SL Green to start deploying $1 billion arsenal for New York real estate this year

By Joy Wiltermuth

Tech tenants are returning to the NYC office market, execs say

Landlord giant SL Green Realty Corp. expects to raise more than its initial $1 billion target for a new war chest aimed at distressed New York commercial real estate, and plans to begin deploying it this year.

"Our expectations now, based on investor demand, is that we should be out surpassing that $1 billion goal that we set for ourselves," said Harrison Sitomer, SL Green's chief investment officer, at an industry conference this week in New York. "I wouldn't be surprised to see that number be higher than a billion just based on the feedback we had received," he said, according to a transcript released Friday.

The real-estate investment trust (SLG) - the largest office landlord in New York City - already has a pipeline of $300 million to $400 million in deals for the fund, according to Sitomer, which are earmarked for 2024 and the first half of 2025.

As of May, U.S. commercial real-estate prices were down an estimated 21% from peak levels in March 2022, according to Green Street Advisors. March 2022 was the month that the Federal Reserve began raising interest rates, which now sit at a more than two-decade high, and stubborn inflation has left little hope for major rate cuts this year.

SL Green's fundraising kicked off in February as a flurry of other commercial real-estate funds were announced with the aim of seizing on property distress in the wake of the pandemic and higher interest rates.

"I think right now is the most optimistic I've heard from investors about New York City, specifically, and the differentiation of New York to the rest of the office markets throughout the country - and that demand has really led investors to looking at New York as a safe haven and a place to invest," Sitomer said.

Tech tenants on the hunt for NYC offices

SL Green executives at the conference touted a pickup in leasing demand at the REIT's high-end office towers in New York City, while also citing a buzz of activity beyond the company's own large footprint.

One trend has been a wave of new demand from the technology sector following a pandemic cooling-off period. SL Green pegged the current demand for space from tech tenants at 5.5 million square feet, twice what it was a year ago. For a sense of the scope of that demand, One World Trade in lower Manhattan, the tallest building in the Western Hemisphere, has 3.3 million square feet of rentable space.

Steven Durels, SL Green's director of leasing and real property, cited the likes of Amazon.com Inc. (AMZN), Apple Inc. (AAPL), Intuit Inc. (INTU) and OpenAI among "the big names that are out there right now" looking for space.

"There's been a rumor that they were out in the market earlier this year, which wasn't true," Durels noted. "But over the last couple of months, they've come into the market."

SL Green shares rose 2% for the week and have gained 19.7% on the year so far, according to FactSet data.

Related: A look inside a $1 billion real-estate bet on the future of San Francisco

-Joy Wiltermuth

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06-08-24 0843ET

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