SL Green Realty Corp. (SLG) Earnings Call Transcript & Summary

2026 Global Real Estate Conference. I'm Jana Galan, BofA's office REIT analyst. We're pleased to have with us SL Green's President and CIO, Harrison Sitomer; CFO, Matt DiLiberto; EVP and Director of Leasing, Steve Durels; and VP, Corporate Finance, Andrew Mehr. I'll turn it over to Harrison for opening remarks, and then we can jump into Q&A.

Thank you all for joining us today. It's an exciting time in the market for us. We put out a few announcements over the past few weeks, most recently on the sales side or disposition side recently announcing the sale of 110 Greene Street, in furtherance of our capital plan for 2026. And then on the leasing side, making big strides, actually surpassing our goal for the year through 3 -- less than 3 quarters of the year, with substantial amount of leasing in the pipeline. So excited to answer some questions today. take you through the business plan for the rest of the year and what we see in store for 2027 and in a very exciting market backdrop for New York City.

Maybe starting there, you outlined many strategic goals for 2026 at the December 2025 Investor Day. How are you tracking against some of these goals?

Yes, I'll hit that. It's Matt. So Harrison touched on the leasing strength in New York just continues to get stronger. When we came into the year, we had actually budgeted for about 1.5 million square feet of leasing for the year. We set an objective of 1.7 million to stretch Steve, and we've -- we're at 1.8 million now through the first 8.5 months of the year with 1 million square foot pipeline. That feeds through to occupancy. And also on a mark-to-market basis, we're about 16% year-to-date with a pipeline that is in that same ZIP code. So squarely ahead of where we expected to be or our stretched goals from a leasing perspective. I'm sure we'll go through more on our acquisition, disposition and refinancing strategy. That becomes a matter of us testing the market with assets and often choosing to sell certain assets that we didn't have in our original plan and holding others that we might have originally intended to sell. From a financing perspective though, the $7 billion plan, we are much of the way through it with the financing of 245 Park in the CMBS market, the next big execution, $2 billion execution that we expect here in the coming weeks. As it relates to development, we are well underway vacating the 346 Madison site and commencing demolition there, while continuing our office to residential conversion at 750 Third. And from a financial performance perspective, same-store, in keeping with the leasing strength, we're seeing our same-store NOI growth has exceeded our expectations. And if we execute the rest of our business plan, we should get through the rest of our financial objectives as well. So by and large, doing really, really well on what we always set up outside of guidance as stretched goals.

Fantastic. I know at the Investor Day, there was also a little bit of a focus on the new mayoral administration. Just curious if there's any notable change in the day-to-day for the city for your business, and if there's any potential legislation or any policy that you're tracking that could potentially be beneficial or maybe create some challenges.

Yes, sure. So on the mayoral side, the best and clearest referendum of the city's performance right now is the businesses that are locating here and the businesses that are making long-term commitments to New York City. Throughout this year, since the Mayor has been elected, we've seen firms like American Express make a significant commitment downtown. In Midtown, we've seen JPMorgan and Citadel both make substantial commitments to Midtown East. In the AI side, we obviously will talk more about that topic, but everyone recently saw the announcement of Anthropic taking over 400,000 square feet, making New York a leader of the AI and tech initiatives of the next generation. And then even on the legal side, where we saw Simpson Thacher make a big commitment to Fifth Avenue just about a month ago. So for us, we always believe that leasing is the biggest indicator. We don't -- we try to read through the news, we try to read through all the talk and rumors out there and try to just look to what are the big tenants doing in this market and what type of commitments are they making. I think New York City is on track this year for its biggest office leasing year since 2000, and that's a great indicator for us as the type of businesses that want to be here and their employees that want to be here. We've been working actively with the city and the city administration over the past year. whether that be at the mayoral level, whether that be at a deputy mayoral level or with the city council and the newly elected city council speaker. I don't know if there's a way to shut that door, it may be helpful. Julie Menin, and we've been very pleased with the responsiveness and feedback that we've gotten from the city on initiatives that we brought to them. And it's been very positive signals from the mayoral administration in some of the recent hires that they've got including Anthony Shorris, from McKinsey, who came over to lead EDC. And that's a great initiative that the city put forward. So we share the Mayor's focus on affordability. One of the projects, 750 3rd, that we're pushing forward fits right within those initiatives or goals of the Mayor to try to create more affordable housing in the city. And it's our job to work with the city to try to further their goals and make the city a better place for our businesses and our tenants.

And then for Steve, very impressive with the 1.8 million square feet year-to-date, and the pipeline behind that. Maybe if you can help us understand, where you're gaining more leverage in negotiations, how much of net effective rent has risen over the past year? And how tenants are looking to potentially do renewals, into what years are you discussing?

Sure. So we've had very strong velocity. The overall market has had, as Harry said, has been super strong this year, setting what will be a record year. Rents are rising. And I think the bigger message is that rents are rising across the board. They're not limited to just the high-end part of the market. You're seeing sort of the more affordable-priced point buildings starting to get some lift in rents as well. The office to resi conversion phenomenon is something that has had a meaningful positive impact on the leasing environment, particularly for the more mid-priced point buildings. If you look at Third Avenue in particular where there's been a number of buildings that have been taken out of inventory and, therefore, reduced availability, you're hard-pressed to find a good-quality block of 100,000 square feet or more even on the Third Avenue corridor. So base rents are rising both at the high end and the mid-price point across the board. Therefore, by definition, net effective rents are up substantially. You need to bifurcate between what price point building you're talking about to really understand net effective. So at the high end of the market, rents are probably up 30%. At the mid part of the market, rents are probably up 5% to 10%. Concessions have leveled off more than a year ago, and we're starting to see some contraction on TI and free rent. So by example, if the high watermark for TI was $150 to $165 a foot a year or 2 ago, today it's more like $145 to $150. Free rent that was in the 16 to 18-month range is now 14 to 16 months. So concessions tightening, base rents rising, and then depending on what part of the market you're talking about, base rents rising dramatically.

And can you touch on any large expirations or move-outs over the next year? And any progress backfilling?

We've sort of suffered through all of our big move-outs. For the next 3 years, we actually have the lowest amount of lease expirations in each of the next 3 years that I can recall in the company's history. We're under 1 million square feet, somewhere between 800,000 to 900,000 square feet overall for each of the next 3 years. So there's nothing of real consequence that have moved the needle for us over the next couple of years. We're more having success in backfilling where we had vacancy, in buildings like 1185 Sixth Avenue in particular.

Maybe just thoughts on the timing of how the lease percentage versus the occupancy percent gap starts to close?

Yes. For everybody's benefit, we did put out an updated deck of materials available on our website, so you can access that. In there, we put up a chart of where we expect our lease occupancy to be and where we expect our economic occupancy to be by the end of this year as well as looking back to 2020, where you see that the historical average is about 3% gap between leased occupancy and economic occupancy. By the end of this year, we expect to be north of 95% leased occupancy and in the low 90s, I think it's 90.2% from an economic occupancy perspective, meaning the gap is closing, but there's still a lot of juice yet to come. And I expect by the end of '27 to see that gap be much closer to, if not right on top of, the historical average of 3%. .

Maybe turning to One Vanderbilt and SUMMIT, how SUMMIT has been performing through September?

Yes. SUMMIT now proudly wears the badge of the #1 observatory in New York City. So kudos to that team. The summer has been a good one. Weather has worked well. We had to battle some weather issues in the first and second quarter, but SUMMIT has come back strong through July and August and into September. And we're really looking forward to the SUMMIT Paris project coming along nicely. We now have possession of the space and are building out our space in Paris for an opening middle of next year.

And then Tokyo is?

Tokyo, we announced a deal to open SUMMIT in Tokyo, that's much further out. So we'll give more updates on that over time. .

Maybe out of curiosity, I mean always interested in how have you been able to change the destination from office buildings into resi and in terms of specification of the building, not from a legal or regulatory point of view, but if we think about an office tower, then you've got [indiscernible] in the middle and then you've got the windows and there is only one source of flight. Is it because those on [ certain ] avenues, those buildings are historical buildings, and therefore, they can fit to resi? Or you have -- you note them down and you rebuild?

I think first and foremost, the program that landlords are using to convert office to residential buildings, 467-M, was probably one of the smartest and most forward-thinking policies we've seen out of government in a long time. And we believe as a result of that policy, we'll see somewhere between 25 million to 30 million square feet across New York City be converted from office to residential. In Midtown specifically, and we do have this in our slides that are published, we believe it's about 4.5 million square feet in Midtown East that will be converted. And those are buildings that were identified by landlords, much like I'm about to explain for us, is viable and feasible candidates to go forward. We comb through our portfolio to identify buildings that not only could be converted, but that we'd want to convert, right? There are many buildings in our portfolio that could be converted, but there would be no reason to do it. Our portfolio, as we mentioned, is going to be over 95% leased. And most of those buildings, there's no economic reason to convert to residential. We did identify 1 asset, right? A lot of stars have to align to make it work. Not only is it not have to be more economic to go residential, you also need most likely vacant possession to make that work, and then you need 4 plates and a building that is -- that also works for that conversion. 750 Third Avenue is the project or building that we identified in our portfolio to convert. The building is now vacant. Steve was successful in moving tenants out of that building into other buildings within our portfolio in Midtown East. We own the asset with no partners and no debt. We're in the process now of putting on financing, which should close very shortly. And we're also in the process now of securing a joint venture partner for that project as well. In terms of what makes that building work, in some ways, we had to take extra steps to actually core-out certain elements of the Third Avenue facing facade and actually move them to the back-facing portion of the project. And that all went into a heavy design between our team, [ Gensler ], the architectural team. And every single one of those projects that's being converted is going through that type of exercise, to make sure that the building works for residential use as well as for an economic mode. Hopefully, that answers your question.

Great. Maybe turning to dispositions. You also announced, as you said, 110 Greene. There are a few more transactions in the capital plan. Maybe if you could provide kind of the update on the timing for these remaining deals?

Sure. So the -- on our last earnings call, I mentioned that we were at 4 of 11 transactions complete or announced. Now sitting here about a month later, we're now at 5 of 11. We announced, as I mentioned earlier, the sale of 110 Greene. That pricing or deal was done at roughly a 5.7% cap rate, for a nearly fully leased building. We are -- that buyer was a 1031 investor. And I think as I look at the 5 deals over the course of this year, I think one of the most notable elements of that is the depth and widespread type of demand. When I look at those sales, we had a user buyer, we had a core buyer. We had an institutional pension plan by 10 East 53rd Street. And now in 110 Greene Street, a 1031 buyer selling out of a different asset class into office, because they see deep value in the office space. And so one of -- again, I think the most notable element there is this type of diversification of buyer pool, that this market hasn't really seen in the past 5 to 6 years. And then I'll also mention an Asian Japanese joint venture partnership at 346 Madison. When I look at the remainder of the year and the 6 remaining assets that are in the plan, we have -- we are in docks on 2 of those deals, and we have a term sheet that should be finalized on Third. So that would bring us to 8 on the year, that we expect to get done this year. That leaves us 3 more remaining for the balance of 2026. One of those sales is a suburban sale that I do not know if it will go forward. That's a very small transaction. I think, notably, it's only a couple of million dollars of net proceeds. And then the other 2, we are -- one is we're considering some options in front of us and the final deal. We have just launched a couple of weeks ago, that's 245 Park, which we're having quiet off-market discussions and you will not see that be a widely marketed deal. We'll approach that deal the way we've done all of our joint venture sales. We're going to identify the right joint venture partner, at the right pricing and someone that shares our long-term vision for the asset. And we will not rush that process. We will get the right sale done at the right price and the right terms. So we'll see if we're able to get it done by the end of the year, but we're by no means, especially with all the sales behind us and what we have in the queue for the rest of the year, in no rush to see that get done at this point.

And then, do you have a sense of kind of the different type of buyer profiles? You'd mentioned -- what type of debt financing or how they're looking to go invest in these?

Yes. I try not to speak too much about what buyers are doing or their business plans. Not my place to speak. But in the case of all of these deals, I've seen the user buyer was all cash. In the case of 10 East 53rd Street, my understanding is they put on long-term insurance rate capital -- insurance capital. And in the case of 110 Greene, again, I try not to speak for buyers, but I wouldn't be surprised if they didn't put any financing at all, as it is a 1031, and my understanding of the 1031 composition. But we're obviously all monitoring rates in the 10-year. So far, we haven't seen any material impact on our market. There are a few big trades that are pending out there, not in our book, but in other people's books. We've always been able to navigate complicated markets far easier when the complicated market is macro than when it's micro. It's much harder to sell when people have redlined office as a couple of years ago. Now it's -- people want to be back in office and they have an allocation for it, but it's just more a negotiation around cap rates, interest rates and where the interest rate environment is. That's a far easier discussion for our team to have and one that our team knows how to navigate very well.

And maybe if you could talk a little bit about the 245 Park financing or the interest in a JV or?

Yes, absolutely. So on the financing, we are in the process or will be very shortly marketing the new financing. We expect it to be a $2 billion financing, which will be an upsize to the existing $1.760 billion financing. I expect it to be all mortgage. We do have significant interest in the bottom of the deal already. We have not yet launched, but there have been inbounds for replacement. We will formally launch in the next 1 to 2 weeks. And our expectation would be to close this financing in October of this year. On the interest sale, I think I already mentioned that we just started our discussions. We'll be having a series of roadshows over the course of the next 2 to 3 months. And our goal will be to identify the right buyer and the right partner to join us in this venture, with a vision towards 5, 10, 15 years with this asset, not necessarily a 2 or 3-year partner. So that takes time, and we'll also take the right execution.

And then maybe quickly, just jumping back as 750 Third Avenue. Given the high-profile Pfizer building in the news, just curious if there's any kind of additional insurance or paperwork or anything that is impacting office to resi as a result of that building.

Yes. Look, both the Governor and the Mayor, I give them credit, they are fully committed to the office to residential conversions. And the data is clear that New York is leading the nation in this area of conversions. There's been no indication of any change in that vision from political leadership. I think the political leadership has done the right thing of making sure projects are moving forward, but also keeping a close eye to make sure that they're done safely. New York City has a long history of success when it comes to conversions. This isn't a new concept for us as a market. And I think the developers in this market are highly capable to move these projects forward. What happened at Pfizer is unfortunate, but I can assure you our team is -- and we had Bob do it on our last earnings call discussing this. taking every precaution necessary to make sure our projects are compliant, moving ahead on schedule, on budget and not taking any exposure or risk to any structural elements or any elements of these projects.

Maybe jumping to your development project ground up 346 Madison. Congratulations on getting a great JV partner. Maybe just kind of latest interest and updates on 346 Madison.

We started to bring the project to market. It's a long process. We delivered the building TCO in fourth quarter of '31. So as we sit here in the late '26, very early in the process. 840,000-square-foot building. An anchor tenant will likely be somewhere around 200,000 square feet. So early days for a tenant of that size to make any commitment. So first step is we're out educating the brokerage community, showing them our presentation, explaining the project and our time line. And also beginning some early presentations to tenants. The feedback has been great. People love the, obviously, love the location. It's directly -- it's a block away from Grand Central. It's across from BXP's new development at 343 Madison. And it will be a highly amenitized building, like many of our new developments. It will be a very notable architecture that will stand proudly on the skyline with a very unique profile. And has 2 floors of amenities that I think are going to really sort of set a new standard for a great workplace. We've rolled out rents to tenants, and with the most recent leasing success on high-end buildings in Midtown, tenants aren't shocked by the rents. So it's a building that will trade in the $230 at the bottom of the building and into the 3s at the top of the building. And that's what tenants are expecting for that kind of high-quality product.

And maybe the latest updates on the deployment of the debt fund, what types of opportunities are you seeing and targeted returns?

Sure. We are roughly 50% deployed out of the debt fund. Opportunities, we, as a company, but specifically with this fund, thrive in moments like today, where people are staring at the 10-year and making decisions on credit investing, bond investing. Team is hard at work deploying that capital. Our pipeline today on top of the 50% deployment is roughly another $200 million, that will put us a little shy of our public goal in our investor conference for deployment this year. We're very comfortable though with the deployment so far. We love the deals that we've gone into. I wish we could have more of those exact deals. But we're also very conscientious of credit quality and making sure that we're putting our capital only into the best deals and opportunities. We've seen opportunities across discounted mortgage purchases, new mortgage investments, mezzanine loans, some preferred equity. We may see some repayments by the end of the year, and we're already tracking for some additional deployment over the coming weeks and months. So very, very happy with the debt fund. I think our investors are very happy with the debt fund. And I think for us, the next focus is going to be, as we get to the end of the year, what's fun too for us, right? We've built out this registered investment manager, we've really built out our services platform across Green Loan Services, which is now the largest active SASB servicer in the country by a decent margin. We've built out our funds business, which we expect to grow into Fund II and III across varying asset classes. And then the third segment, which we introduced last quarter, which is Green Property Services, which already had 6 assignments, doing asset management and leasing on behalf of institutional third-party capital, including Monday where we just announced about 2 months ago leading the leasing and asset management effort for 15 Lake Street. So those are 3 business lines all sitting underneath SL Green Asset Management, where we see big opportunity for growth and big fee income growth over the next 2 to 3 years.