SL Green Realty Corporation (NYSE:SLG) Q4 2023 Earnings Conference Call January 25, 2024 2:00 PM ET

Company Participants

Marc Holliday - Interim President, Chairman & CEO
Matthew DiLiberto - CFO
Brett Herschenfeld - EVP, Retail & Opportunistic
Harrison Sitomer - CIO
Steven Durels - EVP & Director, Leasing & Real Property

Conference Call Participants

Stephen Sakwa - Evercore ISI
Alexander Goldfarb - Piper Sandler & Co.
William Catherwood - BTIG
Anthony Paolone - JPMorgan Chase & Co.
John Kim - BMO Capital Markets
Caitlin Burrows - Goldman Sachs Group
Michael Griffin - Citigroup
Blaine Heck - Wells Fargo Securities
Ronald Kamdem - Morgan Stanley
Nicholas Yulico - Scotiabank
Vikram Malhotra - Mizuho Securities
Peter Abramowitz - Jefferies

Operator

Thank you, everybody, for joining us, and welcome to SL Green Realty Corp.'s Fourth Quarter 2023 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 make forward-looking statements [Technical Difficulty] cannot rely on forward-looking statements as predictions of the 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 uncertainties and other factors that could cause such differences to appear are set forth in the Risk Factors and in D&A section 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 measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measures and the comparable GAAP financial measures can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's first quarter 2023 earnings and in our supplemental information included in our current report on Form 8-K relating to our fourth quarter 2023 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp, I would like to ask those of you participating in the question-and-answer session. of the call, please limit your questions to 2 per person. Thank you. I would like to turn the call over to Marc Holliday. Please go ahead, Marc.

Marc Holliday

Okay. Thank you. Good afternoon and glad everybody could join us today. I'm extremely happy, and I'm extremely proud with how we ended 2023, navigating what was a challenging year and showing that we have turned the corner going into 2024. We're just a few weeks into the year and only 7 weeks on from our investor conference, but we already have so much new activity that we want to talk about and share with you today. Normally, I don't like to repeat the earnings press release. Most of you have it. You've read it and I don't like to do that on these calls. But I think today is different. I think it deserves a moment to reflect on what we have achieved in the fourth quarter and at the outset of the year during these first few weeks.

At 2 Herald, we increased our ownership in a well-located asset and fully resolved a $182.5 million leasehold mortgage, all of which was accomplished for very little out of pocket. There's more work to be done for sure, but we are on our way to stabilizing this asset. There was seismic news in New York City retail this month with Jeff Sutton our long-term partner and friend and among the best retail deal makers in the city, wait, Jeff, if you're listening in, I know what you're thinking, the best retail deal maker in the city, pulled off not 1, but 2 amazing deals. 717 Fifth Avenue sold for $963 million generating full repayment of the capital stack plus distributions to Sutton and ourselves equating to approximately $8,000 per square foot of sale price. And to prove this as an outlier right across the street, add another legacy Green Warton asset, Prada bought 720 and 724 Fifth Half for $835 million a deal that was also just recently closed. And these deals developed quickly and confidently and I think it's very, very exciting for the city. We had a third great example of user acquisitions in the retail space in the past 30 days with the Swiss retailer Acre buying the entire retail condo that we owned at 21 East sixth Street for over $40 million and exceeding $7,000 per square foot thereby putting an exclamation point on the trend of retailers making permanent commitments to New York City through the purchase of desirable retail assets. This is Acre's second purchase from SL Green over the past year. We expect this trend to continue as we are already aware of another transaction in the works in that part of town.

Obviously, 717 wasn't an anomaly in confidence in Fifth Avenue and high street retail in New York City is once again on the rise. But let me remind you some of the headlines from the past few years, relatively recent headlines. When FT declared the death of High Street retail, Cranes talked about a retail apocalypse on fifth and New York Times concluded that retail has abandoned Manhattan. My point here is simply that people often underestimate how quickly things can change from these sort of historical media headlines to record-setting transactions just a few years later. I urge you all to keep this in mind when you read similar headlines about the office sector. Speaking of office, we ended the year strong with over 500,000 square feet of New York office leasing in the fourth quarter, which enabled us to report an uptick in occupancy for the second consecutive quarter after having stated publicly last summer that we believe the market has essentially hit bottom. And JLL recently reported that SL Green signed the greatest number of triple-digit leases in all of New York City last year.

There's good news on the debt front as well. We gave you a business plan in early December with ambitious plans to extend, modify upwards of $5 billion in debt. which certainly gives new meeting to the definition of stretch goal. Happy to report that even before the year ended, we put the first 1 on the Board with 7 day, which we successfully extended for 3 years at terms that are favorable for the asset and should help us get our JV done on that asset. Another aspirational goal we set of $1 billion of debt reduction this year on the heels of $1 billion of debt reduction last year. And we've accomplished already over $200 million of that reduction sitting here in sort of mid-Jan. So not to be overshadowed by all this great news, our premier development on 760 Madison which has really set, I think, a new standard for Upper East Side, bespoke New York luxury, and we just signed a contract this morning for the ninth floor, bringing us to 6 out of 10 units spoken for with a contract out on a seventh. So we're off to a great start, certainly confident in our business plan and optimistic about the city's continued recovery where we have some positive indicators to report.

The city's OMB forecast for 2024 is hot off the press and looks really good with over 90,000 private sector jobs forecasted for this year and another 97,000 jobs forecasted for 2025, certainly continuing to bring New York's employment base to record highs. As or more importantly, after a year where we saw slippage in the office using employment, the city is forecasting a robust reversal that is -- will more than make up for those losses with 42,000 office-using jobs projected for this year, and that would also set office using record in 2024. So kudos to the Adams and Hochul administrations and all involved for helping them bring back tourism, improve security and implement pro-business policies. As a result of all that, we are launching our fundraising efforts to amass a minimum of a $1 billion capital allocation to become active participants in this city's ongoing recovery and resiliency. In fact, after we get off the phone, we're heading to the airport, and we're on a plane to Asia to formally kick off those efforts. We're excited about the prospects of this. We got a lot of excellent response and inbound inquiries on these efforts. Most importantly, what we're doing, along with other announced deals, shows that new capital is forming in this market. The second indicator that we passed the bottom, of course, the first indicated being our statements to you in July of last year.

With that, happy to open it up for questions. Thanks.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is going to come from the line of Steve Sakwa with Evercore ISI.

Stephen Sakwa

Marc, I was just wondering if you could provide a little bit more color on the 2 Herald transaction. I think just what the bank did and effectively letting you basically pay off that mortgage for close to 0. It's a great deal for you. I think everyone here is just trying to understand kind of the hows and the whys and how that deal ultimately kind of unfolds and how you're thinking about the economics of that deal?

Marc Holliday

Well, I take that as kudos for getting a great job done on that deal. I think that everybody in this market is trying to come together to make sure that these assets have a safe landing. This is a great asset. I love the location. I think it's -- well, I know it's Ulta's #1 location in sales per foot in its entire 400 store portfolio throughout the country.

Unidentified Participant

1,500.

Marc Holliday

1500. Sorry, 1,500 throughout the country. Number one, I mean, that says something, but it also says that it's an asset that we're going to have to really start to think about what's the best use of beauty is there's a lot of different options and alternatives that we can look at here. It's great for office. It's an unbelievable retail location, right, across Macy's. It's in a part of town that's seeing a lot of capital investment and upgrade. It has the ability to flex as residential, both dormitory, which we've actually seen because Mercy College is there. and potentially for some conversion to other residential use. A lot of options. And that's what we like. We like deals that give us optionality. We've got to roll up our sleeves here and writing the capital stack is just part 1, but executing the business plan over time will be part 2. And hopefully, all of us, including our partners and others will come out of this with something good to talk about in the future.

Stephen Sakwa

Okay. And my second question, I think at the Investor Day, you talked about mark-to-market being in the 2% to 5% range for 2024. However, when I look at the disclosure that you have towards the back of the supplemental, where you provide your lease expiration schedule and your expectations of asking rents today. It looks like the '24 leases in both wholly owned and unconsolidated show roll downs. And I realize these are just asking rents, and they're different from maybe what gets signed. But is there just any way to kind of tie those two together? Or what are we missing kind of on the schedule on Page 40 and what you provided at the Investor Day?

Steven Durels

Steve, it's Steve Durels. So as we look at our pipeline right now and the mark-to-market associated with the pending transactions or the prospective deals that we think are likely to convert the deals, it's the mark-to-market on any particular deal is kind of all over the board. I'd say half of them are positive half of are down to varying degrees. But they're within our current 1.4 million square foot pipeline, we are -- there are enough large deals with very significant mark-to-markets that are positive that will drive the overall average up.

Operator

Our next question is going to come from the line of Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb

Marc, before you get on that plane to Asia, I just want to understand better how investors, the international or domestic institutional investors are thinking about investing in your debt fund versus investing in real estate directly. I mean you're out with potentially a One Vanderbilt state, but you're also out with a debt fund. And just trying to understand how private capital is thinking about those two options?

Marc Holliday

Yes. It's a good question. I mean it's different flavors for different investors. Some investors have different pockets for both. It's not exclusive. I didn't mean to imply that just FYI. We're going -- the debt fund is one element of what we're having meetings about I think we've got over 20-some-odd meetings lined up over a 5-day period and there's a lot to talk about. On the debt fund is certainly exciting. As are some of our JV and equity opportunities that we'll be talking about in addition to some of the other things that we're involved with in the entertainment and hospitality world. So we've got a full agenda certain of these investors are credit-oriented, and that's the way they want to play it. Others are sort of high end, long-term equity-oriented investors and the ones the best are both. And trust me, we'll be putting lots of opportunities out there. The key is to make sure that this -- all these meetings, not just -- this is just one leg of many legs that we'll be doing over the next couple of months, trips, both domestically and internationally, not just to talk about the fund, but to talk about what's going on in New York City on the office front, on the retail front, on the credit opportunities, tourism, hotels or ADRs and occupancy going up significantly, job growth. I think there were 24,000 new businesses since pandemic created in New York that's more than most cities even have. So it's like an amazing story that I think needs to be told because on the comments I made earlier, if you rely only on the headlines, you get sort of a different impression of what's taking place on the ground.

Alexander Goldfarb

Okay. And the second question is Matt, just thinking about 2 Herald as a template for other deals, potentially for those 10 stand-alone strategic assets. Can you give us a sense of how many of your loans are held directly versus in CMBS? Just trying to understand your ability to negotiate, can you negotiate as well with the CMBS special servicer as you can, if it's being held directly by a financial institution?

Matthew DiLiberto

Yes, it's Matt. I'm going to kick this one over to Harrison.

Harrison Sitomer

To answer the first question off the top of my head, I think it's about 4 or 5 loans that sit in the CMBS as opposed to balance sheet and we've had great good negotiations with both CMBS lenders and the special servicers as well as balance sheet. So I wouldn't say that either option is restrictive to us. There are obviously some more complexities when working with CMBS lenders, but we're working through that on a few loans now as part of the $5 billion plan, and we're well underway in those negotiations.

Operator

And our next question is going to come from the line of Tom Catherwood with BTIG.

William Catherwood

Steve, maybe going back to your answer to a previous question. mentioned kind of several large leases that should bump up the mark-to-market average for the year. a bulk of your activity in '23, at least earlier in '23, was more small and mid-sized leases, what are you seeing as far as tenant sizes in the pipeline? Has that -- is it starting to skew you're starting to see kind of larger tenants coming back in the market? Or is it still mainly dominated by those smaller requirements?

Steven Durels

Well, we've got -- I'll make a couple of points. Right now, our pipeline is almost 1,400,000 square feet. That's up over 100,000 square feet where we were at an investor conference and in the face of signing over 100,000 square feet of leases since that time period as well. I would say probably 60% or more of the deals pending right now, our financial services businesses. I don't think that's necessarily commentary as if they're the sole driver in the market. As a matter of fact, we're seeing a lot of tour activity from law firms, government, education, even some tech firms right now. It just happens to be a reflection of where we have availability within our portfolio. And it's a pretty broad range of sizes. A lot of activity in some of the more moderate price buildings like Graybar Building, some of the third avenue buildings that are kind of small to midsized requirements. But then on some of the bigger financial service tenants, we've got a number of notably large deals that are in negotiation. And every single one of them is driven by those tenants having a growth component of their space requirement.

William Catherwood

Appreciate that, Steve. And then for a second question, maybe Marc or Matt, First off, congrats on getting the refinancing done at 7 day and Marc had mentioned the $5 billion that you -- of refinancings you had laid out at the investor conference. I know we're early in the year, but kind of what are the next priorities on your list when it comes to refinancings? And how are those conversations trending so far?

Marc Holliday

Well, I think just for conciseness, we set out asset by asset in December, which we've never done before. Our plan, and we noted in each case where we thought we would be able to be successful in getting some kind of modification extension done on debt that has maturities mostly in '24, '25, '26. We want to try and take care of almost all of certainly '24 and '25. And with the goal of getting new maturity dates of -- end of '27 and beyond so really '28. And so in terms of like next priority, that group of assets is all the priority. I think there's 5 or 6 in total that we're probably working on in various stages. And it's -- look, like nothing is easy in this market for sure. But between what we showed you last year and what we continue to show in this quarter, is there's going to be differentiation in this market between sponsors that partners and lenders are going to want to work with and sponsors where lenders and partners may not want to. I mean it happens every time you get a bit of a market dislocation like this. There's a weeding out process. And then the market recovers and sometime in the future, it happens again.

So I'm just happy and feel fortunate that as a company, we've got the reputation and the platform and the resources to be able to work productively with our counterparties always trying to come up with solutions that are sort of the best available solutions for all, sometimes a great solution, sometimes they're more painful solutions, but we're always trying to do it in a way that knowing that these counterparties or people in this market, we have to deal with year after year after year. And what comes around from these efforts, I think, pay off for us in the future. So I feel pretty good about where we are and the job we have ahead of us this year and next to get all of that debt sort of firmly landed restructured, extended on terms that we can that we can manage, but it's only January.

Operator

Our next question is going to come from the line of John Kim with BMO Capital Markets.

John Kim

Kudos on to [indiscernible]. But going forward, the cost of carry is still pretty high given the ground lease. And it sounds like if you're going to reposition it, it's going to be fairly capital intensive. At this point, are you more inclined to sell it or joint venture the asset? Or do you plan to keep it on balance sheet? And will this stay in your alternative strategy portfolio?

Unidentified Company Representative

This is Harry. Right now, we're working through various avenues. We got through the first half of this, which is with the lease of lender. But we have a lot of time here. We've got a lot of time. We're working through the asset. We know it very well. We've gone it for a few years now. and we're working through the avenues and we'll present it to you over the coming quarters.

Marc Holliday

Yes. I think this is a business plan that we'll be developing over the course of the year. It's not one we highlighted for you guys in December. Our priorities were elsewhere. Now it's -- now that there's a reordering of the capital stack, it's now feasible to start thinking about long-term value. but we can't do it in a day or two. I mean this is something we're going to study and we're going to be testing the market. And certainly by 6 to 12 months, we're going to have a game plan for this asset and we're going to try to -- on a reset basis, something that might not have worked in the old formula will work now, and that's the process we're going through in this situation.

John Kim

And will stain your ASP? And should we just view this as option value going forward?

Matthew DiLiberto

Yes. For now, John, that will stay in ASP.

John Kim

Okay. My second question is on your month-to-month leases or holdover. It looks like it was 200,000 square feet combined, which is higher than previous quarters. So I was wondering if you could just comment on the likelihood of these tenants moving out versus renewing or just remaining in the month-to-month portfolio?

Steven Durels

I think a lot of that is driven by some of the tenancy at 625 Madison Avenue. That's right.

Matthew DiLiberto

The leases there have technically been terminated, their holdovers.

Steven Durels

So that building, as you know, is in contract for sale. So it's not really an indicator of anything else that's going on in the broader market.

Operator

Our next question is going to come from the line of Anthony Paolone with JPMorgan.

Anthony Paolone

Marc, you talked about the big retail trades that occurred earlier in your comments. Can you just talk about any shift in sentiment though, that you picked up in terms of investing in office and whether that's changed much?

Marc Holliday

Well, I think that goes back to the pools of capital that I was referring to. So yes, I'd say it's changed a lot because there's like I don't know how many billions and billions of dollars of announced capital for me for credit and equity, targeting not exclusively, but certainly a significant amount is going to be targeted towards the office sector, including our own efforts. And that's the first sign of -- this is a playbook you guys have seen a couple of times before. It's not anybody's first rodeo. And it's already been 4 years since pandemic. And the business fundamentals in this city are very strong and people are back to work. And it's time for a lot of investors who have been sort of off to office, except for what I'll call sort of the special assets in great locations, et cetera. I mean those kinds of assets rode through this period of time with chance. But there's -- there's a lot of other buildings out there that need to be attended to. And I think you're going to see the liquidity break. And the first step are these capital pools forming and then the institutions will follow right behind, in my opinion.

Anthony Paolone

Okay. And then just second one, you may have given this out and maybe I missed it, but on the debt fund, how much is going to be SL Green's I guess, coinvestment?

Marc Holliday

Well, we know, but I think that's TBD in terms of announcement. So I would say standby, I guess, it's not a question. I mean we -- we -- as you know, we tend to like to have real skin in the game. I mean, we're investors as much as where managers have monies for others. So we'll have real skin in this game. But it has to fit within our overall liquidity program for the year. And we feel very good about the levels we're going out with will show our confidence and belief in this program.

Operator

Our next question is going to come from the line of Vikram Malhotra with Mizuho.

Vikram Malhotra

I just wanted to -- maybe Steve Durels or even Matt, just you talked a lot about market improvement, the job outlook picture looking better and return to work and all that. I'm just trying to square that with -- if you look at the leasing pipeline, that you mentioned plus the expiration in factor in renewal rates. I'm just trying to square all that with how you -- your latest thoughts on occupancy and then tying that occupancy back, Matt, perhaps to ultimate at cash flow generation. It just seems like there could be a big lag between all the lease-up, the known move-outs, et cetera, before you actually see a meaningful inflection in underlying FAD generation.

Matthew DiLiberto

Yes. The -- obviously, sitting here in January, having given guidance about 7 weeks ago, we will say we're on plan. The pipeline is actually probably a little bigger. As Steve said, than it was back at the investor conference, even after signing 100,000 feet in January, 100,000 feet back in December. The pipeline still grow. So it puts us and based on what's in the pipeline, puts us squarely on our targets for occupancy increase, which was going from 90% at the end of the year with the goal of 91.6% by the end of '24, with a goal of 2 million square feet of leasing this is a great start towards those goals. As to how that translates back through to Fed, yes, of course, there's a lag, particularly when you're doing new leasing, and you've seen that over the last couple of years, it lags when occupancy is going down, the roll down takes time to roll through. And the same thing will happen on the roll up. So do we see the biggest benefit of going from 90% to 91.6% in the '24 Fed. No, it will roll through in the coming years. But we are on the right trajectory and consistent with the plan we laid out in December.

Vikram Malhotra

Got it. Okay. And then just -- sorry to go back to I know you've had a lot of questions on 2 Herald, but just 2 clarifications. One, can you give us any color or maybe even just based on present like how should we think about the ground lease reset. I believe it's 2027 and then related to that, you mentioned there are a variety of strategies that you have in mind. But perhaps you can give us some thought about time line because Today, if you look at a lot of office buildings, just where debt is where values are, you would argue like equity value has been diminished tremendously. And you need to sort of take perhaps a long enough time frame to think about value creation. And given this building, I think, is what 20% or 30% leaves, it seems like there's a very heavy lift. So I'm just trying to get us more thought around how you're thinking about, A, the ground lease and then B value creation.

Marc Holliday

Well, the value creation question is I tried to address earlier, I mean step 1 is come up with our plan. I can't -- that's as really as far as I can go with that at this moment is this is an asset we've probably been involved with redeveloped and maximize assets like this for the last 27 years. And I think we've done 124 million square feet of investment almost all of which is exclusively Midtown, much of which is like 2 Herald. So this doesn't present in my opinion, the unique challenges you might be referring to. We look at this as opportunity. I love the flexibility, and I like the location and we'll come up with a plan. The comment about it's going to take a very long time Yes, I don't know about that. I mean, I heard a lot of that on 625 Madison, and that turned into a very excellent resolution for this company in a very quick period of time. So I wouldn't I wouldn't subscribe to the notion that it's going to take a long period or a short period of time, we're going to just manage it the way we manage the other 30 million square feet we're involved with and I have no particular concern about anything unique to this asset, I think it's a very good asset. It's vacant because we had a tenant go out. I mean it's no miss. I think prior to the tenant going out, it was like very well leased.

So buildings sometimes go from well leased to having some vacancy when a tenant rolls out, but then you resolve that vacancy, and I mentioned we can do it in a number of different ways, and we're going to look to optimize this. That's that. On the ground lease, there's a reset. I don't know if there's much to talk about there because it's early, but there is a reset. I don't know anyone have the details on that recent?

Unidentified Company Representative

'27 is correct. I would just say we're going to have a well aligned fee owner here. They want to see us maximize and create value. I'm sure you won't be surprised to hear, we're in active negotiations with them to give us the opportunity to maximize the value. So we're working through that, and it will be part of the updates as we get through the year.

Vikram Malhotra

No, that was helpful. And my comment, I guess, just I was wondering if there was something more specific because....

Marc Holliday

No, not at the moment. I would say stay tuned. I would stay tuned and in June or on the next call, actually, it won't be next call. I would say, give us 6 months and we may have more to come on a business plan, but we don't have it yet. Just [indiscernible].

Vikram Malhotra

I was just surprised like in general for the lender like there was $180 million loan. And like the way you described it, it sounded like there was a lot of optionality. So I was just surprised that the lender was okay with 7 and that's why I thought there was something more specific to this asset which was my comment, yes.

Marc Holliday

I understand. Thank you, and we'll definitely readdress it later this year.

Operator

Our next question comes from the line of [indiscernible] with Bank of America.

Unidentified Analyst

Impressive outcome on the 717 First Avenue sale, are you seeing third-party demand at these levels for high street retail beyond the user buyers we've seen in the deals that you've mentioned in your opening remarks.

Marc Holliday

Yes. No, that's an excellent question. We've got Brett Herschenfeld, you know, heads up all of our retail and strategic. Why don't you -- so the question is putting user demand aside, how is the sort of the high-end rental market would look.

Brett Herschenfeld

The high-end rental market was really being driven by Madison Avenue to start. We had the likes of Valentino and Jimmy Choo and Dior and McQueen, Van Cleef, all sign big leases on Madison Avenue in the past year. Fifth Avenue is right behind and starting to pick up, and that will be nice to see 717 filled on Fifth Avenue. In terms of investors, I mean, related in their acquisition of 625 Madison, a big part of that transaction is value recognition of the retail and they are an investor, and obviously, not a user. So there are more behind that, but we'll be sharing that in the months to come.

Unidentified Analyst

Okay. And Matt, can you talk to how you're thinking about your floating rate exposure today? Guidance that was set out in December look to reduce your exposure down to single digits by year-end '23. Has anything changed on this front? And would you be comfortable operating at the current levels or higher?

Matthew DiLiberto

No, I think we're on the path. We expect it to be on most of the fixed rate debt that we have today is fixed even beyond the end of the year. So there's not much we can do with that. As to the other floating rate debt, a lot of that is what we expect to take out as we reduce debt over the course of the year. infecting 717 reduces our floating rate exposure by itself, taking down the revolver addresses the rest. And we still want to protect ourselves, even though the rate environment has gotten a little bit more constructive and the forward curve looks to be coming down. We want to be prudent and protective. We put a hedge on late last year, forward starting hedge. That's what's flowing through earnings. Rates were higher than they are today, which is why we had a negative mark-to-market, but it's a protective exercise for something we expect to execute at the end of the year. It's protecting the balance sheet. We, at this point, again, are optimistic about where the rate environment is headed, but we still want to be prudent and keep that floating rate debt fairly low.

Operator

And our next question is going to come from the line of Blaine Heck with Wells Fargo.

Blaine Heck

So we're hearing that the Park Avenue corridor has gotten really tight at this point given the strong tenant interest in that submarket, are you seeing a spillover effect in any specific submarkets or maybe buildings within your portfolio that are now seeing more interest since that kind of Tier 1 space is getting leased up?

Steven Durels

Yes, I don't think it's unique to Park Avenue. But you're right, Park Avenue's got an availability that's like something like 9.4%. So by historical standards, you would say it's at least at equilibrium, if not tilting more back to the landlord having more leverage on transactions because of the limited supply and lack of big blocks expected to come on the market anytime in the near future. But take it to a different level, which is you've seen with the absence of any new construction coming online in the short term, you've seen a lot of the new buildings in newer or heavily renovated buildings filling up. So the beneficiary of that has been Park Avenue, 6th Avenue, Rock Center. And anything around the Grand Central Terminal is all seeing more tenant demand. So I think it's more tenants are being forced to shop various parts of Midtown. But Clearly, the tenant drive is for the majority of tenants to focus their attention on the Midtown market as opposed to the far west side market or certainly the downtown market. And we're seeing that spill over in all parts of our portfolio.

Blaine Heck

Great. And then the second one, just a quick one with respect to Herald Square. As it stands now, does the NOI at that asset cover the ground lease payments?

Unidentified Company Representative

I'm sorry, can you repeat that? Does the NOI and what.

Blaine Heck

The Harold, does that cover the ground lease payment that you guys have there?

Matthew DiLiberto

No, no, it doesn't in its current occupancy, Blaine. Part of the reason in the ASP portfolio.

Operator

And our next question comes from the line of Peter Abramowitz with Jefferies.

Peter Abramowitz

So I think the EPS guidance raise was $1.38 in the range there and the FFO guidance range was $1 on the node. So I think you said it was mostly related to gains on the debt extinguishment, but just wondering if there's any offsetting items or any other moving pieces in there that causes the difference in the magnitude of the rate between those two?

Matthew DiLiberto

Yes, the guidance adjustment for FFO is purely the gain of the 2 Herald discounted debt extinguishment as offset by taking out the generic $20 million gain we had in there. So that math works out to exactly $1. The difference between the $1 of FFO and $1.38, I think, of net income is the gain we'll recognize on that asset did not have a basis on the books. And so it's essentially all gain.

Peter Abramowitz

Okay. Got it. And then one other question on 2 Harold. So I think you guys kind of cover everything from a lender's perspective, I guess from your partners' perspective, I mean could you talk about the motivation for them. It seems like it was just a situation where they wanted to walk away from the asset. So you're taking over almost full control for -- I think it said no consideration in the press release. So you just kind of covered that and what the motivation was and the reason was from their perspective.

Unidentified Company Representative

Yes. I appreciate the question. I don't want to speak for our partner on this call and what their motivations were. So unfortunately, not much I can get into there, but we'll continue to update you on 2 Harold as we go on throughout the rest of the year.

Peter Abramowitz

Right. I guess put another way, anything that it's obviously a very favorable resolution for you. Anything specific to the situation that influence that, I guess.

Marc Holliday

Yes. I mean as you know, they're still in the deal. It's a minority interest, but they still have an interest in the asset. And beyond that, I just again, don't want to get into how they're thinking about it and what their motivations were.

Operator

Our next question is going to come from the line of Ronald Kamdem with Morgan Stanley.

Ronald Kamdem

Great. Just two quick ones. So first is just on the trips to Asia that you're talking about after this call. Just wondering, was that sort of related to the One Vanderbilt or the 245 Park JV? And maybe can you provide an update on how conversations are going? And any sort of timing if that deal is still [indiscernible].

Marc Holliday

Everything, I'd say, our whole business plan is on the table, not just I know there's a lot of questions I'm getting about [indiscernible] because I mentioned it. We do this like every couple of weeks, not to Asia, but all over the country in different parts of the world, we're visiting partners, lenders and on these trips, we make them targeted, but we're talking about everything that's part of our business plan really for '24 and that's how we got to get it done. I mean it's -- you got to start early if we want to get it done by the end of the year. And -- and so things like OVA, 245, I don't know, 7 days and everything else we talked about in December, yes, I mean, there'll be discussions we're having on each and every one of those. On OVA, in particular, [indiscernible] do you want to give an update?

Unidentified Company Representative

Yes, consistent with the message we delivered in December, we're in active negotiations on the interest these negotiations that we're involved in, they're confirming exactly what we said, which is there's global and domestic demand for this, it's a one-of-a-kind asset. And that's obvious to every investor, we're speaking and negotiating with. And as Marc said, we're still on plan for this year.

Ronald Kamdem

Great. And my second question is just taking a stab at 2 Herald and taking a step back. So the alternative strategy portfolio has 10 assets. And this 2 Herald, congrats on the deal, gets sort of done? And what looks like it's an economic sort of decision from the bank. So the question is sort of like out of all these other assets in the ASP, is 2 Herald just unique? Or are there other assets that look and feel the same and which ones where you could have such an outcome?

Matthew DiLiberto

Yes, it's Matt. So first all, correctly, it's not 10 anymore. It's 9 assets because 717 was in there, too, and that's now sold. But look, in creating this or segregating this portfolio, we said there's very little, if any, NAV carried for these assets on the street, don't generate a lot of any earnings, don't have book value. So they kind of were unique from the rest of the core portfolio, but there's a lot of interesting opportunities that may come out of them. 2 out of the 10 happened in the first 30 days of the year. 17 [indiscernible]. The -- are there more opportunities come out of there? Yes, we're working on a couple of other things, but working on a lot. So we're going to -- which is what we've been doing with these assets and again, when we put them off in its own portfolio. I can't characterize whether any of them are exactly like a 2 Herald or exactly like a 717. But the reason we are carrying these assets the way we are is because there's embedded value that might not be appreciated, and we're going to look to mine it.

Operator

And our next question is going to come from the line of Michael Griffin with Citi.

Michael Griffin

Maybe just a question on the leasing pipeline. Can you give us a sense if it's mostly new or renewal leases that are there. And then on the concession front, is it fair to say that it's stabilized or maybe even decline somewhat, particularly in a very high-performing submarket like Park Avenue?

Steven Durels

I'll take the second part first. I don't think the concessions have come down. I think they've been stable for all of last year. I think there's a little more strength, particularly on Park Avenue, to your point, on the renewal side than there was on -- versus new deals, but it's still expensive from a landlord's perspective as far as the concession packages go. But I don't -- I think we hit the stabilization point early last year. So that's the good news of that story. And then as far as renewals versus new deals it's driven sort of 50-50 between new and renewal, but each of the -- a lot of our bigger renewals also have very significant expansion components in them. And that's, I think, pretty noteworthy because it's -- if you really went through every one of our deals that are out there to see so much growth, particularly within tenants in the financial services sector, but also some of the for tenants that are coming through our door. We're seeing a lot more growth, a lot more confidence, a lot more willingness to commit significant capital by the tenant as they look to rebuild and rebrand their spaces. So that makes us all feel pretty good about where we stand right now.

Michael Griffin

Great. That's helpful. And then just on the DPE book, I'm curious if you're seeing any more appetite or opportunities for future originations given the distress and dislocation that we've seen out in the market?

Marc Holliday

Well, that's really the underpinnings of the opportunity fund that we're in the process of marketing and raising. We see a lot of opportunities. I mean we see many, many opportunities. But obviously, no different than in prior markets, only select ones that we think are of interest to us and where we want to deploy our capital. But the opportunity set so big that we want to have some third parties alongside with us to take advantage fully like we've done in past recoveries because I've always said, a lot of the money is made in the first year or 2 coming out of recovery. I feel like that's where we are now. And I want to make sure we got a ducks lined up to take advantage of things. We very possibly may act preemptively and then backfill with the fund. We'll see how these things go. But yes, we're seeing a lot right now. And I think that's the first step towards more normalized institutional participation once we can illuminate where values and levels are, especially in this environment where we've got falling rates which I think will certainly ease the liquidity pipeline and get things going again.

Operator

And our next question is going to come from the line of Caitlin Burrows with Goldman Sachs.

Caitlin Burrows

Maybe just a question on leasing broadly, the starting rent per square foot on the leases signed in the quarter was pretty high at $105 per square foot and included, as you mentioned, some leasing at 280 Park and 245 Park. So I was wondering, could you talk more about how tenant activity and leasing activity is shaping up across the portfolio, including some of the more affordable buildings?

Steven Durels

Well, yes, the rents were high because we did some big deals on Park Avenue and they were driven by some of our higher price point buildings. But as we see it right now, looking at the pipeline of the 400,000 square feet of leases that we have out right now, I'm just looking at this real quick, every single one of those with the exception of one moderate-sized deal is in more of the moderate price point buildings. So 485 licensing Avenue, 1,185 sixth square bar, 711 third Avenue things like that. So those are rents that are generally in the $60 to $70 price point as opposed to the triple-digit rents that you saw us print on some of our Park Avenue buildings at the end of last year.

Caitlin Burrows

Okay. Got it. And maybe just as a follow-up to that kind of list of deals that you're looking at, do you have a sense for if those tenants are ones that are generally renewing space they were already in. And if they're alternatively like moving in from somewhere else where they might have been coming from?

Steven Durels

Yes. Well, I mentioned earlier that of the $1.4 million pipeline, it's roughly 50-50 is between renewals and in new tenants. And on the renewals, 95% of those are tenants that are renewing in place as opposed to relocating to a different building or a different space within our portfolio. But what's not really articulated well as far as saying it's 50-50, is that a good number of our -- of the deals that we're working on right now have significant expansion components, whether they be renewal deals or new tenants coming into the portfolio.

Caitlin Burrows

Sorry, by expansion component you're saying they are expanding or they have an option to expand in the future?

Steven Durels

No, meaning they are making -- they're searching for larger spaces.

Operator

And our next question comes from the line of Nick Yulico with Scotiabank.

Nicholas Yulico

I just wanted to go back to 2 Herald and be clear here. Did you already own any piece of the mortgage there or buy it at some point, like in the last year, and that's what's affecting the net payment number that you're citing?

Marc Holliday

I don't understand the question.

Matthew DiLiberto

Did we -- is it third-party debt? Or do we own any of it? Is that your question, Nick?

Nicholas Yulico

Yes, exactly.

Matthew DiLiberto

All third party. We didn't own any.

Nicholas Yulico

Okay. And then just on the second part, was there also -- was there any piece of like a mezz or a prep piece there that also affected the ability to get higher equity in the joint venture...

Marc Holliday

Is the Wall Street Journal asking .

Nicholas Yulico

I'm just trying to clear up, it's not very clear in the -- in your press release here.

Matthew DiLiberto

No. The answer is no. None of that. .

Operator

And I would now like to turn the conference back over to Marc Holliday for closing remarks.

Marc Holliday

Okay. This was a good 2 Herald conference call. And I'm glad we got some other things in there as well that aren't in the ASP portfolio and appreciate very much those that muscle through to the end. We thank you for the support, for listening in, getting to work on the phone, and we'll talk to you in 3 months. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.