese company I would say was a real bellwether-type transaction; and they are following that up with a lot of interest in other projects.

Their voracious demand for residential and development type opportunities -- and Isaac, I don't know if you have anything to add to that. It wouldn't surprise me if this year eclipses last year given the amount of -- there is a lot of deals on the market right now, and there is an enormous amount of capital chasing it. So usually that leads to record capital flows.

Yes, I would just echo, it's the Chinese. I think the Koreans are looking at the market stronger than they were last year.

There were more groups searching, more conversations that we are having. The sovereign wealth funds from all over the world as well, particularly from Norway and the Middle East are also very, very active, looking for yield and have lower cost of capital. So they are going to be very, very aggressive.

And the city is still relatively cheap compared to other markets around the world.

Okay, thanks for that. Then just one on the accounting side here. Just other income looked like it was up from where it's been the last couple quarters. Just curious if you could provide some color on that.

It's really just the timing of fee income. We recognized a fee on one of our projects in the first quarter; it was around $3 million.

Otherwise, it is really recurring stuff. There's probably $1 million of lease termination income in there as well.

Okay, thanks.

Alex Goldfarb, Sandler O'Neill.

Thank you. Good afternoon. Two questions.

First, Matt, on the exchangeables that are currently in the money, can you just give us an update? Are these already reflected in the diluted share count? Or how should we be thinking about these?

Presumably the holders of these would convert them, given how they are in the money.

To answer your first question, they are not in the diluted share count based on the nature of the instrument. They remain at their face value in debt; they accrete up to their face. They are slightly discounted to face on the balance sheet.

They are convertible at this point. They were convertible last quarter; they are convertible this quarter.

The view is people won't exchange those because ultimately you end up at equivalent yield in a more junior position to where they are today. All that said, it's a 2017 maturity. We've been focused on attending to 2017 maturities if we can early, so we are considering alternatives.

Okay. That's helpful. The second question is: on the Street retail page 47, in the prime retail section a number of the near-term maturity leases, the mark-to-market doesn't look to be too different to where -- the in-place doesn't look to be too different from where the market rent is. In contrast, you go out further and there is definitely a meaningful mark.

So are the near-term maturities in the prime JV street retail portfolio, are those assets that are going to be repositioned so that the mark-to-market is actually higher? Or -- just surprised that there is really not much of a mark there. And again this is on the JV street retail, the near-term stuff.

Alex, I've got to go through the specific properties underlying those assumptions and come back to you with a more specific answer. Because in looking at the table it doesn't -- we don't give addresses. So I would have to go through and take a look specifically at that trend.

Okay, okay. Well, then if I can just ask one more just to replace that. Matt, was there anything in first-quarter operating margin, why the margin was meaningfully higher than last year?

Obviously we have seasonal expenses. First and third quarters are higher than second and fourth; and reimbursement revenues don't track proportionately to increased OpEx.

Our OpEx was high in first quarter, as it has traditionally been. Particularly high given New York had another cold, wet winter. The reimbursement revenues bleed in on a lag basis, and so I'd say that's really the only trend there.

Nothing unusual. In line with our expectations as Marc alluded to earlier, both on a same-store and absolute basis in terms of margins for this quarter.

Okay, thank you. And, Andrew, we can follow-up after. Thank you.

Yes.

Steve Sakwa, Evercore ISI.

Thanks; good afternoon. Marc, at the Analyst Day, you guys talked about I think re-leasing spreads of 10% to 12%, yet had pretty successful New York City number, at 17%, I realize the Suburban number is a little bit weak. But any thoughts as to where that number may be?

And is there anything in the leases that maybe Steve is talking about today that would suggest there was some aberration in that 17%, or that the ones currently being negotiated are lower? Or is that just likely to move higher throughout the year?

I wouldn't -- we just gave this guidance like 3 1/2 months ago, so as -- in prep for today's call, we did not go back through all of the goals, if you will, to reassess. So I can't sit here now and say whether -- well, you are saying it's 12%. Was it -- usually give range.

So is that -- 10% to 12%? So is it 10% to 12%, as we sit here higher? Well, first, quarter it was I guess 17%, so that's clearly higher. I don't think we are projecting 17% as run rate.

So clearly -- it sort of depends on what rolls when. Some of the leases we are signing we're signing for vacancy, not for replacement leases.

So I think at this point we're going to stay with 10% to 12%. It certainly seems like there could be upside to that number, based on the velocity and based on the first quarter's result.

But other than just a hunch I couldn't tell you that we've gone through each of the remaining 200-and-some-odd leases we expect to sign for the remainder of the year and figured out, A, which one of those are in the mark-to-market pool and, B, how will it affect the first quarter.

So it certainly seems like there could be some upside there, but it would be premature of us to say that. And we will just -- maybe by midyear, Steve, I'll have like better feel for that. We start our re-forecast for the balance of the year, and I think we'll have a better sense. But this early on, I would say if nothing else, trending towards the higher end of that range.

Okay. Then I guess your comment about asset sales, clearly the capital flows are extremely strong. I am just wondering; what sort of dollar volume could that possess?

And where does the Suburban portfolio sort of fit into that mix? Does that need to see more leasing before you think you can bring it to market? Or do you think buyers would be willing to, in effect, pay for some of that vacancy?

Well, we gave some guidance in December. And I think, Matt, if I'm not wrong, it was about $600 million for commercial office.

Correct.

We're talking about dispositions, right?

Yes, asset sales.

And $100 million for Suburban. So I think we feel good with those numbers.

That's -- we have several assets that are just now -- one in the market, several more that we intend to introduce into the market. All extremely good assets. But again, these are assets where we look at the average growth trend in these assets over the next five to seven to 10 years, three to five years, and we compare it against some of the more opportunistic or value-add opportunities that we are looking at. And in those instances, we try to cycle out of the more mature properties and into the less mature.

It's hard to call any property mature in this market, because anything that's been sold over the last two or three years or likely is being sold today, certainly has the potential for significant appreciation in the next three to five years. But maybe not at the same rate as the opportunities we are looking at.

And that's how we're culling out the portfolio. So on that basis we will probably look to do some complete dispositions and/or strategic JVs of assets that we think will get us up to or over the $600 million guidance for the year.

I think our plan still is to meet or exceed that; and I would say the same for Suburban. So we didn't put those numbers out there without some forethought as to which assets we intended to try and dispose of, and the timing that we thought would be the optimal timing to do so. Because in some cases we are trying to get some leasing done right at the wire before we introduce to the market.

So I think we are still on that kind of trajectory. And again we can revisit midyear once we have a better sense of the reception to the market at the prices we'll be asking.

Thank you.

Michael Bilerman, Citi.

Hey, guys; Manny Korchman here with Michael. If we look at the leases you have under negotiation our out for signature, could you just drill down on that a little bit for us? How much of that is existing vacancy pending 2015 roll or the acceleration of future years, and maybe how much is office versus retail?

Let's see. On the -- we've got -- it's almost 50-50 between renewals and new leases. And of that the dominant type of tenant is financial services.

On the new leases it's, I would say, the majority of the square footage under negotiation is filling space that's currently vacant as opposed to pre-leasing space for future vacancy.

How much of that is retail?

Retail is a small percentage of the square footage that's out right now.

Then, Matt, given the big non-cash jumps in 1Q, does any of that benefit FFO for the quarter that we should be thinking about on a run rate basis?

In the first -- for as much as comes on generally it rolls off. So we had an adjustment for the first quarter that has a little bit of 2014 in it, for 388; but a few million dollars.

Otherwise, for the balance of the year, I would expect it to be pretty close to what it has been historically. That's for FAS 141.

On a straight-line basis, the straight-line adjustment will be higher this year. That's simply a function of Citi's free rent at 388 Greenwich, which is going to be in the neighborhood of $80 million to $82 million this year.

Great. Thank you.

Brendan Maiorana, Wells Fargo.

Thanks; good afternoon. Steve, maybe just an update in terms of a couple of office assets where you've got leasing in the growth portfolio: Tower 46, 10 East 53rd.

And then can you just provide an update at 280 Park? Are you essentially put to bed there? I know in the supplemental it's 65%, but I think it's higher from a lease percentage basis.

Yes. 10 East, we have leases out on five floors right now. We've signed a couple of leases in the past quarter. At the end of last year we had already done four floors of leases.

The capital project there is 90% complete. The lobby will be 100% done in about two weeks.

Elevator cabs will follow on over the next month or two after that, and the plazas will be done in about 45 days; and all the infrastructure is already complete. So we are rocking and rolling as far as leasing velocity and tour activity and active least negotiations at that property.

Tower 46 we've got a lease out covering a floor and a half, and we are trading paper with another very large tenant. It's way early to handicap as to whether there is any life to that or not.

But very strong tour activity. That's going to be one of those buildings where it takes some time to build up some momentum, because it was out of sight, out of mind for the brokerage community even though was a brand-newly constructed property.

But it was off most brokerage radar. So it's been a big effort to date to reintroduce it back into the brokerage community and get everybody through the property so they understand what it is that we are offering.

And 280 Park Avenue is quite frankly is on fire right now. We've got several leases out at big, big rents. And we'll be down to -- by the end of this year that building will be, from a leasing perspective, it will hit stabilization.

Okay, great. Then probably for Matt, although maybe someone else, just -- I'm not sure if you can share any details on the WeWork lease. But -- and I know they've got a lot of space with a number of other REITs that are out there.

But are there a lot of capital dollars going into the space? And how you guys get comfortable or how did you get comfortable with the credit and the dollars that go into the space at that lease?

Well, look, we are pretty excited about WeWork as a tenant and as a business. We've spent a lot of time with their principals and their people and at their facilities looking at their business model, which caters to this co-working community and the types of tenants out there that have high demand today, these TAMI-type and technology tenants.

And their menu of added value-add services we think differentiates them from a lot of other companies we see in that space. It's a unique offering.

They have a substantial amount of cash in the bank. They have substantial institutional backing.

And we got comfortable that for this kind of building, where we think their community of people want to be in this building, it was a perfect fit. So I think we are -- this is a joint venture; we own probably a third or so of the equity -- and not just us but our individual partners who were all very excited about this lease, both in terms of whatever capital is entailed by it and excited to have them in our stable of tenants.

So it's a good lease and great for us. And we think WeWork is going to do great in the building.

Okay, great. Thanks for the time.

Brad Burke, Goldman Sachs.

Hey, good afternoon, guys. A follow-up on asset sales and sources of capital. Should we think about those sales as completely funding your investment program for the rest of the year? And if it doesn't, how are you looking to fund those, between debt and equity?

Well, I think we generally match-fund over the years. So I think that's a good assumption.

I can't say exactly, because we have a pipeline of many, many buildings and we are talking about selling a number of buildings. So there's timing issues and everything else.

But the goal is certainly to try and fund the new acquisitions predominantly with the net proceeds of sale on a tax-efficient basis, doing 1031 where possible; and then either tweaking up or down with debt or equity if necessary, based on the timing and the volume. But I mean -- I think that's the way we've always done it, so there is no change in that front.

Traditionally, we've been net growers, so it has required on a net basis some amount more of debt and equity, but in ratios that will now decidedly keep us in the range of the investment-grade rating that we've obtained.

Okay. But no clear preference at this point for debt and equity to fund the balance?

Well, it's not a question of preference, per se. I would say the plan is to fund the majority of it with asset sales and then, depending on timing and volumes, look to tweak up or down with debt and equity as necessary.

Okay. That's helpful. Another follow-up actually on structured finance. I just wanted to get an update on how you are thinking about the outlook for income for that business. How much you'd like to grow the book; how you are seeing competition shape up for the year; and also how you are thinking about origination yields at this point going forward.

Sure. I think in terms of size of the portfolio, I think at the end of last year we said we would be up about $250 million year-over-year. I think that still holds; if anything, we're ahead of budget right now, but we know there's a lot of repayments coming in the second half of the year.

Yields have -- in the market generally I think they continue to compress. We have been able to outperform the expectations that we set at the beginning of -- or I guess the end of last year; but it's too early to tell what the entire year is going to look like.

There is a lot of competition out there. But through relationships and the different approaches I laid out at the end of the year, we've been able to keep our volumes up, and we are very bullish about the forecast for the rest of the year.

All right. I appreciate it. Thank you.

Vance Edelson, Morgan Stanley.

Terrific. Thanks. Back on the WeWork lease, and let's throw in Bloomberg as well, just given the overall shortage of large blocks in Manhattan, how much was the pricing on those leases reflective of that? Was it demonstrably stronger?

In other words, are prospective tenants acutely aware that there is just not much out there?

Well, a couple things. You know, there are two different products as far as the building that Bloomberg signed at. But I can tell you, broadly speaking, the availability of large blocks of space -- and let's define that as being 250,000 square feet or more -- you can count on one hand. And if you're looking for 0.5 million square feet, then maybe there's two of them in Midtown.

So the big block premium that tenants are confronted with having to pay from a rent perspective is definitely back in the market. And I would expect it to excel as the year goes by, because there is not going to be a lot of inventory coming online for big block space.

WeWork's building, different animal, side street, and it fell into the fringe area of Midtown South, the hotspot where the TAMI-type businesses want to be. And that's the kind of look and feel that WeWork likes to associate themselves with.

So I can't really comment specifically to the rents, but I will tell you that the rents that we got on the building were well in excess of underwriting when we bought the building and well in excess of what we would have budgeted 18 months ago.

Okay, that's helpful. Then I just wanted to give you a chance to comment on Betsy being added as a Director earlier this month. Maybe just share with us why she's the right person and what she brings to the table.

Well, we conducted a search to add a Board member on the heels of Andrew's ascension to the Board, in order to keep what the Governance Committee felt was a proper balance between independents and insiders. So we wanted -- that was one of the motivating forces to add a Board member.

And Betsy just stood out to everybody on the Board as perfect for the role. She's seasoned. She's been involved with a lot of big company Boards and brings a level of experience that's different from the traditional I will call finance and real estate experience that probably exists on the SL Green Board.

She pretty really comes out of the technology sector, if you will, and venture capital sector. And given the amount of importance we put on those sectors in today's market from a tenancy perspective if nothing else, we think that she can add a lot of value in terms of her role as a Corporate Governance Board member, but also in terms of her knowledge in relationships and ability to access the kind of tenants in this market where we would like to have a bigger presence with. So on a whole number of fronts she stood out as a great candidate and was appointed.

Okay. Sounds like a great addition. Thanks.

Ian Weissman, Credit Suisse.

Yes, good afternoon. Just a quick follow-up, Steve, to a comment you made earlier about the strong demand at 280 Park. Maybe you could just talk a little bit about the retail demand there.

I saw an article the other day about the Four Seasons restaurant considering its options. I just want to get a sense of what the demand is today, what you thought the lease-up opportunities and the rents were.

Well, let's put it in perspective. The retail on that building is not the driver of NOI.

Part of our development plan was to create either one large or two medium-size restaurant spaces. They are side-street locations as part of the building.

We've had discussions with Four Seasons. They would be a wonderful addition to the property if it were to come that way. But we are certainly not counting on them coming over to the building.

We are out in the market talking to a number of restauranteurs. And now that the development work is essentially complete at the property and we are well down the road on the office lease-up, we are turning our attentions to trying to find the right restauranteur or restauranteurs to fill those two spaces.

So we view it more as an element of the development plan to add the right look and feel and amenity to the building at street-level, as opposed to a typical retail addition to a property, which is a big NOI contributor.

And rents?

Quite frankly, it's going to depend on the tenant. If we get a world-class tenant that we think really adds to what the building is all about, then we will skew the transaction to be more of a less base rent, more percentage rent type transaction.

If we get a more midline type of retailer that has still a high design with good look and feel, then we will expect more base rent. And I think the market value on the space is probably $100, $125 a foot.

Okay. Thank you very much.

You bet.

Jed Reagan, Green Street Advisors.

Hey, guys. Wondering if you can share any pricing details on the transaction at 800 Third in terms of cap rate or price per pound and maybe what the strategic thought process was about increasing that stake there.

Well, it's clearly a -- it's a core asset for us that we've had a lot of success with; and leasing, lease-up there has been terrific. So it's an asset we wanted to consolidate additional interests in.

The pricing on the new interests is around $700 a foot for the asset. And post the acquisition, we own just over 60% of the building.

Okay. Where did that land in terms of cap rate? Can you share that?

Yes, it's between 4.5% and 5%.

Okay. Thanks. And maybe a question for Steve. I'm just curious what you are seeing in terms of rent growth momentum in Midtown so far this year. Are you pushing rents at a pace that is consistent with your expectations as you set out the year?

Then maybe are there any submarkets that are surprising you on the upside or the downside?

Well, rents across the board are going up. I always like to use the Graybar building as the great barometer of where the Midtown market is.

Every lease that we are negotiating, where the negotiations started in the past call it 60 days, is in the low $60s a square foot. And if you compare that to the height of the last -- top of the last market cycle, Graybar got to a point where I think for a week or two we did a couple deals at like $61 a foot; and here it's -- now we're at a point where Graybar is -- the typical deal is being signed $61, $62, $63 starting rent. So I think that speaks volumes as to where the trend line is on rent growth.

Okay. Thank you.

You bet.

Craig Mailman, KeyBanc.

Hey, it's Jordan Sadler here with Craig. Just maybe a little bit of color on the investment opportunities you are seeing in front of you today, be it on the office side, retail, resi. Where is the better opportunity today?

Well, I'd say we're active looking at all three of those sectors. I mean, you have several large deals on the market in 11 Madison and the Trinity portfolio. Those are two big office deals on the market. There are smaller office deals as well.

Retail, most of our focus continues to be on off-market deals. We don't really chase and bid marketing deals much on the retail side unless we think we have a very specific and unique angle on the deal.

Then residential, generally I would say we've been looking at structured-type deals, similar type of off-market deals. The marketed retail deals are very difficult for us to compete on.

But opportunities like 605 West 42nd Street, which we closed up the end of last year, and the Stonehenge portfolio, which we closed up in the first quarter of this year, are getting most of our attention. So we are sort of agnostic as to what sector we deploy the capital in. We look more in terms of risk/return for any individual deal and match them up with each other.

We are not willing to take lower returns really in any of the sectors. We're trying to get the highest return on the capital we deploy; so wherever we can find those high returns across all the sectors plus structured finance is where we will focus the capital.

What about submarket or I would rather say actually borough? Are you looking in Queens and Brooklyn still? Are there some good opportunities there? Would you go beyond Brooklyn or Queens?

We are definitely actively looking in Brooklyn and obviously Manhattan. We have not done much in Queens, and not much has crossed our desk in terms of investment opportunities. They are pretty granular markets out there.

But -- and we're actually seeing some opportunities in Harlem; none that we're I would say actively pursuing. But that market is also picking up, as is usually the case when Manhattan gets hyper-hypercompetitive; you start to see demand push to some of the outer areas.

So I think Brooklyn and Manhattan are still our main focuses.

Okay. Thank you.

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