SL Green Reports Strong 3Q Results Amid Restructuring at Gramercy Affiliate
- Oct 28, 2008
One day after announcing third-quarter results with a 16 percent increase in FFO due to strong leasing in Manhattan, SL Green Realty Corp. has announced four lease transactions totaling more than 170,000 square feet, apparently signaling that tenant demand for quality Manhattan space has not yet diminished. “Despite uncertainty about the New York office market, we continue to experience tenant demand for well-located, quality buildings that provide attractive rental value,” Steven Durels, SL Green’s executive vice president & director of leasing and real property, said in a release. “Additionally, these transactions continue to unlock the rent growth embedded in our portfolio.” SL Green, a New York City-based office REIT, said the new rents averaged 72 percent above previously escalated rents on a per square foot basis. In the biggest of the four leases announced Tuesday, Wurk Environments L.L.C., signed a new 10-year lease for 64,800 square feet at 1515 Broadway in Times Square, which is currently being renovated. The firm is taking the previously vacant 11th and 12 floors in the 54-story building, increasing occupancy to 97 percent. Adam Rappaport of Cushman & Wakefield Inc. represented the tenant. SL Green was represented in-house by David Kauffman along with Frank Doyle, Cynthia Wasserberger, Edward DiTolla and David Kleiner of Jones Lang LaSalle. News America Inc., an affiliate of News Corp., expanded its space at 1185 Avenue of the Americas by taking floors 22 and 23, which were expected to become vacant next year. With this 12-year lease for 54,500 square feet, the company now rents 138,300 square feet in the building, bringing it up to full occupancy. David Levinson and David Berkey of L&L Holding Co. represented News America, while SL Green was represented in-house by Howard Tenenbaum and Gary Rosen. Two leases were signed for a total of 51,900 square feet at 750 Third Avenue. Eisner L.L.P. took an additional 34,000 square feet for eight years, bringing its occupancy there to 106,900 square feet. Henry Krausman of Colliers ABR represented the tenant while David Turino handled the transaction in-house for SL Green. Also at 750 Third Avenue, the Republic of Poland took a new 15-year lease for 17,900 square feet on the entire 30th floor and part of the 29th floor for the country’s Permanent Mission to the United Nations. Turino represented SL Green, while Ronald Shakerdge of Republic Realty Services Inc. represented the Mission. SL Green also announced Tuesday that Merrill Lynch extended its 30,500-square-foot lease at 360 Hamilton, a Class A building in the White Plains, N.Y., CBD for another 10 years. The 14-story building in Westchester County, part of SL Green’s suburban holdings, is now 100 percent occupied. Paul Kauffman of Cushman & Wakefield represented Merrill Lynch and John Barnes and Clark Briffel handled the deal in-house for SL Green. Strong leasing highlighted third-quarter results for the REIT, which were released Monday. The REIT said it had signed 52 leases in Manhattan totaling 373,400 square feet, of which 39 leases and 359,000 square feet was for office space. The average starting rent was $66.78 and occupancy at the end of the third quarter, Sept. 30, was 96.5 percent, down slightly from 96.7 percent on June 30. The company said Manhattan office rents increased by an average of 55 percent on leases signed in the third quarter over previously fully escalated rents, “reflecting strong embedded growth in the Manhattan office portfolio.” In the New York City suburbs, SL Green signed 20 leases during the third quarter, totaling 77,000 square feet of space, most of it for office buildings. Occupancy for the suburban portfolio remained relatively stable, going from 91.8 percent to 91.9 percent by the end of Q3. Average starting suburban rents were $38.48 per square foot. The company said leases were signed during the third quarter at several Manhattan buildings, including 100 Park Avenue, 461 Fifth Avenue, 711 Third Avenue, 420 Lexington Avenue and 750 Third Avenue as well as at 750 Washington Boulevard in Stamford, Conn. SL Green reported fund from operations available to stockholders (FFO) was $88 million, or $1.45 per share (diluted) for the third quarter ended Sept. 30, up 16 percent from the same quarter of 2007. For the nine months ended Sept. 30, the company reported FFO of $4.89 per share (diluted), a 7.7 percent increased compared to the first nine months of 2007. Net income available to common stockholders for the third quarter totaled $33.6 million, or 58 cents per share, compared with $98.6 million, or $1.64 per share, at the same time last year. Revenue was $268.7 million, up 9.6 percent, beating Wall Street estimates by about 20 million, according to an Associated Press story Tuesday. AP also reported that analysts polled by Thomson Reuters had expected the third-quarter FFO to be $1.39 per share. All the strong SL Green results comes amid a shakeup at affiliate, Gramercy Capital Corp., which SL Green formed in April 2004 as a specialty finance company focused on originating and acquiring loans and other fixed-income investments secured by commercial real estate. Gramercy Capital, a separate public company, has seen its stock plummet at least 97 percent since the beginning of the year. SL Green is Gramercy’s largest stockholder. As of Sept. 30, the book value of SL Green’s investment in Gramercy was $141.5 million, according to the third-quarter financial results. As reported earlier Tuesday by CPN, Roger Cozzi has been hired as president & CEO, immediately replacing Marc Holliday, who had held both posts since the company’s inception four years ago. Holliday will continue as SL Green’s president & CEO. Also stepping down at Gramercy are Chief Investment Officer Andrew Mathias and Chief Credit Officer Gregory Hughes. Holliday and Mathias will remain as consultants through September 30, 2009. Cozzi was most recently managing director at Fortress Investment Group L.L.C. He also served in senior roles at iStar Financial Inc from 1998 to 2007 and has previous experience at Starwood Mezzanine Investors and Starwood Opportunity Fund IV as an investment officer, as well as three years at Goldman Sachs. “The board is confident that Roger is the right person to tackle the significant challenges that the industry faces in the current economic climate,” Holliday said in a statement Tuesday. In addition to the hiring of Cozzi, the boards of directors at SL Green and Gramercy also modified agreements made four years ago when SL Green launched Gramercy. Among the changes made was a reduction in the base management fee from 1.75 percent to 1.50 percent effective Oct. 1. SL Green subsidiary GKK Manager L.L.C., will remit all CDO collateral management fees to Gramercy. There was also reduction in the termination fee due from Gramercy to SL Green if Gramercy does not renew the management agreement, which is set to expire Dec. 31, 2009.