Financial Challenges ‘Clobber’ New York City’s Office Landlords

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Executives on Friday said that the firm had greatly reduced its exposure to the office sector in its real estate portfolio and warned of looming challenges for those properties. Last year, Blackstone handed back the keys of a Manhattan office building, 1740 Broadway, to lenders.

In the latest quarter, SL Green reported revenues about 28 percent lower than the same period in 2020 but still above Wall Street expectations. On an earnings call on Thursday, the company’s chief executive, Marc Holliday, criticized what he said were alarmist predictions about the industry.

“The commercial real estate sector seems to dominate much of the headlines these days, amplifying messages of doom and gloom and creating what I believe to be an over-anxiety in the market that is most acutely felt in New York City,” Mr. Holliday said. “Overly negative voices are overshadowing some of the positive signs that portend a slow but steady recovery.”

Alexander Goldfarb, a managing director and a senior research analyst at the investment bank Piper Sandler, said that SL Green’s better-than-expected earnings should ease some of the concerns of a looming office sector collapse.

Yet many landlords may not recover. While larger landlords who own Manhattan offices that remain in high demand or hold properties elsewhere in the country may be better positioned to rebound, numerous smaller firms that own older, less-desirable properties could face enormous strain. About 80 percent of office leases signed in the first months of this year were in buildings considered the top of the market, known as Class A, according to analysts.

In New York City’s office market, which includes roughly 400 million square feet, Mr. Goldfarb said, nearly two-thirds of its buildings are facing obsolescence because they are decades old and largely unattractive to tenants.

Tenants are seeking newer space that offers amenities and proximity to transit stations, like One Vanderbilt, SL Green’s newest tower next to Grand Central Terminal, he said. Leases at that building are among the highest in Manhattan, with some above $200 per square foot.


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