SL Green Realty, Manhattan’s largest office landlord, has been able to boost its building revenue with a rooftop observatory towering at least 91 floors over the streets of New York City. Now it plans to identify two non-U.S. sites this year to expand the popular Summit observatory concept globally.
The New York real estate investment trust is eyeing overseas locations including London, Paris and Tokyo to adapt its hit multilevel Summit observatory experience that the company opened in late 2021 at the top of its One Vanderbilt trophy tower, Chief Financial Officer Matthew DiLiberto said in an interview.
SL Green will be the operator of the attraction in buildings it doesn’t own in what’s likely a lease structure, he told CoStar News, adding the Summit observatory in Manhattan is “very profitable” and generates “well over $100 million a year” in revenue in just that one location.
“It’s a material contributor” to One Vanderbilt, DiLiberto said. “Developers [elsewhere] are very excited about the opportunity.”
SL Green’s plan to expand Summit comes as observatories in New York have experienced a resurgence more than 90 years after the Empire State Building proved there’s mass appeal in a sky-high observatory as a tourist attraction. Globally, the concept has proven popular from Toronto’s CN Tower to Taipei 101 in Taiwan.
At the same time, high interest rates have hurt commercial real estate markets in many large cities. DiLiberto acknowledged SL Green is on the hunt for other types of revenue.
“We are a large office company and will be for the foreseeable future,” he said. “But we are growing … ancillary income streams.”
SL Green has received inquiries from developers on top of SL Green reaching out to others, according to DiLiberto.
“We are very close on something,” he said Tuesday at the Nareit REITweek investor conference in Manhattan. “We are exploring multiple geographies. … That’s international, also some domestic … in varying scales. … What we're talking about doing internationally is not necessarily just a replica of what we do here. The concept is similar, we can do it in a larger scale, we can do it in a smaller scale, we can do in differentiated scale, depending on the geography we're talking about. … The response has been fantastic certainly from sponsors and developers in each of those areas.”
Besides signing long-term leases, the arrangement could also involve a joint venture for fee income, SL Green said in a presentation tied to the Nareit conference, adding potential cities include Las Vegas and Dubai.
“It’s the first step to see if this could be a bigger business,” BMO Capital Markets analyst John Kim said in an interview, adding the opportunity “sounds super interesting.”
Summit is known for features including mirrors on three sides spanning two levels that create a kaleidoscope of images against the sweeping views of the Manhattan skyline outside.
“Summit is an artistic installation as much as it is an observatory experience,” DiLiberto said. “Depending on the location [and] the size, we can take some elements of the existing Summit and put those in. … It’ll still feel like a Summit experience.”
‘Blank Slate’
As to the properties SL Green is eyeing, DiLiberto said while most of the “traction” involves new developments that would give SL Green “a blank slate” to create at the top of a property, he said expanding Summit outside New York isn’t exclusive to ground-up projects. While the company is also considering within the United States, the “near-term opportunities” for additional Summit locations are international, he said.
The New York tourist attraction’s attendance rose to 2.14 million people last year, “stabilizing” at an expected 2 million to 2.1 million annually, according to SL Green’s presentation.
While expanding Summit overseas isn’t the first time SL Green has invested globally, DiLiberto said the move represents “the most significant expansion of an SLG business internationally.”
Other observatories have been viewed as investment-worthy. Private equity firm KKR, for instance, has bought a majority stake in the Edge, opened in 2020 at Hudson Yards — the largest U.S. private development — on the west side of Manhattan.
Other ways SL Green is diversifying its revenue, as U.S. office markets have been upended by the pandemic-driven hybrid work patterns, include raising $1 billion debt fund to invest in debt tied to New York properties that are in distress. The real estate investment trust has also partnered with Caesars Entertainment, the biggest U.S. casino-entertainment company, in seeking a gaming license in the tourist and entertainment mecca of Times Square.