SL Green's Office Occupancy Slips To New ‘Low Point’
New York City's biggest office landlord saw occupancy dip in the second quarter, but the company's CEO says the worst is over thanks to a strong leasing pipeline.
SL Green signed 43 office leases totaling 411K SF in Manhattan during the quarter, and the company reported a net loss of $360.2M or $5.63 per share.
CEO Marc Holliday acknowledged a tough leasing environment in the first half of the year, but he highlighted the firm's "solid" performance: In the first six months of 2023, SL Green reported 915K SF of leases. Holliday said it has 1.1M of leases in the pipeline, and approximately two-thirds of those are new leases.
Still, its office occupancy dropped from 90.2% in Q1 to 89.8% at the end of the second quarter, which Holliday said on Wednesday’s earning call was a “low point” for the firm.
“We expect to gain occupancy from here. Regardless of which direction the market goes, just based on our pipeline and visibility,” he said on the call, according to a Seeking Alpha transcript.
“The financial stats only tell part of the story," he added.
He said the firm expects to reach an occupancy over 92.4% by the end of the year. Manhattan’s overall availability hit a record high in the second quarter, reaching roughly 96.4M SF, a 78.9% increase since March 2020, according to Colliers.
“We continue to see demand building as businesses who hit the pause button during the prior three years are more and more frequently acting on plans for future growth, particularly in the finance sector, which accounted for about 38% of market leasing during the second quarter, as well as business services, healthcare and education sectors,” Holliday said. “All of which continue to be active and all of which help to mitigate the pause in the tech sector.”
The company’s same-store net operating income increased by 3.6%, Holliday said, and the same-store office occupancy at quarter’s end was slightly ahead of December’s projections.
The company sold a 49.9% stake in 245 Park Ave. last month — a major coup since the rates hikes began battering the market — in a deal that valued the property at $2B. Japanese real estate firm Mori Trust Co. acquired the stake in the property, its first investment in New York.
SL Green Chief Financial Officer Matthew DiLiberto said all proceeds went to debt repayment, which is a priority for the company.
“We have still paused share buybacks since the middle of last year. That was largely a function of the rate environment and where leverage levels were,” he said on the earnings call. "We have a goal to be more on offense as we get into later '23, particularly '24.”
Meanwhile, the company is moving to foreclose on Ben Askhenazy’s ownership in the ground underneath 625 Madison Ave., of which SL Green has a mezzanine position. A foreclosure auction is set for Aug. 8, according to Holliday.
“We'll see how things shake out there,” he said on the call.