SL Green Realty, Manhattan’s largest office landlord, is seeking cash for a $1 billion New York debt fund aimed at capitalizing on what the company described as the city’s “ongoing recovery and resilience.”
The move also comes as sentiment in the capital markets has perked up following expectations that the Federal Reserve will lower interest rates after a string of hikes that have sapped deal flow and financing activity.
“New capital is forming in this environment,” SL Green CEO Marc Holliday said Thursday on a fourth-quarter earnings conference call, adding the management team is headed for Asia to meet with investors.
The company wants to “become an active participant of the city’s recovery," he said. "There are pools of capital, billions and billions of dollars announced … [with a] significant amount [that] is going to be targeted toward the office sector. … It’s already four years since the pandemic. The business fundamentals in the city are very strong. People are back to work.”
SL Green wasn’t the only large real estate investor to talk about deals picking up on Thursday. Blackstone, whose credit business reported positive fourth-quarter returns, said it's a good time to be a commercial property lender.
But SL Green’s Asia trip won’t be just about the debt fund. The firm has set up more than 20 meetings over five days with investors to talk about investments in debt and equity, as well as joint ventures and opportunities in entertainment and hospitality, Holliday said.
Besides talking about the fund and other investments, a key part of the conversation will be talking about New York’s rebound from the COVID-19 pandemic — on office, retail and tourism, and the city’s rising hotel average daily rate. For instance, New York has recovered the jobs it’s lost since the pandemic with some 24,000 new businesses having been created since then, he said.
“It’s like an amazing story that needs to be told,” Holliday said.
He might have some other examples to share. SL Green, along with its joint venture partner Jeff Sutton, founder and president of Wharton Properties, this month sold the retail condominium at 717 Fifth Ave. to Gucci parent Kering for $963 million in what’s said to be the largest ever high street retail deal in the United States. SL Green, with about an 11% stake, is expected to get net proceeds of $27.6 million, which it said will be used for corporate debt repayment.
In the fourth quarter of 2023, SL Green also increased its interest in the joint venture that owns the leasehold at 2 Herald Square at the intersection of 34th Street, Broadway and Sixth Avenue and across from Macy’s flagship to 95% from 51% without money changing hands. The joint venture entered into an agreement to satisfy the existing $182.5 million mortgage on the property for a net payment of $7 million with the payoff expected to close in the first quarter, SL Green said.
“It’s an asset that we are going to have to really start thinking about what’s the best use,” Holliday said. While it’s successful as an office and retail property — it currently houses tenants including beauty retailer Ulta, which generates highest per-square-foot sales at the location among all of its U.S. stores — Holliday said the property could also be converted into residential building.
The property also counts among tenants Capital One, which has opened a bank and cafe at the location that formerly housed a Victoria’s Secret flagship.
“Casting aside the narrative that office landlords are on the losing end, [SL Green] turned the tables by using the leverage of non-recourse loans giving lenders a choice: take the keys back or accept mortgage write-downs,” analyst Alexander Goldfarb of Piper Sandler said Friday in a note to clients. “It's genius on the part of [SL Green], but also something management is well positioned to do given its ability to reposition assets to attract new capital.”