SL Green kicked off the new year with a pair of big deals that inspired confidence in the REIT’s strategies, even as it continues to struggle filling its office buildings.
Marc Holliday’s company announced Thursday it had completed a deal to acquire a 95 percent stake in the leasehold at 2 Herald Square for next to nothing: SL Green paid just $7 million to settle the property’s $182.5 million mortgage.
Holliday said it’s an example of how willing some lenders are to work with sponsors on troubled properties.
“Everybody in this market is trying to come together to make sure that these assets have a safe landing,” Holliday said on a recent earnings call. “This is a great asset, I love the location … but it’s also an asset where we’ll really have to start thinking about what’s the best use.”
As part of the deal, SL Green booked a $90 million gain by removing the debt from its balance sheet. The 370,000-square-foot building is just 35 percent occupied. Holliday said it could possibly be converted into residential.
In another big deal, SL Green participated in Wharton Properties’ sale of 717 Fifth Avenue to the parent of Gucci for $963 million. The REIT owned a 10.9 percent stake in the property and said it would take in $28 million from the deal.
Holliday also announced that SL Green was launching a $1 billion debt fund to invest in struggling New York office properties, and will be touring Asia to talk with potential investors.
“There’s billions of dollars of announced capital forming from credit and equity, targeting not exclusively, but certainly a significant amount is targeted to the office sector, including our own efforts,” said Holliday, according to the Commercial Observer. “This is a playbook you’ve seen a couple times before — it’s not everyone’s first rodeo. It’s been four years since the pandemic and the business fundamentals of this city are very strong.”
Despite the good news, SL Green’s main business of leasing office space continues to struggle. Occupancy in the fourth quarter dropped 89.2 percent — down from 89.4 percent in the previous quarter, and down from 90.9 percent a year earlier.
Funds from operations totaled $341.3 million in 2023, down from $458.8 million in 2022.
Holliday said 2023 was “a challenging year” but said he believed “we have turned the corner going into 2024.”