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Despite Outperforming Sector, SL Green Stock Being Heavily Shorted

SL Green, which owns office properties including 450 Park Ave., faced bearish signals from the stock market this week in spite of its strength compared to other office REITs.

Shares of SL Green, New York City’s biggest office landlord, are performing better than the rest of the sector. But that hasn’t stopped investors from selling its stocks short.

A share selloff affecting real estate investment trusts hit the sector Thursday after the Federal Reserve kept interest rates level.

REIT shares are down roughly 19% this year, while SL Green’s are up by 11%. But the Fed’s announcement led SL Green to lose ground against its market competition, Bloomberg reported.

The office landlord’s share price declined by 9.7% amid yesterday’s selloff, but roughly 26% of its shares on the market — around $688M — were sold short, according to S3 Partners data reported by Bloomberg. By comparison, life sciences REIT Alexandria Real Estate Equities is down by more than 29% so far in 2023, but only 2.5% of its shares on the market are short.

SL Green declined to comment to Bisnow

SL Green’s assets may be mostly offices, but they are well-located, Piper Sandler analyst Alexander Goldfarb wrote in an analysis sent to clients on Tuesday. 

“No one is saying office isn’t in a tough spot, but NYC leasing today clearly favors Grand Central and Park Avenue,” he said, adding that 55% of SL Green’s portfolio is in those neighborhoods and 90% of its properties are in Midtown Manhattan. “We don’t see a catalyst to explain the outsized short interest.”

The short on SL Green is outsized compared to peers Vornado and Hudson Pacific Properties, due to their respective challenges. Even compared to other office REITs, SL Green has the most mark-to-market short losses at 41%, Bloomberg reported. 

Vornado, meanwhile, saw a 10% mark-to-market short loss of 19% despite facing net operating income declines for high street retail. Hudson Pacific Properties, which is coming up against the Hollywood strike and a tough leasing environment on the West Coast, saw a 40% loss. 

SL Green's stock plunged to a low of $20 this March, but has since advanced to more than $40 and doubled in price, Bloomberg reported. It has continued to face market pessimism, with this week’s short interest more than three times the office REIT average, and more than six times the overall percentage of REITs.

Even with the threats facing office landlords, SL Green is well-positioned to handle debt maturities and lease expirations, Goldfarb said.

“Given management's long-term success at sourcing financing, JV'ing assets, transacting assets, and asserting its legal rights, it's surprising the market has yet to accept SLG's ability to manage its debt load over the cycle,” he wrote.