Thank you, everybody, for joining us, and welcome to SL Green Realty Corp.'s Second Quarter 2025 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. You should not rely on forward-looking statements as predictions of future events, and 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 risks, uncertainties and other factors that could cause such differences to appear are set forth in the risk factors and MD&A sections 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 call, the company may discuss non-GAAP financial measures as defined by Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and a reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's second quarter 2025 earnings and in our supplemental information included in our current report on Form 8-K relating to our second quarter 2025 earnings. Before I turn the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call, please limit yourself to 2 questions per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Okay. Thank you. Good afternoon, and I appreciate all of you joining us. I'm very proud of what we at SL Green accomplished this past quarter, and I'm pleased to be able to share some of the highlights with you today and some thoughts on the market as well as field your questions coming out of these results. The achievements for the quarter were particularly impressive, in my view, when you put it up against a volatile economic backdrop and a higher-than-optimal short-term rate environment. For some firms, the confluence of these events and the current market environment presents challenges, but SL Green is adept at dealing with the volatility, and it's in these types of situations that I believe our platform truly shines the brightest. We are well adapted to threading the needle, finding the best investment opportunities when others are less certain as to where to find that value. Ultimately, it's the diversity of our platform, business lines, and skill set that keeps us well balanced offensively and defensively, and enables us to outperform expectations quarter after quarter. In this second quarter alone, we concluded over 540,000 square feet of leasing, bringing our year-to-date total to 1.3 million square feet of space leased, inclusive of last night's announcement, and we have refilled the pipeline to over 1 million square feet for near-term execution. What's notable about the deals done to date and the deals in the pipeline is that they're not really chunky in size; rather, they are a broad cross-section of midsized leases that are renewing, expanding, and relocating within our portfolio at a rate which is bringing down vacancy levels in Class A Midtown buildings. A good stat I have on that is that the pipeline of 1 million square feet I referenced, 80% of those leases are 25,000 square feet and under. Half of that pipeline is financial services, but the other half is a broad range of legal, professional services, government and nonprofit, TAMI and real estate, all of which is about equally dispersed within that remaining 50%. So very diverse, very numerous, and I think evidence of a very healthy environment, not only for our top buildings but throughout the portfolio. In fact, half the pipeline by square footage represents non-Park Avenue properties. So this is definitely an indication that the demand has radiated out kind of from east to west within our portfolio, from Third Avenue all the way to seventh, and we're going to start to see in the second half of this year, significant occupancy gains as we get towards our projected 93.2% by the end of the year. As you also know, our ability to source and execute is really a validation of our pipeline. The investment we made in the 522 mortgage position last year is perhaps one of the best trades of this cycle, where we realized nearly $90 million of profit on a $130 million investment in well under a year's time. We also consummated a transaction with a new domestic partner by selling a 50% participation interest in the preferred equity position we hold in 625 Madison Avenue, which carries a PIK preferred rate of about 6.65%. When combined with the proceeds of the 522 transaction, the 625 interest sale yielded over $300 million of fresh cash proceeds into the company that we now intend to deploy into new and accretive opportunities. And lastly, we announced the closing of over $500 million of fund commitments, bringing the total closed to date to over $1 billion, a significant milestone for the company. That's an announcement we just made that is probably crossing your screens right now. That gives us corporate liquidity and fund availability combined of over $2 billion to fund our new opportunistic investment pipeline and solidify our position as a market maker in Midtown Manhattan. But perhaps one of the most momentous events in the quarter was something that wasn't even included in the earnings release. And that is the filing of our response to the state's RFP in the casino license bid project. It represents almost four years of work, effort, planning, partnering, and listening to the community and other constituencies, all of which came together in a 13,000-page document that was filed in the second quarter at the state's offices near Albany. And it was a privilege to present to the State Caesars Palace Times Square. It's located in one of the world's most iconic destinations that will provide far and away more tax revenue for the people of the state than most other, if not all, other proposed facilities while bringing a new attraction to Times Square that fits its location at the center of the entertainment universe. Caesars Palace will achieve this lofty ambition without displacing residents or utilizing land that could otherwise be developed for much-needed housing. The project has been intentionally and uniquely designed and programmed to uplift surrounding businesses and residents, not displace them, and that makes this project truly unique among all the proposed projects. Caesars Palace Times Square is set precisely where a global entertainment facility should be: Times Square, the world's greatest tourist and entertainment destination at the crossroads of the world. I wish us luck in that endeavor. It's the start of a 90-day process that includes the community advisory committee that was formed, and we hope to be through that and able to make it to the next step of the bid process in Albany after we are able to get the consensus that we need at the CAC and majority votes to move on. We're very confident because we have a fantastic proposal on all merits and more to come on that on the next call. This all combined to enable us to raise our earnings guidance at the midpoint by $0.40 a share. There's a lot of ins and outs that go into that, but mostly, it's reflective of substantial increased profit at the company above our earnings guidance, more on that from Matt DiLiberto.

Thanks, Marc. Clearly, it's been an extremely busy 6 months for this team. Because we're a very active company across multiple business lines, there are dozens of items that can affect our results each quarter as well as the trajectory of earnings over the course of the year. And yes, some of those income streams are unpredictable, or that a lot of people use the word lumpy. This is why we set guidance on an annual, not a quarterly basis, and use a relatively wide guidance range. When we give guidance, we are confident in it. Needless to say, we are very pleased that our successes so far this year allow us to not only increase our FFO guidance range, only 6 months into the year, but by a meaningful $0.40 or 7.4% at the midpoint. The drivers of this upward revision are most easily summarized into two basic categories. First, in our debt and preferred equity portfolio, the repayment of our mortgage investment at 522 Fifth for $200 million, which was substantially more than what we purchased the position for generated about $0.69 a share of incremental FFO. I say incremental because our original guidance included various forms of income from holding this investment over the course of 2025 as well as income from other debt and preferred equity investments. This incremental income is offset by $0.19 a share of reserves that we booked in the second quarter on our preferred equity investment in 625 Madison Avenue. This is pursuant to the sale that Marc alluded to of 50% of that investment which closed earlier this week to generate incremental liquidity. While this transaction closed in the third quarter, because the deal was largely known at June 30, accounting rules require us to not only take a reserve on the portion that we sold but an equivalent reserve on the piece that we retained. All told that's $0.50 a share of uplift just from the debt and preferred equity book. Offsetting this incremental income, interest expense is trending a bit above our original expectations by about $0.10 a share. This is not necessarily the result of higher rates, because our debt is 95% hedged, and the current SOFR curve is not that far off from the curve we used for our initial guidance. It's primarily related to decisions we have made around potential asset sales that changed the size or timing of them. As a result, we carry the debt on these assets for longer if they have debt and don't realize the benefit of the proceeds from the sales to pay down corporate debt. Across the rest of the business, we are largely performing in line with our original expectations, with NOI trending slightly better, as you can see in our second quarter results, offset by SUMMIT, where second quarter results were slightly below our expectations due primarily to taking the Ascent experience offline during the quarter, which is a premium ticket that generates incremental revenue. We expect to bring that back online before the end of summer. From an attendance perspective, overall attendance at SUMMIT was actually higher than our projections in the second quarter, and we are right on top of our projections for the first 6 months of the year. As it relates to discounted debt extinguishment gains, we have maintained our original assumption of $20 million or $0.26 a share of discounted debt gains in our updated guidance range, but we see a potential path to more than that. As noted in the earnings release, an affiliate of the company and a partner have purchased the debt at 1552-1560 Broadway for just $63 million against a total debt claim of $219.5 million, $193 million of which is principal. However, the debt is still outstanding for very specific reasons. Accounting rules don't allow us to record a debt gain until the debt is extinguished. When that debt is extinguished, which could potentially be this year, we would recognize a debt gain substantially larger than the $20 million we currently have in guidance. Aside from 1552 Broadway, we're also evaluating other opportunities to take out existing debt at less than par. In closing, I read and hear a lot about the complexity of modeling the company. We sympathize with all of you on that because we have to model it, too. I also see a lot of analysts or investors that want to discount the unique ways that we generate real cash gains, that generate real FFO, that pay a real cash dividend. And I'll admit, I'm a bit perplexed by that. And I'm sure there are plenty of other REITs out there that you can model in your sleep and run rate every quarter in perpetuity with laser precision, but those are not the companies with a team like ours that will work tirelessly to evaluate every opportunity presented to them with an eye towards generating profits and creating shareholder value. Being unique and creative in the ways we make money for our shareholders is in our DNA, and that won't change. And if the price of that profitability is more complexity, we can't be apologetic for that. Now I'd like to open it up to questions.

Our first question will come from Steve Sakwa from Evercore ISI.

Marc, I understand your focus on annual numbers rather than quarterly trends. However, the market might have been a bit surprised by the small decline in occupancy during the second quarter. I wonder if perhaps a few deals were delayed in terms of timing. Could you or Steve provide some insight into the pipeline and its timing? Also, are there any known move-outs that might impact your goal of reaching 93.2% leased occupancy by year-end?

I believe the reaction is quite exaggerated. Measuring 30 million square feet based on quarter-to-quarter changes really should align with management's guidance. If we are confident in maintaining our projected levels, we won't focus on quarterly fluctuations. For instance, a lease signed just after June 30 could boost the figures. We recently announced a significant deal, around 54,000 square feet. If that had happened two weeks prior, it could have positively impacted occupancy. This discussion feels unproductive for this call. Our leasing volume is the strongest in the industry, and we have a one million square feet pipeline. We've repeated our guidance for the year, and historically, we typically meet that guidance. It's been 27 years since we went public, and while we set ambitious performance goals, we may not hit all of them, but we strive to. My point was to illustrate that we are witnessing a robust and varied leasing market, which is enhancing occupancy both broadly and within our portfolio. Additionally, we had some roll-offs in the second quarter that could be relevant.

The recent decrease is primarily due to an unexpected tenant departure at 711 Third Avenue, which caught us by surprise and resulted in vacant space. Additionally, while our same-store occupancy is important, it is only part of the overall picture. We are actively engaged in leasing and redeveloping properties like One Madison Avenue, which keeps our pipeline robust. The leasing activity remains strong, and focusing solely on one segment of our portfolio does not fully reflect our achievements.

Let me share an interesting statistic, Steve, to expand on what was just mentioned. The demand for AI and technology in Midtown South is beginning to accelerate. We completed two deals in the quarter, one with Sigma and one with Pinterest, and we have two more in the pipeline, one at One Madison and the other at 11 Madison. That amounts to 287,000 square feet of new demand across these properties, driven entirely by the AI and tech sectors, and we believe this trend will only grow. Financial services still represent half the market, and the earnings in this sector have increased due to the volatility observed in the first half of the year. While some may view this volatility with concern regarding its impact on the economy, it has actually resulted in significant trading profits for the major banks, totaling $15 billion in just the first quarter. Although investment banking, M&A, and equity issuance have declined, they are more than balanced by these trading profits. Volatility creates opportunities and profits, and no city benefits from this more than New York City. This is evidenced by the recent city budget, which was unanimously passed and fully funded, with credit ratings confirmed, tax receipts reaching all-time highs, and both private and public sector employment also at record levels, along with tourism moving towards historic highs. We do not see any signs of weakness, and if we did, we would inform you right away.

Our next question will come from the line of John Kim from BMO Capital Markets.

Congratulations on achieving a gain of 522. I have a question regarding your investment; when you made it, did you anticipate it would be monetized so quickly? Also, the details about the investment seem unclear. We couldn't locate it on your balance sheet or in your DPE investment disclosure, and I'm curious about why that is. Lastly, should we expect the game to be larger than the amount for which you provided guidance?

We had a variety of outcomes in mind when making this investment, some of which could be resolved quickly while others might take longer. We didn’t plan for just one specific result; rather, we anticipated different possibilities ranging from cost per order adjustments to restructuring and enforcing remedies, which is typical in any nonperforming loan acquisition. In this case, the resolution was quicker than expected, and this reflects the quality of the collateral we identified, which can be refinanced, sold, or recapitalized without needing to wait long for market conditions to improve. Overall, while it was faster than we thought, it still fell within our expected range. Matt, what do you have on the accounting side?

Yes. Regarding disclosure, this is a CMBS investment, which we frequently engage in, and we don't provide the same level of disclosure for these investments as we do for our preferred equity portfolio. We make many investments that don't receive that sort of disclosure. Additionally, the disclosure is shifting with the fund; we won't reach the level we did with the DPE book. Your last question was whether the gain is larger than the guidance increase, correct?

Yes.

Yes, definitely. However, keep in mind that we had some income from the office investment for the remainder of the year. My point was that not everything we received from 522 was additional; we anticipated income from the investment. We were repaid, which resulted in a significant gain, but there was expected income from the investment throughout the year.

But where could we find this on your balance sheet? And are there other CMBS investments like this or?

There are two lines, and you're not going to get any more detail than this; two lines called consolidated CMBS vehicles or securitization vehicles as an asset line and liability line, the net of those is our investment. And we can't disclose more than that.

Our next question will come from the line of Alexander Goldfarb from Piper Sandler.

Congrats on closing the first $1 billion on the fund. Two questions here. Marc, you know the city well. You know Albany well, and obviously, good pulse on the city. Have you noticed any change in tenant discussions since the mayoral primary? It's obviously impacting the stocks as people think about New York. And just curious if tenants are talking about it and if it's impacting their leasing decisions or thoughts of expansion?

Question about whether it's impacting any of our ongoing tenant negotiations? The answer is, no. We've not seen a single instance of that being an issue or I'll even say a discussion point, Steve, I mean, a discussion point.

No, nothing. I mean, maybe it's too early to tell, but it doesn't seem to be a driver of any kind of decision.

Yes. No. So look, New Yorkers love their politics. So there's no shortage of discussion about mayoral races and other races, but nothing that we've seen that's impacting leasing.

Okay. And the second question, Matt, in your response to Steve's question about the guidance and the timing, you have mentioned for a while now the significant leasing and capital investment taking place, which will result in increased occupancy and net operating income in the coming years. My question is whether this trend is still on track, and if we should expect next year to be when we start seeing the benefits of this aggressive leasing, leading to substantial increases in occupancy, or if the time required for these leases to take effect and be reflected in the profit and loss and earnings could take longer than that?

Well, generally speaking, you would expect to see the economics of a new lease, renewal lease or faster, new lease in 12 months. That's just a rough average, how long it takes for tenants to build that space. And at that point, we can recognize revenue, which shows up in GAAP NOI. So if you take all the leasing we did in '24, which was a lot, and we increased same-store occupancy by a lot. You would expect that to materialize over the course of '25 and then be more fully apparent in 2026. And if you look at where our economic occupancy trend, which is based on commenced leasing is headed between now and the end of the year. That holds. I'll reserve any other commentary on '26 until we get to putting out our '26 guidance in December.

Our next question will come from the line of Nick Yulico from Scotiabank.

This is Victor Feddevon with Nick Yulico. On your other income line item, what drove the $15 million quarter-over-quarter decline? And what is your expectation for the second half of 2025 for this line item?

We have not changed our other income expectations for the full year on that line item. Quarter-over-quarter, I think we just had less fee income this quarter than we did last.

Got it. And then a quick question on your $1 billion disposition target. Is it still intact? And are there any assets at later stages of negotiations as of now?

Harrison will touch it.

I'll touch it. It's Harry. We're still working through the disposition plan this year, as you've seen us accomplish the past 4 to 5 years through this market. We set out a lofty goal, and we usually try to get every single one of those opportunities done. You may see us shift 1 or 2 of those opportunities to something else that's more suited for this market or a specific buyer. But the investment team here is working tirelessly to get done our business plan and no specific changes at this point.

Our next question will come from the line of Vikram Malhotra from Mizuho.

I guess I was wondering if you could build and give us a bit more color on what this, I guess you said strengthening and widening out of demand in the Sixth, Third Avenue, et cetera. What this could mean for sort of your investment opportunities? And how you see that sort of filtering into ultimately effective rent growth.

Well, I think first of all, what are the drivers of that. One, tenant demand, there were a lot of mid-market tenants that had delayed their decision-making or had been later on the curve in return to office, but now seems to be a proliferation of these types of deals. And the core Park Avenue Spine has just gotten too expensive for many of these tenants. So they're looking where they traditionally do for good value relative to great well-located real estate, but somewhat off the run in a price point that you can afford. And now those deals are getting done. And there's also a little bit of a concern with the diminishing supply because in some of those peripheral corridors, there's a lot of conversions of office to residential that are happening and space is rapidly being taken off the market. So tenants in those buildings, no different than 750 Third, have to relocate, and they typically relocate on those same corridors. So there's more deals getting done as inventory is kind of coming off the rolls as buildings are being converted, compounded by the fact that core Midtown has gotten very expensive and compounded by the fact that there's just more tenants looking for space, and there's no new supply really forecasted for the next four years of delivery. So some of it is immediate demand. Some of it is people accelerating their decision timelines because they don't want to be left out in the cold, come '26 and '27 when the market could be much tighter than it is today.

Okay, that's helpful. Assuming the casino process goes your way, does that mean you think that submarket could become a broader opportunity set for SLV?

I think the casino would be absolutely transformational for Times Square. Times Square is the beating heart of New York. It's one of the greatest entertainment assets in the world. And it certainly has great attraction of tourism, people coming through the square, which is not really a square to sightsee and to sort of be in the moment those Instagram moments. But Times Square can be much more than that, and that's really what we hope to achieve with this project is making Times Square, again, a place where people stay, shop, eat, continue to go to Broadway, but also other forms of live entertainment: music, comedy, non-Broadway live performance. I mean, the potential is so great, and the halo effect of what it means for small businesses, for the community, for hundreds of millions of dollars, which we've committed in and around the area to daycare centers, safety and security enhancements, decongestion strategies, mental health awareness. So it just goes on and on that I think the way in which One Vanderbilt kind of helped to transform Grand Central into the experience it is today, partly because of development, partly because of the enabling zoning I think you're going to see that exponentially exhibited in the surrounding areas, Times Square, Hell's Kitchen, West Side Manhattan, New York City, there's no limit to, I think, the benefits that will come from a very high-end, world-class destination-oriented casino. And we're very hopeful to make that happen. And we have lots of properties in and around that area that will benefit, but that's a tangential benefit. The #1 goal is to really make Caesars Palace Times Square, one of the greatest localized economic development projects of this decade.

Our next question will come from the line of Blaine Heck from Wells Fargo.

Marc, you talked about a large portion of the leasing pipeline that smaller or midsized leases, which I agree seems healthy. But I'm wondering if that implies you're seeing any slowdown in demand or hesitation from larger tenants given the macro and rate uncertainty that you referenced at the top of the call.

No, not in the least. I mean, Steve can expand on it. But I think what you're seeing is there's a lack of availability. I mean that's the issue. Again, I don't know how to hammer it home. There's only like 1 million square feet and change of net new contribution to inventory over the next 4 years. This is a big market, 400 million square feet space. The market grew by 1% a year; that would mean you need 4 million square feet a year of new space. It was 0.5%, 2 million square feet a year. If you only look at Midtown, 1 million square feet a year, 4 years, 4 million square feet. We're talking about just somewhere over 1 million square feet in the next 4 years of delivery. So part of what I think you're seeing is there's not a lot of space to do deals. There were a couple of big deals; Deloitte did a big deal over in Hudson Yards. I think that was what, 800,000 feet or something. And Steve, was there another big one?

There was a couple, but to Marc's point, I mean, I think the real way to look at it is what's overall tenant demand in the market. And there's a known 28 million square feet of active tenant searches right now, as compared to a year ago, it was only 22 million square feet. I mean, that's a big step to say it's 6 million square feet of known active tenant searches. And what he was really trying to hit on, okay, the big blocks, there's plenty of big tenants floating out in the market. I've got proposals on my desk. They're not in my pipeline because they haven't matured to a point of a conversation where I would add them yet, but they're indicative of big tenants searching the market for several hundred thousand square feet. I've got 3 of them on proposal stage at 245 by itself. I don't have the space to satisfy all those. So those tenants will land somewhere, but a lot of these guys will end up renewing, because there's a dearth of quality big blocks, just to put a pin in it; if you looked at the best building category in our 400 square foot market place, there's only two 100,000 square foot contiguous direct availabilities in that category. It shows you how tight the market is. That will drive more renewals and in place expansions by a lot of these tenants. That will then drive the other tenants to be overflow into the rest of the market, which is really what Marc was driving home earlier when he said, that's why we're seeing this proliferation of small- to medium-sized deals. There's no room left at the end for these guys.

Yes. Another example on the investment side is Amazon's acquisition of 522 Fifth Avenue. This demonstrates that when large spaces become available, which is infrequent, tenants are eager to seize them and even purchase them, and that space amounts to 525,000 square feet.

No, that's great color, and it all makes sense. Second question, can you talk about any progress you've made on securing the development site you alluded to at the Investor Day, whether you still think that that's a priority for the company this year? And whether you're seeing any increased competition for those potential development sites.

Yes, the goal is to focus on development and large-scale redevelopment sites. The positive aspect is that we are working on both, and it is one of our top priorities at the moment. I wouldn't say we're just pursuing one option; we're exploring multiple opportunities. These deals take time, but we are committed to them, and there is still plenty of time left, especially with July ahead of us. We have opportunities clearly in our sight, and we intend to work diligently in the third and fourth quarters to finalize contracts.

Our next question will come from the line of Ronald Kamdem from Morgan Stanley.

Just two quick ones for me. Just one on capital markets, if you could just comment on what you're seeing in the transaction markets and cap rates and specifically, sort of post-Liberation Day on the tariffs. Just any signs that foreign buyers are maybe pausing or are not participating in the market?

The equity markets still appear to be strong. A clear example is the sale of 590 Madison, which was highly competitive with three buyers negotiating until the end. The transaction was completed for around $1.1 billion, translating to about $1,050 per square foot and a cap rate in the mid-5% range. Another noteworthy case is Blackstone's acquisition of 1345 AOA, which closed in May. Both transactions demonstrate how prestigious assets, which had been less active in terms of trading, are now back in demand, attracting significant capital. For Blackstone, the backing comes from them directly, while RXR primarily relies on private equity capital.

Great. My second question is about the same-store NOI targets for the year. We're not focusing on 2026 right now, but if we're considering your logic regarding occupancy growth in the latter half of the year and into 2026, should we expect the same-store metrics to reflect a similar growth pattern during that time? Can you clarify why that reasoning might not hold?

That logic is reasonable. The trend towards the end of the year regarding economic occupancy is improving, leading to a smaller gap between leased occupancy and economic occupancy compared to the end of 2024. This creates a favorable situation since much of the net operating income for 2024 will be generated from leasing, not extending into 2025. This positions us for same-store net operating income increases, especially with the leasing activities anticipated this year, as same-store occupancy is projected to rise by over 100 basis points this year. Therefore, we are set up for same-store net operating income growth in 2026.

Our next question comes from the line of Omotayo Tejumade Okusanya from Deutsche Bank.

Good afternoon, everyone. I just wanted to go back to Goldfarb's question a little bit about Albany in general and the New York City Mayor kind of election race just kind of curious, again, just kind of given how New York City real estate seems to have reacted to the idea of Mamdani becoming the next mayor. Curious how you guys are thinking through that scenario or thinking through any other kind of mayoral scenario when we eventually get a new mayor.

We already operate in a very adaptable environment with a progressive city council that has a strong representation of democratic and liberal members who create the laws. We have navigated through five different mayoral administrations as a public company and have thrived under all of them. We have supported Mayor Adams since before he took office and believe he has done a commendable job in improving New York City in 2022, particularly in areas such as affordable housing supply and safety. Ultimately, the voters will determine the outcome. I am confident in our ability to succeed regardless of the political climate, thanks to our relationships across the political spectrum. We have been clear about seeking a mayor who is pro-business while also being engaged in social causes and affordability, and we believe Mayor Adams has met those criteria. However, the voters will express their views this November.

That's helpful. And then one other quick one on SUMMIT and any update on additional locations, what progress was being made there?

Rob Schiffer is not present at the moment. Rob, Mike Williams, and the team, along with Kenzo, are constantly traveling. Our target cities include Tokyo, London, and Seoul, among others. We are optimistic that we will have an announcement regarding a new location by the end of the year. As for Paris, that project is progressing well, and we are still on schedule for an opening in the first quarter of 2027. The plans are truly spectacular. Those who have seen SUMMIT at One Vanderbilt will find that SUMMIT Paris takes things to an entirely new level, and we are eager to reveal it. We expect to begin construction in the first quarter of 2026 as we finalize our plans and construction documents.

Our next question will come from the line of Peter Abramowitz from Jefferies.

I think Marc mentioned earlier that some mid-market tenants are returning to the market because they had overcorrected in space reductions after the pandemic. It appears that New York has experienced a stronger recovery and utilization is significantly higher compared to many other areas in the country, suggesting we might be in the later stages of the benefits from the return to office. Based on your comments, I'm curious about how much additional absorption or demand is still out there that you believe can be captured as companies return to the market and possibly correct some of their previous space reduction overcorrections.

I don't believe you can put a number on it because the situation is constantly changing with new tenants entering the market and the direction their businesses are heading. However, we are seeing all of our major industries actively participating, rather than depending on just one sector like financial services. Currently, there's tenant demand coming from financial services, technology, general business services such as accounting and engineering, healthcare, government, and education, all of which are engaged in the market. The most significant shift compared to a year ago is clearly the demand from the tech sector. We're observing sizable tenants, as Marc mentioned, with notable activity in our Midtown South portfolio, where we have two signed deals and two more in the pipeline, each ranging from 50,000 to 100,000 square feet. We couldn't have claimed that a year ago, which significantly impacts the overall Manhattan market and our expectations for our major buildings. Additionally, the return to office initiative suggests that ideas around hybrid work environments are shifting. This is not just to promote our sector, but rather an observation. Our tenants are focused on bringing employees back to the office. It seems that the trend is moving towards more square footage per employee than it was four or five years ago. While densification and open layouts remain, the addition of more amenities and expanded workstations is leading to increased space per employee. Overall, there are several positive trends at play. Coupled with the reduction in available supply due to 13.5 million square feet of residential conversions either under construction or announced, and the scarcity of new construction, these factors are contributing to a robust leasing market.

Okay. That's helpful. And then just wondering if you could comment on concessions, specifically sort of Class A or A- assets kind of below that trophy space, but the group of assets across the market that are benefiting from the trickle-down of lack of trophy availability. Just how concessions are sort of trending in that space?

I still think the concessions have been flat and have been flat for the past, I don't know, 1.5 years or so. I think what you're really seeing, and I've said this the last couple of calls, is face rents are going up. And that's true not just for the best buildings, but you're seeing it in some of the tighter submarkets. So if you look at Grand Central, right, or you look at Park Avenue or Sixth Avenue, you're starting to see rent appreciation. So face rents are going up before the concessions come down. I think ultimately, we will see some tightening in the concessions. Hard to say whether that's this quarter or next quarter or whatever. But the first thing that happens is rents will go up in a material way before the concessions come down.

Steve provided an overview of the market. I’m currently reviewing the supplemental page, which I find very useful. It shows that the average free rent for the quarter is 6.3 months per lease, the lowest it has been in the last five quarters. The tenant improvement costs were around $78, close to $79 per square foot, which also marks the lowest point in the last four quarters and is the same as five quarters ago. Over the past five quarters, the mark-to-market results have been positive in four of those quarters. This illustrates a market trend, and regarding our portfolio, it appears to be aligning with Steve's comments about leveling off or potentially tightening with improved concessions and increased rents. This creates a dual benefit on net effective rates. Next quarter might vary, with possible fluctuations, but examining the trend over several quarters reveals a clearer picture, and we anticipate this trend will persist.

All right. That's all for me.

Our next question will come from the line of Seth Bergey from Citi.

Given your comments on the strong demand environment and the 1.3 million square feet of leasing activity so far, how confident are you in achieving the 2 million square foot leasing goal? Is it something you believe you could surpass?

We feel very confident that we'll hit that goal, and there's a lot of reason to believe that we'll exceed it.

The timeline right now is 1 million feet. But do remember there's going to be more addition to the pipeline in July, September, and October. And Steve is going to be under enormous pressure to get all of that signed. So I wouldn't look at the 1 million as finite. We will be adding the pipeline as time goes on.

That's helpful. And just a second one, kind of going back to the mayoral primaries and just thinking about the office supply picture. But how does the plan to kind of freeze rent impact the underwriting for office to residential conversions for projects such as the 750 Third Avenue? And does that kind of change how people are thinking about those opportunities overall?

Yes. The proposal exists as a concept but mainly requires state involvement, particularly regarding things like the rent stabilization board. From what I understand, it only pertains to the stabilized pool of assets and does not apply to free market and new affordable housing initiatives that the governor approved in the last budget. There's a conflation and misunderstanding here. I won't go into detail during this call, but we will have the opportunity to discuss it in the future. The first step is to see how things develop. I anticipate a tight race and we will have clearer insights by the fourth quarter of this year. By December, we'll be able to address this more directly. Importantly, we do not operate in the rent-stabilized sector. To the best of my knowledge, we have no rent-stabilized or rent-controlled units in our portfolio. Therefore, if you're inquiring about the impact on us, I would say it is negligible to none. However, it will affect other building owners in the rental market. I don't believe this is beneficial for the market overall. Rent freezes will likely lead landlords to keep more units off the market, which further strains availability. I don't see it addressing the affordability issue, despite its appeal to some. Historically, if there is no solid economic reason for landlords to improve and reintroduce stabilized units to the market, they simply won’t, leading to further pressure on those landlords. However, we do not have investments in that segment.

Our next question will come from the line of Brendan Lynch from Barclays.

I want to ask about trends with the special servicing designation. Are most of the distressed situations known at this point? Or do you still think there's some more to come?

I think as we mentioned in the earnings release, we saw growth in our special servicing from one quarter to the next. This has been a consistent trend for the past six or seven quarters. Currently, we have approximately $17 billion in assignments, with $6.1 billion being active and $10.5 billion that are inactive but could become active at any time or we may be called upon for specific tasks. I expect these numbers to continue growing over the next few quarters. Additionally, we are working on several deals where resolutions are approaching, which will lead to more fees for the company.

Great. And then also on office to residential conversions, have you identified any additional opportunities within your portfolio? Or has the tightness in the office market made that a less attractive opportunity than it might have appeared a couple of years ago.

Our buildings are mostly leased, so they aren't ideal candidates for conversion. However, we do have some properties that might play a role in the near term where we could explore such opportunities. Beyond 750, we anticipate that most of our involvement, whether as a converter or a financier, will focus on new projects and properties rather than those in a portfolio that is nearly 92% leased, for reasons that are quite clear. Successful office buildings typically aren't good candidates for conversion, as they tend to be outdated or have significant occupancy. Those that are best suited for conversion are often antiquated or underperforming, and we don’t have a large supply of such properties.

Our next question will come from the line of Caitlin Burrows from Goldman Sachs.

Maybe just two quick ones, following up on the discussion about pricing and strong demand limited supply as you look across your portfolio, what are the in-place lease escalators that you guys have? And as you're signing new leases, I guess, have you seen any shift in that over the last 5-plus years?

Well, majority of leases have a pass-through in increases of operating and real estate taxes. So the tenants pay their proportionate share of any increase in the building's operating expenses or real estate taxes. Then typically, there's anywhere between a $5 and $10 a foot base rent increase in addition to those pass-throughs every 5 years of lease term. Some of our leases, we've gotten away from a pass-through of operating, and we've used a CPI escalator, but that's a small percentage and typically smaller-sized deals. But when we do that, that's a profit center for the firm.

Got it. And then just on the casino bid, do you guys have any idea like how many bids are still being reviewed and whether you're 1 of 5 or 1 of 20 at this point?

Well, we've got a pretty good handle. We're either 1 of 8 or 1 of 7 because 1 of the bids is, I think, in question as to whether the land use will enable it to continue on. But I think of filed applications, I believe we are 1 of 8 for 3 licenses.

That's all the time we have for Q&A. I would now like to turn the call back over to Marc Holliday for any closing remarks.

Thank you, and it's great catching up. Have a good rest of your summer, everyone. We'll be back to you in October.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.