New York City's largest owner of office buildings is facing a possible downgrade on its corporate debt as ratings agencies scrutinize its debt and geographic concentration.

SL Green is under review for a credit downgrade from Moody's Investors Service for its corporate family debt, which would make it costlier for it to issue bonds, The Wall Street Journal reports. Its current rating of Ba1 is a reflection of its asset quality, but the company has a 15.2x leverage ratio, which is "very high" for companies with the Ba1 rating, per Moody's.

The firm is under pressure from its $2B takeover of 245 Park Ave., which it wrested from HNA Group in bankruptcy proceedings in 2021, and it is also deemed riskier because most of its 33M SF portfolio is concentrated in New York City, according to Moody's.

SL Green’s 23.8M SF office portfolio was 90.2% leased at the end of the first quarter, the company said on its earnings call last month, down from 93% a year ago. The Manhattan-based real estate income trust reported a $39.7M loss in the quarter, and its operating revenues dropped by $2M from the fourth quarter while its operating expenses rose by nearly $5M.

Office occupancy in New York is still under 50%, according to Kastle’s data, and leasing has remained slow. In April, for example, leasing in Manhattan dropped to levels not seen since 2020 — with the 1.5M SF in office deals marking a 44% decrease from this time last year.

"The commercial real estate sector seems to dominate much of the headlines these days, amplifying messages of doom and gloom and creating what I believe to be an overanxiety in the market that is most acutely felt in New York City, where many of the market opinion makers reside,"SL Green CEO Marc Holliday said on the Q1 earnings call. "Overly negative voices are overshadowing some of the positive signs that portend to a slow but steady recovery for a market that offers what employers want most: a highly educated, diverse, youthful and talented workforce."

SL Green is looking to sell assets, including a stake in 245 Park, to shore up its liquidity. Moody's said its review will largely be determined by its ability to sell assets into a tough market. SL Green's debt coverage ratio dropped to 1.7x for the 12 months ending in March, according to Moody's, which noted that historically the ratio is above 2.0x.