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Operator: Thank you, everybody, for joining us, and welcome to SL Green Realties Corporation Fourth Quarter 2022 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may take forward-looking statements. You should not rely on forward-looking statements as predictions of future events as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and beliefs as of today. Additional information regarding the risks, uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and MD&A sections of the company’s latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission.

Also during today’s conference call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company’s website at www.slgreen.com by selecting the press release regarding the company’s fourth quarter 2022 earnings and in our supplemental information included in our current report on Form 8-K relating to our company’s fourth quarter 2022 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call to please limit your questions to 2 per person.

Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Marc Holliday: Okay. Thank you, and good afternoon, everyone. We appreciate you joining us today. Normally, our January earnings calls are brief, coming only 7 weeks after our annual investor conference, which we held back on December 5. We had a great conference on that day with attendance at capacity at One Vanderbilt, and we received a lot of positive feedback after the presentation. Not surprisingly during the conference, we set out for ourselves a characteristically robust best agenda for 2023, which included business plan, aspirational goals, I think there were 18 or 20, some of which included 1.7 million square feet of leasing, over $2 billion of asset sales and joint ventures, significant debt reduction and completion of several important development projects that we expect to deliver timely and on or under budget this year.

Notable among them is One Madison Avenue, which we actually topped out ahead of schedule in just 1 week after our investor conference. So it was a pretty amazing day. There were over 700 people gathered to witness the event of the laying of the last piece of steel on this truly great project in the Midtown South submarket, marking a turning point for the project where we now see completion in sight. And the timing of that topping out was truly perfect as it gave us the ability to stand on that 18,000 square foot penthouse floor with 18-foot lab sites and unobstructed views of Midtown and Downtown and standing there, you can truly understand why our new tenant that has just joined the roster of Tennis to the One Madison Avenue. Rent roll is 777 partners.

They were attracted to the opportunity and we were able to lease it up over 1 year ahead of our underwriting, just stressing the importance of not only hitting underwritten economics but also exceeding the timing has big positive effect on the project, and we hope there’s more to come. This lease, along with the others, we announced last night, underscores the early leasing achievements we had in January, which is typically a slow month but for us, turned out to be a pretty good month and a good start to the year. Hopefully, it pretends of increased activity to come in 2023 though a long holiday break followed by the MLK holiday weekend. We’ve seen a noticeable pickup in tour activity over the last 10 days, and we received around a fresh new proposal.

So we’re optimistic. We’re getting stuff done, and we’re on plan most importantly. So on the heels of signing over 370,000 square feet of office leases since our investor conference at the beginning of December, we managed to assemble a pipeline of leases totaling 700,000 square feet, where it stands today, 100,000 square feet of which we hope to sign over the next 60 days. We’ll be moving and hustling to try and get back up. We’re currently negotiating leases at 450 Park Avenue, 919 Third, 45 Lex, 1350 Avenue of the Americas and another lease at One Madison. In addition, we are just beginning to market our redevelopment project for 245 Park Avenue. We spent quite a bit of time showing off that amazing redevelopment plan that we have for 245 Park, and we are beginning to execute this year.

And the early read from the tenant broker community is that this exciting and, I think, a very elegant plan that we have for the asset is going to be very well received by the tenant market, and there seems to be much interest already that we’re generating as we’re beginning to take these meetings, and we’re also generating interest among foreign investors for JV investment. Recall that identifying one or more JV partners for 245 Park is one of the several capital markets goals we have for the year and for a little bit more color on that. I’m going to turn it over to Andrew Mathias.

Andrew Mathias: Thanks, Mark. There’s still a standoff between buyers and sellers in the market, but we definitely see as financing, hopefully returns and a 5- and 10-year fixed rate financing the CMBS market reopens, which we and all the rest of our market participants here are anxiously awaiting, we think we’ll see that standoff thaw a bit. We’ve been actively in discussions with investors from around the world. We were in the Middle East several months ago. We have a trip plan to Asia in March. The team was present at the Crafts conference in Miami earlier this month talking about the financing trends. And we think there’s still a lot of interest in prime New York City assets particularly Park Avenue, which is no secret that it’s the best submarket in New York City.

And we think we’ll have a lot of willing conversations this year from all different types of investors from around the world, talking about 245 and the other aggressive capital goals that we set out for us at the investor conference.

Marc Holliday: Great. So more to come on that throughout the first half of the year, we’ll keep you guys updated as we pursue our various goals for recapitalizations, refinancings, joint venture sales. We are full guns blazing right now here at Green and working very hard and diligently to set the seeds so that by the middle of the year. We can hopefully start to achieve and knock off some of these goals and continue on a path to what we think will be a pivot year for us in 2023, coming out of the markets we’ve experienced over the past couple of years and hope to see some more positive news seeping into the market throughout the year. I did want to leave, I’d say, the best for the end before opening up the call to questions.

Yesterday, as I trust you may have heard or read, it marks an incredible milestone moment for East Midtown, New York City and Long Island with the official opening of the long-awaited Grand Central Madison Station, right underneath Grand Central Terminal and One Vanderbilt, representing the culmination of the $11 billion Eastside access project. It is a watershed moment. I think it’s probably the most important and largest project the MT has completed in many, many decades. And with its grand opening, you now have direct service from Long Island to Grand Central. It’s finally become a reality after being, I think, in conception for 60 years in development for 20 and it opens up a direct seamless trip from Long Island, which has a 1.4 million person workforce that now can look to either of Grand Central or Pennsation as its primary destination and it choose its most efficient destination.

The MTA is estimating that 45% of nearly half of all Long Island Railroad commuters will — are expected and will eventually commute direct to Grand Central once full service is up and running this year instead of what is currently altePenn Station, and that translates into 160,000 people a day, and these commuters are essentially arriving literally right at our front door where the majority of our portfolio is located. I can’t stress enough the importance of the projected 40 minutes per day or nearly 3.5 hours per week of saved commutation time that the business community puts a short, easy, safe and pleasant commute as its top requirement now coming out of post-pandemic world and as a tool for encouraging employees to work from office. So yesterday, we celebrated with the Governor and the MTA Chair, Jane lever, the opening of this incredible terminal that spans over 700,000 square feet from, I’d say, approximately 42nd Street to 48th Street on what must be 1 to 3 different levels dedicated waiting areas, beautiful new retail stores that will be opening and restaurants and a host of other amenities and it’s all well done, well executed, well designed, well conceived, and I would urge anybody that hasn’t yet taken the time to swing by and check it out that they do so because it’s pretty inspiring to see what can be done after all the time and after all the money is spent, you look at the permanent goods that will come of it for the decades and perhaps centuries to come.

The terminal contains 8 tracks and 4 platforms, which will be in service and enable Long Island Railroad to increase its service from Long Island to Manhattan by nearly 50% of capacity. And One Vanderbilt and East Midtown rezoning was really a first step towards unlocking the pent-up demand for new and redeveloped office space in and around Grand Central. And now Grand Central Madison will further transform and revitalize what is undisputably New York City’s #1 business district. And we’re excited by it as shareholders or stakeholders or followers of the company. You should be excited by it, too, in my opinion. And it’s a great way to start the year. So with that, we’ll open it up for questions.

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Operator: . Our first question or comment comes from the line of Alexander Goldfarb from Piper Sandler. Mr. Goldfarb, your line is now open.

Alexander Goldfarb: And obviously, it’s great to see ESATAccess finally open. So that’s awesome to see. But just clearly, that’s a positive for the Grand Central market in leasing. But bigger picture, especially since you guys put out your Investor Day, I think it was 1.7 million square feet target for this year. The tech layoffs have accelerated, granted, it’s a lot out west and not everything is New York, but it’s still pressure obviously all Street has had a tough year. we’re reading all the headlines. So the state of the leasing market, do you guys feel the same that you fell back in December? Is it slipping? Are there signs that tenants are taking even longer? Or Mark, your comments about people resuming activity post MLK Day, means that the leasing activity is sort of divorced from what we’re reading in the broker reports and the headlines.

Marc Holliday: Well, yes, so a lot to go on — back in that question. But let me start first with the reference to the tech layoffs. I think the notion of what you may have termed sizable or significant layoffs. I’m not sure I would characterize it that way in terms of the ultimate impact and effect it will have in New York City. These are firms that had been on an insatiable growth stage for many years. Tech was probably the biggest grower in New York City over the past 5 or 6 years and went from being a relatively small component of the markets being, I think, almost about 25% of the market. So it’s a click in the Alex.

Alexander Goldfarb: Sorry, I’ll stop…

Marc Holliday: I’m in the would you want to act was one of our guys

Alexander Goldfarb: No, you wanted us back in the office, and this is what you get type on the speaker.

Marc Holliday: There’s been massive growth. Steve, correct me, they may be as much as 30% or 35% of the total market. Certainly, they were 30% to 35% of the incremental demand. And now they’re pausing and becoming a little bit more efficient as companies do at the peak of the cycle. And New York City large employers are required to give Warn notices WARN. And even though there are these advertised or announced, I should say, announced layoffs from some of these firms, they represent a fairly modest amount of the overall Scopia companies. I think probably on average, close to about 5%. And many of the markets these companies are targeting for retention that I’ve heard, New York is always among that group of companies. I think there are other parts of the country that will feel it more.

The warn notices have not been that significant from the tech sector so far, which would have to reside and be received by the city. So it’s — there’s no indication yet of any mass layoff. When you look at the job numbers for 2022, and these are the most current numbers we have through December. So pretty current. There were 209,000 jobs added in New York City year-over-year. And recall, 2021 was also a big job growth year. I’ll see if I can get that number. That was 270,000 jobs. So 270,000 in 2021, 209,000 in 2022, office using jobs, 63,000 jobs added. That is the second most office using job count ever added with the first one being back in 2021, 83,000. But in a normal year, the city grows by about 20,000, 25,000 office using jobs and last year was triple that number.

Now the growth is decelerating as office using jobs now have eclipsed prepandemic levels. I’ve mentioned that before that the office using job count is about 106% and of pre-pandemic and total jobs are about 90% of pre-pandemic. And the city’s forecast for the year, and we’ve always found the city’s forecast to be pretty spot on is only for very modest job losses in the first half of the year. I want to say somewhere in the order of 10,000 or 15,000 job losses in the first half of the year with about 5,000 of that made back up in the second half of the year. So I think our approach in terms of what we’re expecting, and I’ll let Steve speak a little bit more about what he’s seeing in the real is that certain sectors are belt tightening, certain other sectors continue to expand.

I think all businesses are still figuring their way as to how they’re going to be navigating and dealing with work from office, first remote work and encouraging to that we get above this 50%, 60% utilization rate back to 70%, 80%, which would be, in our opinion, full utilization. But the market is not setting up to be in our mind any measure of a major pullback in jobs or economic activity based on what we see. Steve, you want to address specifically some of Alex?

Steven Durels: Yes. I mean it’s all make a couple of points. One is with regards to technology guys. I think it’s important to recall that it’s not like in decades past where we had the tech rec where you had the dot-com boom where all those businesses went bust the guys that are — that have announced layoffs, these are mature technology businesses. So their businesses and the lease obligations that they have, those are secure rent payments. So they may not be adding bodies and they’re driving, therefore, driving additional leasing velocity, but it is still a very significant part of the overall New York City economy, which is the most diversified business economy in the United States right now. It’s not like the West Coast, which is a one-trick pony.

The secondly is that what we’re seeing generally from a leasing velocity standard, you saw — you referenced some of the brokers’ reports that you read. If you really get granular on those reports, October and November were the weakest parts of the fourth quarter. December showed a notable amount of leasing increase even though the overall quarter was down, there was a sort of starting to repair itself in December. And as you see from the announcement that we made yesterday, we obviously had some significant transactions that we are working on that end up closing the first couple of weeks of January. And as Mark referenced this earlier, even with all of that early day success on leasing of over 340,000 square feet in the first couple of weeks, we still have a very robust pipeline of about 700,000 square feet.

In that are several technology businesses, but also, like we saw all of last year, heavily weighted towards the fire sector. So between fire, tech and legal, those continue to be the big drivers. And I’ll make the last point, which is we continue to see sort of that smaller part of the market still coming back to life. We’ve got 9 leases out at the Grad bar building, which has always been a good barometer for me to show where the small space market is, and that’s an important part of our overall leasing success for the year.

Marc Holliday: So that was the entire market recap right there. And . Questions, Alex. We’re going to — we’re going to have to get going. We’re going to move on. But thanks for the question. Hopefully, that addresses some of the issues you inquired about.

Operator: Our next question or comment comes from the line of Tom Catherwood from BTIG.

Unidentified Analyst: Maybe just sticking with leasing for a bit. Steve, you mentioned the broker reports and pickup in December. But the broker reports also noted what seemed to be a reacceleration in tenant concessions. But I know that can be swayed by a handful of leases, especially when overall volume is down. So what are you seeing on the ground as far as concession trends? And how are those trends impacting your portfolio specifically?

Steven Durels: You know what, I don’t really see it. I mean, it’s — I think it’s been fairly stable throughout all of last year. I think it depends on the — where the leases are being signed, there’s no doubt about it when you have 2/3 of the leasing activity being done in the Class A market. So it’s the highest part of the rent spectrum, and therefore, you would expect it also has the greatest amount of concessions to support those high rents. Then it starts to skew the statistics because when you get so many triple-digit rents, you expect a bigger concession package vis-a-vis deals in the $60 rents. If you took the 340,000 square feet that we signed in the first several weeks of January, weighted average, we had $43 a foot in TI and 5 months of free rent.

Now granted some of those are renewals that are 5-year deals, and a combination of that with some other deals that are 10 or 15-year deals. But I think that number would have been pretty much in line with the kind of concessions that we would have reported all of last year. So I don’t — I really don’t sense that there’s a movement that’s negative.

Unidentified Analyst: Appreciate that color. And then maybe Steve or Mark, I can’t remember who touched on this last quarter, but for 245 Park, you had over — just over 1 million square feet of leases that expired in 4Q. But as you mentioned in 3Q, the majority of those had sublet tenants already in place. So it looks like the actual roll down was just a hair over 130,000 square feet for the quarter. Are those tenants that stayed, are they all now direct with you? And if so, what is the magnitude of the rent and expense reset going forward?

Steven Durels: Well, I don’t know, there’s a couple of different moving parts there. I think what we had probably referred to is we had the — a pretty large lease with Major League Baseball that was where they had moved out of the building several years ago, relocated over the Sixth Avenue. And then they had backfilled or we had backfilled a majority of that 6 4s for 7 4s whatever they had, with some short term — some were long term, but most of them were short-term direct deals. So those leases will burn off in the next year or — and then with regards to your — the rent reset, I don’t know, maybe you can wait, Matt, I don’t…

Unidentified Analyst: No. I mean Steve made the point on the rents. The rents that were that we took on the shorter duration deals, they’re not really market rents. So we’ll be resetting those rents to market as we retenant the space. So kind of temporary tenants, so to speak.

Steven Durels: But I will use this an opportunity just to sort of reinforce what Mark said earlier. We’re out there in a big way now with a very well-established development plan and a very strong marketing presentation for the building. And that is already paying dividends as we are already receiving proposals that we think have a very credible chance of converting over to leases of significant size.

Unidentified Analyst: You talk about how much space is going to be marketed and what that rental range is.

Steven Durels: Well, we have, between now — over the next 30 months, 36 months, about 800,000 square feet in the building that rolls. The majority of that space is in the mid to top portions of the building, rents in the building are, call it, roughly $110 to $140 a foot. And the proposals that we have received and the conversations that we’re entertaining with tenants, those rents are in — those tenant expectations are in line with our underwritten rents.

Operator: Our next question or comment comes from the line of John Kim from BMO Capital Markets. Mr. Kim, your line is now open.

John Kim: On the CBS renewal, it looks like they downsized by about 40% from the space that they had. And if that’s the case, it’s quite different from the Fox and News Corp renewals, which I think was all the space that they had at 1211 Americas. Is your anticipation that CBS is taking space elsewhere in New York? Or are they just truly downsizing their space requirements?

Steven Durels: No, it was just downsized. The majority of the people that are there sort of an independent group of operating units, separate distinct from the groups that are over at 1515 Broadway, where they occupy the entire building. So no, I think I don’t — our conversations with them have not suggested that they are on an active program to downsize as we sit here today. But it’s like a lot of these big firms are all trying to figure out their long-term plan as a result of hybrid work environments and more component, things like that. But even though they’re a big advocate of bringing everybody back to the office.

John Kim: Okay. And then on Page 39 of your staff, there was a notable change in your mark-to-market or the implied mark-to-market of the leases expiring in 2023 versus the asking rents and has turned positive on your wholly owned assets last quarter, it was negative. It looks like it’s the same amount of square feet or pretty similar. I’m wondering what that change was to get to that positive mark-to-market?

Matthew DiLiberto: That’s actually a function — John, it’s Matt. That’s actually a function of the leases we were just talking about at 245 Park, where the large tenants rent rolled off. So say, MLB rent rolled off, which was a market rent, and it rolls down to what the rent that the old subtenant current short-term direct tenant is paying. And then those short-term new small direct tenants rents will flow through the exploration years in whatever year those leases expire and the mark-to-market is based on those lower rents as compared to the previous market rents. None of the changes as a result of our view of a change in market rents. It’s simply a function of a change in the starting rent that it’s based.

Operator: Our next question comment comes from the line of Michael Lewis from Truist.

Michael Lewis: Mark, in your conversations with business leaders, I’m just curious, you talk about getting that utilization rates back to that 70% to 80%. But I think the worry is are we stuck in this kind of impaired level of, call it, the low to mid-50s. I guess as we look forward to the balance of this year, I mean, how confident are you that these firms can get their people back in? And is it possible to get back to that previous high watermark?

Marc Holliday: Well, I think there’s a lot of confidence around 3 or 4 days a week. I think the bigger question is, is Friday becoming more and more like a remote workday for not — many, but not all firms. And that doesn’t really impact the space decision. That’s just more of a business philosophy decision. And people aren’t going to, I don’t think, take more or less space based on how they gear their Fridays. I mean, we look at Fridays, it’s like an equally productive day to the rest of the week. I think a lot of firms do. But I think that’s the one area to me, I’m not so sure about. But I think for the balance of the week, we just feel like every week, there’s more and more energy, emphasis, lobby is more crowded, trains are more crowded, streets are more crowded, are retailers, small and big are reporting better results.

So it feels like that as I think the job market normalizes, it was a very, very tight market for the last several years, I think that’s going to start to reverse itself, although inflation is still — wage inflation is still stubbornly higher than where I think where the Fed would like to see it. But I do think that will moderate. I think that will be this year. I think we’ll get incrementally more gains whether we get all the way back to pre pandemic or not. Don’t know, but I also don’t think that’s a determinant of the ultimate space occupied, I think that’s just going to be business by business, how they evaluate competitive factors about how they can optimize their work plans with what type of hybrid work model. But we find more and more — the meetings are live, doing very little zoom these days relative to certainly in the past couple of years.

It’s just — part of it is the numbers, part of it’s anecdotal and part of it is speaking to the leaders. I’d say across the board, every leader says they want to be on a 3- to 4-day in the office work week for the majority of their companies. And I think Friday will sort of just be case by case.

Michael Lewis: Great. And then Matt, on the debt maturities, I noticed that some on the unconsolidated joint ventures were past their due date. I think you did a good job at the Investor Day kind of laying out the that some of this might be outside of Green’s control. But do you have any sense on a potential resolution or how these things ultimately get worked out?

Matthew DiLiberto: Yes. So you’re talking about 1552 Broadway and 34th Street. Yes, you’re right. I mean we don’t unilaterally control those things we get ahead of our maturities, the wholly owned ones and the ones that we control well ahead of maturity. We are in active discussions with the borrowers on likely some form of extension. We did short-term extensions to get pushed. The maturity dates pushed out 30, 60, 90 days just as a path to getting to something longer duration done, and that’s in process.

Andrew Mathias: I think lenders are going to have to work with borrowers at this time. So it’s somewhat in our partners’ hands and it’s somewhat in the lenders’ hands.

Operator: Our next question now comes from the line of Mr. Michael Lewis from Truist.

Michael Lewis: So I saw an interest to LIRR yesterday when I was on my weighted my Metro North train. I was actually kind of shocked. So you beat me to it because I was going to ask about that. I guess I never thought it would open either. So congratulations on that. My first question, I wanted to ask about an update on the properties or let missed this here. So Andrew mentioned to stand off in the market and he gave some color. But maybe you could just add to that. Is there a question of waiting on financing markets? Are there very different opinions of price? And then also, have you given any guidance in terms of expected transaction timing, particularly for the interest in 245 Park and in One Vanderbilt?

Andrew Mathias: No change in guidance on timing from December. I think just looking at the curve, you have short rates at 4.5% and long rates of 3.5%. So naturally, buyers want to borrow long and the providers of long debt right now are being very cautious about the deals that they choose and bond buyers are sort of slowly coming back to the CMBS market. So I think when you see that long market materialize and start to get more liquid on the debt side, you’ll see buyers reemerge for assets. It’s not — it’s less a matter of — there’s a big gap in the price people pay because sellers aren’t really entertaining offers until they know they can get realistic and they don’t want to sell at a time when there’s a real lack of financing available. So I think you’re just going to have to see the long financing come back, and then we’ll see where the market settles.

Michael Lewis: Okay. Great. And then second for me, a question about the financial leverage and how you’re looking at that. You fixed a lot of your debt now. And I’m wondering if that makes it — does it become less of a priority to kind of delever to the extent you want to? And does it change at all how you consider other uses for disposition proceeds relative to stock buybacks or other investments or other uses?

Matthew DiLiberto: For 2023, the answer simply is no. The fixing of debt was something that we very carefully choreographed the middle to later half of last year and the timing of the debt that we fixed coincides with our expected timing of asset sales, dispositions that — and other funding sources that allow that debt to get repaid. So what we laid out in December was a plan to reduce debt by $2.4 billion to $2.5 billion through dispositions in excess of $2 billion and other sources of capital, like the funding from our partners at One Madison to the extent any of that debt that we are repaying is floating, and we have swapped to fixed, we put swaps in place that coincide with our expected repayment timing. So it all lines up the fixing of the debt and the repayment schedule with what we said in December.

Operator: Our next question or comment comes from the line of Anthony Paolone from JPMorgan.

Anthony Paolone: Can you hear me?

Andrew Mathias: Yes, I can.

Anthony Paolone: So first question, I guess for Mark or Andrew, on the third-party capital side, can you give us a sense as to what type of return you’re pitching prospective investors on 245 Park and just a general sense as to maybe what kind of return that market requires right now for New York City office project.

Andrew Mathias: Sure, Tony. I mean, that’s a unique asset because we have fixed-rate financing there that’s very much in the money, if you will, very attractive fixed rate financing. And we’re expecting a range of returns there in the low teens type levered IRRs. And I think that type of return is a very attractive relative return for an asset of that quality without — with in-place financing in place. It’s part of the reason we’re confident we got a good buy on the resolution, if you will. We took it over at an attractive price, and we’re confident we’ll be able to find partners to come into the equity there with us.

Anthony Paolone: Got it. Okay. And then just one quick one, I guess, for Matt. On One Vanderbilt, can you give us the fourth quarter cash and GAAP NOI contributions to try to think about where that was relative to the kind of stabilized level you’re getting to?

Matthew DiLiberto: Sure. For — spare me one second. Like when you have detailed questions, Tony, makes me look for stuff quickly. GAAP, our share, about $27 million cash $16 million. That’s our share fourth quarter.

Operator: Our next question comment comes from the line of Ronald Kamdem from Morgan Stanley.

Ronald Kamdem: Just going back to the transaction market, number one, just on One Vandy. Just any update there on the 10% JV prospects as well as sort of the $2 billion plus planned for this year, just what’s being marketed, what’s the interest like? Any color there would be helpful.

Andrew Mathias: One Vanderbilt, no update from December. It’s still a goal of this year to get that interest sold. And we’re hopeful to make it happen. The second part of the question, I did not hear here. Can you repeat the second question?

Ronald Kamdem: Yes. Just of dispositions for this year. I think some had already been marketed or in the process of being marketed. Just where are we in that process? What kind of interest are you seeing there?

Matthew DiLiberto: The biggest component of that is $245 million, which I think we’ve covered at length so far…

Andrew Mathias: Seven days in the markets

Matthew DiLiberto: Seven days in the market, 121 Green went to contract. We announced that in the release last night. That’s a component of it, and we have a couple more assets that are out to market or will be shortly. So I think as Andrew said in his commentary earlier, we’re trying to make a lot of headway on that plan in the first half of the year, and we’re doing a admirable job on plan with that strategy.

Marc Holliday: Yes. I would just — there was some comment about has been in the — I mean, it has been in the market. This is — these are all pretty fresh initiatives, some of which we haven’t begun yet. I mean we give a plan in December that covers a 12.5 month period, there were certain disposition plans that we’ll be bringing to market spring and by summer. There are some, as Andrew mentioned, we’re currently underway with, all of which are pretty fresh, all of which we’ve reiterated a couple of times on the call where we’re standing by the guidance and it’s not an easy market. It’s never an easy market, easier to buy than sell, but we’re pretty good sellers. I think we’ve demonstrated over 25 years as a public company, the ability to monetize more assets than certainly anybody else in our market here in New York.

And I think quite a bit even measured on a larger basis. So we own — we have ownership interest currently, and I think about square feet. So we’ve monetized and repatriated far more than we have today. We have a business plan on these. I think it’s about 5 assets for sale or JV. We feel pretty good about it. Market’s maybe not as good as it was, but it’s — we wouldn’t characterize it as a bad market either. There’s pockets of equity. There’s opportunities for debt. We’re marketing very, very good positions. We think we’ll get good pricing. And that’s where we are now, and there’ll be more updates to come, as I mentioned, in the opener of my narrative by roughly midyear.

Ronald Kamdem: Great. And then just my second one was just earlier in the month, the New York Gaming Board released the request for applications. There was no artificial deadlines. I think those are the first round of questions due February 3, just sort of wondering from that release, are you — do you plan on asking questions? Was there anything surprising, not surprising. Just what’s the update on the plan for the CNO?

Marc Holliday: Well, I mean, we are — we’ve got a robust team and growing daily on this — for this casino project, both our investor team, strategic team, grassroot supporters, coalition members, we’re all over this thing. I mean this is a real priority for us. We’re leaning into it very hard. We’re going to put our best foot forward here to make it happen because we feel it’s great for Times Square. We feel it’s great for New York City, in Manhattan. We think it’s good for this company. We think it’s good for the state. And gaming when executed at a high level, a targeted boutique level where it’s really an integration of gaming, entertainment, hospitality, live entertainment and not solely focused around the casino element itself, I think it’s something that when it’s done that way, it’s incredibly good for the immediately surrounding areas is a big halo effect that can come for it.

If the facility is built as an integration to its neighborhood and not as kind of like a moated destination where people go and they don’t leave until they’re done. So we have a project that’s the exact opposite of that. It’s something that really is a big on behalf of all-time Square businesses in an area that I think hasn’t fully recovered from pandemic that can use the help even though every day, it’s getting better and better. This would be a significant investment of capital in a part of town that is one of New York City’s treasures. Time Square is the crossroads of the world. It does have 60 million tourists and visitors a year. It has 350,000 or 60,000 people a day coursing through it, both visitors and locals. And it should be as great a calling card to the city as all other parts.

And we think this project will help continue to direct it in that direction. And we’re going through the RFA and there’s no surprises to date where we’re going to be responsive. We’re going to be competitive. And hopefully, at the end, we’ll be victorious.

Operator: Our next question or comment comes from the line of Steve Sakwa from Evercore ISI.

Stephen Sakwa: My questions have been asked. I just had one quick question on the ground lease at 625 Madison. I know the kind of reset date came and went. And I’m just wondering if you could provide — any update on the timing or how those conversations are going?

Andrew Mathias: We’re currently in an arbitration process to determine that rent as leaseholder. And with respect to the rest, unfortunately, as we’ve said on prior calls, there’s a lot of controversy and litigation surrounding that asset, and we’re not really able to comment further.

Stephen Sakwa: I can appreciate you can’t give a lot of detail, but I guess, would it be your expectation that, that gets resolved sometime in ’23? Or is it too difficult to end handicap that kind of timing?

Andrew Mathias: We would expect the rent on the leasehold to be resolved in 2023, yes.

Operator: Our next question comment comes from the line of Camil Bonnel from Bank of America.

Unidentified Analyst: Is a follow up on the capital structure and strategy behind it. Do you see any difference in the longer-term leverage levels between your consolidated and JV portfolios?

Matthew DiLiberto: So our view of leverage is, first one of LTV, not debt to EBITDA because that’s how real estate leverage is measured. And we look at it, obviously, at a corporate level, rolled up combined basis and are comfortable where we are. We’re a little higher than typical right now because of some asset acquisitions we did. And so that’s part of the reason we’re targeting debt repayment over the course of this year. But where we were prior to that and where we’ll be at the end of this year based on the plan we have in place, we are completely comfortable with. As it relates to consolidated, unconsolidated, we tend to have — as we move more into this asset management model, more unconsolidated JVs than we have in the past.

I’m sure it will continue to move that way. That leverage level will be taken on a case-by-case basis based on the asset that the JV invested in and then rolled up through the company to make sure that we maintain a prudent amount of leverage as a company. So where it sits is not necessarily something we’re as focused on as the overall leverage profile.

Unidentified Analyst: Okay. And just taking another angle on the transaction market. More of our conversations with brokers seem to indicate that we won’t see pricing discovery over the next 12 months. Can you update us on how you think about this in the context of opportunistic investments? And how much of your pipeline is based on distressed opportunities?

Marc Holliday: Well, we hope to have price discovery on 5 of our assets, certainly within 12 months. So that doesn’t dictate the market, but certainly is sufficient for us. I mean we definitely pride ourselves on having a good pulse on where pricing is. I would not call this a market where pricing is undiscoverable. I mean we’ve seen those markets. I don’t think that’s this market. This market I think there will be trades done this year. Certainly, we anticipate doing trades. You have to have — bring a realism to the table as to current values. And I think we’re good about that because we constantly are refreshing our internal NAVs throughout the year, asset by asset, lease by lease, and making adjustments for market factors like growth and cap rates and required returns, et cetera.

So I think there will be think a tale of 2 cities. There will be a normalized market for better sponsors and better assets like we have, which I think have largely retained their values, and I think for which there will be a market. And then there’s going to be properties that either have less solid sponsorship or capital stacks that are far too overleveraged or a sponsorship that doesn’t have the liquidity and capacity to muscle through redeveloping or monetizing or retenanting their buildings. And those properties will fall into an opportunistic bucket that in the second half of this year, I would think you might see us start to poke our heads up again. I did mention that in December that we definitely have our own capital resources. We have access to third-party capital resources that could make us acquisitive or reentering the investment market opportunistically, probably in the second half of this year.

And there will be some opportunities. But for all that people anticipate in terms of what kind of distress there might be in the market or otherwise like that, it rarely evidences itself these days in New York City specifically in Manhattan because again, you’ve got like the top 10 or 12 owners controlling 50% or 55% of the inventory in the market. And these companies tend to be best liquid and capable of weathering through this market. Already we’re starting to see the rate rise moderate. We’ve seen the long end actually come in quite a bit over 50 basis points from its peak. I think as Andrew mentioned, when the long-term financing market comes back and it will, then you’re going to see that liquidity spigot back on and on we go. So we think this is more of a mini correction.

We don’t think this is something else that maybe some of the brokers are implying, but we’ll see how the year goes. And right now, we’re still sticking with our plan and we feel we can execute it.

Operator: Our next question or comment comes from the line of Derek Johnston from Deutsche Bank.

Derek Johnston: As the DPE balance decreases and loans mature or repaid, I think this quarter was $57 million, how do you plan to put that capital to work? Can you just remind us, are there any restrictions how that — how those repayments or capital can be deployed? And then just an update on the DPE strategy. I think we have the ’23 strategy for the near term. But what are the thoughts for the midterm?

Matthew DiLiberto: So as it relates to use of capital upon repayment, we have no restrictions.

Andrew Mathias: $7 million was a loan.

Matthew DiLiberto: Right. That was the $57 million was repaid. We anticipated the repayment to come Three, it came in late in ’22, and we simply paid down debt with it, which is what we’ve been doing along with here purchases with a lot of the repayments and sales proceeds that we’ve gotten off the DPE book for the list couple of years, but we don’t have any specific restrictions as to how we use those proceeds.

Andrew Mathias: We don’t treat the DPE book as sort of a closed system where money has to get redeployed into DPE. Those dollars are fungible and can go towards debt repayment or investment in assets or investment into new assets. We look at — evaluate all the investment opportunities across all our business lines, try to figure out where the best risk reward is, and we’ll allocate dollars there.

Derek Johnston: Okay. Got it. And then maybe a fun one, if you would. What gives you guys confidence that the casino license that your Times Square project is superior and what kind of stands — makes it stand out versus the others and now even a potential PenDistrict application being submitted?

Marc Holliday: Well, I’m not speaking about other locations, just speaking strictly about Times Square. I don’t know if the question is rhetorical or not, but I cannot think of a better location in the United States for a high-end gaming entertainment, five-star hospitality, hotel with live entertainment, sports betting, restaurants and outdoor space with which to be able to integrate into the surroundings of what goes on in Times Square, on news even otherwise than in Times Square. I mean I just — it’s — certainly in New York state, certainly in New York City, it couldn’t conceive a better location. I think it’s a district that was actually conceived in its use Group 12, large-format entertainment with the theater overlay, with the mandate of having exciting signage and technology and entertainment uses.

I mean those are all celebrated within this Time Square district and celebrated fairly uniquely in the city. And when you take that very commercial district, and then you layer on top of that unprecedented access to public transportation with 11 subway lines that service Times Square, a block from the Port Authority, which is about to go through its own redevelopment, almost equidistant between Grand Central Penn Station, obviously, new Grand Central Madison, put a plug in for that. And you think about a facility that’s going to be drawing millions and millions of visitors and yet making the least impact because of the ability to maximize usage of public transit relative to almost any other location that might be buying for this word. You put those 2 things together, the incredible nature of the district, the compelling nature for attracting not only domestic tourism, but foreign tourism that will come to New York to gamble at a Times Square Casino, I think it just puts it at sort of the top of the chart.

It’s not to say there aren’t other viable sites. It’s just at the end of the day, it’s going to come down to an analysis about economics, job creation, incremental tourism creation, lease disruption to the surrounding grid. Recall 1515 Broadway is an existing building. It exists it’s built. It doesn’t have to be developed. It doesn’t — it’s not going to displace anything in its place that won’t come at the expense of housing or parks or schools or anything of those lines. It’s a commercial building that exists. So I’m pretty excited that we just have the good fortune to happen to have a site there that is a viable candidate for this casino licensing. It’s going to be very competitive. There’s going to be lots of proposals, I imagine. And there’ll be some real competition, which is what New York City is all about.

And there’s 3 licenses on the table. Hopefully, SL Green and Caesars and Rock Nation will come away with one of them.

Operator: Our next question comment comes from the line of Blaine Heck from Wells Fargo.

Blaine Heck: Times here in the Q&A, you’ve commented about how businesses are still navigating, how they’re going to deal with in-office versus remote work. Are you seeing any signs that tenants are looking at hoteling as a way to more efficiently use their office space? And I guess, do you think the filing strategy could be more widespread in a more hybrid environment.

Matthew DiLiberto: What’s the second part, again?

Marc Holliday: Say the second part again, Blayne, just to let.

Blaine Heck: Yes. It’s just to repeat it, kind of do you think the hoteling strategy is going to be more widespread given that we’re in a little bit more of a hybrid environment?

Marc Holliday: Hoteling has been around for a long, long time. So the concept of shared the hot desk we’re telling it’s decades. Is there more of it now than there was, there was a trend in that direction leading up to the pandemic. Then I think there was a trend away from that immediately post pandemic, where it was almost like forbidden because everybody I mean — remember, it wasn’t too long ago where there was like Plexiglass up between cubicles and cubicles were being separated by feet, and they were depopulating floors. So we’ve passed all that, and I think we’re now trending back to the way people thought about it. Initially, hoteling has and always has had a role, I think, in New York office, whether it’s more or less prevalent now. You can’t really say maybe see if you can, but I don’t — I mean not that I’m aware of, but it’s I’d say it’s more than it was maybe coming right out of pandemic, but I can’t say it’s more than it was in the years leading up to it.

Steven Durels: It’s also only applicable to very large tenants. If you really think about the average tenant in New York City, that’s less than 25,000 square feet, hoteling is not a viable way of them operating their business. If you’re talking about a tenant with hundreds of thousands of square feet, then it’s a conversation. And typically, where we see it, it’s very specific to certain types of industries. So sales businesses, consulting media businesses. But when you go into the big financial firms and things like that, we see it far less frequently.

Blaine Heck: All right. That’s very helpful. And then just to follow up on a couple of earlier questions. I was hoping you could just comment a little bit more in general on debt availability for office assets and landlords today? And how you expect that availability and even pricing on debt to trend throughout 2023?

Marc Holliday: Beyond the commentary we gave Yes, we touched on it a bit earlier, we think duration is slightly available.

Matthew DiLiberto: It’s widely available. And I think I just said earlier, sponsorship and building quality location will matter more so than ever. So we’re out with good product. We’re obviously a good sponsor and the feedback has been good.

Marc Holliday: I think we expect that second half of the year that you’ll see a little bit of a return of the longer fixed rate market. So again, these are pretty short — it sounds low. I mean, if you’re going to blink your eyes, you’re going to be — we’ll be sitting here on our second or third quarter conference call. And hopefully, by that point, we’ll be talking about more capacity in the market. Fortunately, we don’t have any projects ourselves geared for that kind of execution this year, right? So yes, we’re in good shape. Next question, operator?

Operator: Our next question comes from the line of Peter Abramowitz from Jefferies.

Peter Abramowitz: Just one more on the financing market because I think you talked about 919 Third Avenue and then you also have 2nd. I guess, Third Avenue or Lexington, depending on who you ask, has kind of been cited as the cutoff for how assets are performing differently by submarket with a little bit less activity, both leasing and then utilization east of that cutoff. Do you sound to me like kind of different than the conversations when it comes to that just in terms of 919 versus would it be easier to refi at a similar asset closer to Park Avenue.

Andrew Mathias: No, no. I don’t — I mean you didn’t hear that commentary from us. I don’t — so not at all. If you look at our tenant base at 919, it’s about as institutional roster as you get. We sold 885 Third Avenue to a hospital at a great price at the end of last year if whoever gave that commentary missed that print. And I don’t that makes absolutely no difference in the financing model.

Matthew DiLiberto: And 220 2nd Street matures in 2025. So we’re not discussing that right now.

Marc Holliday: Operator?

Operator: I’m not showing any additional questions in the queue at this time, sir.

Marc Holliday: Okay. Well, for anyone who’s still on the phone, I would encourage you to check out highlights from today’s 2023, state of the city address that Mayor Adams gave this morning. And it announced amongst a host of other things, several exciting investments that were born out of the New York plan that a lot of stakeholders worked on, including us here at Green in order to create an action plan to really bring New York forward. And it was great to see how quickly the recommendations were developed, how executable they were in their communication and now to see Mayor Adams including much of that in the state of the city, which includes hundreds of millions of dollars of investment in new public spaces and permanent open streets, which we think is great for the city to make CBDs 24/7 cities in Manhattan and all 5 boroughs he reaffirmed his commitment to building more housing and more affordable housing through what he calls the city of yes, by making the necessary modifications to zoning and working with counsel to make that happen and making the incentives in place there for conversion of office to residential as well as new development and other investments in quality of life initiatives in and around the commercial corridors throughout the city, which I think are very much needed and appreciated.

So the city and state are working together towards common goals, making the city safer, cleaner, better and it’s a good thing to see. And more on that to come. So thank you for joining us today.

Operator: Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.