Concern Over Manhattan's One Vanderbilt Project Grows -- Update
26 April 2017 - 8:19AM
Dow Jones News
By Peter Grant
With the Manhattan office market showing signs of softening,
some analysts are expressing more concern about the leasing outlook
for one of the most high profile new developments in the city: SL
Green Realty's 1.7 million square foot tower next to Grand Central
Terminal.
The building -- named One Vanderbilt -- has announced only one
office deal, a 200,000 square foot lease with TD Bank, a subsidiary
of Toronto-Dominion Bank.
SL Green, New York's largest office landlord, plans to start
laying steel in June and is optimistic it will do a lot more
leasing by 2022 when it is scheduled to be completed.
But SL Green jarred some analysts when it advised them recently
against anticipating leasing until next year. That "kind of reset
expectations," according to Craig Mailman, an analyst with KeyBanc
Capital Markets Inc.
It is also not clear that SL Green will be able to hit the
average rents of $150 a square foot the real-estate investment
trust has told Wall Street it expects. Some think that is
ambitious. Average asking rents in Midtown in the first quarter
were $80.45 a square foot, essentially unchanged from 12 months
earlier, according to CBRE Group Inc.
On a conference call with analysts to discuss first-quarter
earnings last week, SL Green chief executive Marc Holliday
continued to voice optimism. While average rents are in the $80
range, he pointed out that "there were many, many deals done at
levels of $125 a foot and higher over the past 12 months."
He also pointed out that SL Green doesn't "need" $150 a square
foot rents for the project to be successful. "Need is a funny
word," he said.
Mr. Holliday said a rent of $135 a square foot would still
produce a yield of over 6% "which is still actually quite high." At
$150, the yield would be 7.1%, "fairly extraordinary for a building
of this size and quality."
SL Green earlier this year announced it had sold a 27.6% stake
in One Vanderbilt to the National Pension Service of Korea and a
1.4% interest to Hines Interest LP. That deal still leaves 71% of
the project with SL Green, Mr. Holliday acknowledged on last week's
call.
But he pointed out that "With the $525 million equity commitment
that we now have in the project, combined with the $1.5 billion of
construction financing, which is locked and loaded, our future
equity commitment to the project between now and 2020 is less than
$100 million a year."
Responding to Mr. Mailman's remark, an SL Green spokesman said
Tuesday: "We corrected analyst expectations to reflect our
consistent expectation that leasing beyond the TD Bank anchor
tenancy would begin in earnest starting in 2018."
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
April 25, 2017 18:04 ET (22:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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