New York City’s office sector didn’t escape the ravages of the pandemic, and, as remains the case in most of the country’s leading office markets, the post-pandemic rightsizing and return-to-office issues continue to hinder the market. You would think SL Green Realty Corp., Manhattan’s largest office landlord with a portfolio of roughly 30 million square feet, would be in a bit of a panic. But the New York office REIT is plugging right along, albeit not without some challenges.
SL Green recently released its third quarter 2023 earnings report, and there were losses that, compared to 2022, paint a less-than-pretty picture. The REIT recorded a net loss of $24 million, attributable to common stockholders, marking a striking year-over-year decline from its $7.4 million in net income in the third quarter of 2022. With the newest numbers in, SL Green has experienced a net loss of $423.9 million compared to a $28.7 million loss during the same nine-month period last year.
Still, there did not seem to be panic in the tone of the earnings call. One reason the company is able to keep a cool head in the midst of a struggling office sector is the brisk leasing activity of its properties. New and renewed commitments at SL Green’s office buildings have left the company with a portfolio that is 89.9 percent leased at a time when Manhattan’s overall vacancy rate is in the area of 14 percent. And the company’s leasing outlook promises more good news.
“It’s important to note we are sitting in a good position at 1.1 million square feet of pipeline leasing activity, with nearly half of that amount represented by 20 leases that are either in negotiation or out for signature, indicating a high probability of closure of those particular transactions,” said Marc Holliday, CEO of SL Green Realty Corp., during the company’s third quarter 2023 earnings conference call on October 18.
SL Green also made some smart money moves this year that, despite overall losses reported last quarter, are keeping the company on terra firma. Most notably, the REIT sold a 49.9 percent joint venture interest in 245 Park, its 1.8 million-square-foot trophy skyscraper, in a transaction valuing the property at $2 billion. SL Green has placed a premium on pocketing cash, but not all of its dispositions have been as enviable as the 245 Park transaction. Earlier this year, the company sold the 7,200-square-foot retail space at 121 Greene St. for approximately $14 million, nearly a decade after acquiring it for more than twice as much in a $27.4 million in 2014. Selling the small retail property, however, dovetails with SL Green’s vision for the portfolio. The company once owned hundreds of square feet of retail space, having launched a retail investment program in 2004, but has since whittled its retail holdings down to just over 300,000 square feet—but it’s 300,000 square feet of high-performing, high street retail with an average occupancy rate of 91 percent.
SL Green is also engaged in redevelopment projects designed to accommodate the substantial demand for top-notch office space in the city. And, acknowledging the increasing value of mixed-used developments, the company entered a joint venture partnership with the owner of The Galleria at White Plains and the Cappelli Organization in late 2022, with the goal of transforming the site of the shuttered shopping center into a 24/7 destination.
Despite SL Green’s promising plans, clearly, it’s not all wine and roses for the company these days. Year-to-date, SL Green stock is down 14 percent. Additionally, there’s still uncertainty in the market, and the shared $940 million loan on its three-building Worldwide Plaza office property has recently been watchlisted. And then there’s the issue of the unknown, with the real estate industry raising an eye at the company’s decision not to renew the contract of its longtime president, Andrew Mathias.
SL Green has long served as a bellwether of the New York office market. You can gauge the sector’s temperature by the company’s status, and right now, the company is keeping its head above water during a difficult time in the office sector. And despite return-to-office challenges, SL Green expects occupancies to rise, which speaks to the bottom line for the REIT and the office market. “Decision timelines for tenants are lengthier than average, which has delayed some of the occupancy gains we had hoped to achieve this year, but directionally, it appears that predictions of an existential crisis from New York City office buildings are way, way overblown,” Holliday said.