Earnings Call Transcript - SLG Q1 2024

Operator, Operator

Thank you everybody for joining us and welcome to the SL Green Realty Corp.'s First Quarter 2024 Earnings Results Conference Call. This 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, 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 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 conference 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 the 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 first quarter 2024 earnings and in our supplemental information included in our current report on Form 8-K, relating to our first quarter 2024 earnings. Before turning 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 two questions per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Marc Holliday, Chairman and CEO

Okay, good afternoon and thank you all for joining us today. We appreciate the opportunity to discuss our results for the first quarter and review our recent announcements. It's been years since I've felt this optimistic about the trajectory of our business. After a challenging few years where we navigated unprecedented change by keeping focused and working harder than ever, we've emerged with a stronger portfolio, a more exciting and diversified business, and an even sharper strategy moving forward. Certainly, nobody did more than us when it came to leasing within our portfolio, developing extraordinary projects, capitalizing on market dislocation, and recapitalizing deals when others didn't. Our reputation and extraordinary relationships within the lending community allowed us to create plans to extend our debt maturities, capitalize, and move forward. We're in the early innings of what we believe will be a period of market improvement, fueled by the strength of New York City's resurgent financial sector, signs of a re-emergence of the tech sector, and a new generation of workers who recognize that career advancement and relationship building doesn't happen at home. Now as we enter what we expect to be a period of significant growth and opportunity, we are encouraged by the market fundamentals which we believe are shifting to become tailwinds. Even in this higher interest rate environment, there's a solid foundation of positive economic momentum among our strong and stable tenant base. The diversity of New York City's economy is reflected in our portfolio and is one of the core strengths of this market compared to other cities, a market where a record 192 leases were signed last year at triple-digit rents. Contrary to the media hype, the vast majority of these premium leases were not signed in new construction projects, but rather in well-located, easily commutable, and highly-amenitized existing buildings. This aligns extremely well with SL Green's portfolio and the elevated office experience in which our hospitality group specializes. The leasing results for the first quarter certainly support the case. We leased over 630,000 square feet of space at an average starting rate of $93 per square foot, one-third of which were renewals and two-thirds of which were new leases. On the investment front, we launched a $1 billion opportunistic debt fund in February, the only one of this scale that is entirely New York City-centric. This fund will allow us to capitalize on current capital market dislocation through the discounted acquisition of existing debt investments and the origination of new high-yielding debt instruments. Fundamentally, we are looking to replicate our approach for the last 26 years of investing in the best properties in New York City via strategic debt investments. The feedback is that no one is better positioned to take advantage of the moment in this market as we are, and our initial closings are targeted for sometime this summer. Just this past week, the Governor and the Legislature reached agreement on a comprehensive office to residential conversion bill, which should be printed tomorrow and voted upon and signed this weekend. The conversion program is particularly targeted to existing Midtown Office buildings south of 96th Street and Lower Manhattan Office buildings as well. SL Green has played an instrumental role in helping to get this legislation passed as part of the state's new fiscal budget. We applaud Governor Hochul, the Senate, and the Assembly on the doorstep of passing this landmark office to residential conversion bill that I believe will have a transformative effect on this office market much in the same way that we called very early on the transformative effect that Eastside Access would have on the Park Avenue corridor. I see this as being even more impactful than that event and certainly more comprehensive in a midtown and downtown encapsulated way. By incentivizing the conversion of underutilized obsolete office space to housing, this vital legislation will uniquely address three of New York's most pressing challenges. Amidst record high Manhattan office vacancy, the bill will create stability in the commercial office market, produce the affordable and market rate housing we need to overcome the city's housing crisis, and generate foot traffic to support local retailers and restaurants in New York Central business districts. While many of these conversions under the new program will be taking place over the next three to five years, the impact will be felt immediately as owners remove their buildings from office space inventory and relocate existing tenants into other buildings. Ultimately, we believe that somewhere between 25 million to 40 million square feet of rentable space will convert under this program. If this bears out as we think, the result would be a significant reduction in available space, far accelerated from whatever would otherwise have occurred simply through natural absorption of space via demand. Thanks to the leadership of the Governor and our elected officials in Albany as well as to Mayor Adams for his City of Yes zoning initiatives, the private sector is now positioned to invest in New York City's housing future again. As part of a new conversion incentive bill, we are planning to be among the first out of the blocks with the conversion of 750 Third Avenue from office to residential use. The conversion of 750 Third Avenue will spur on this important new development for the city and there'll be more to come on this throughout the year. Lastly, we made enormous progress over the past year with our partners, Caesars Entertainment and Roc Nation on our vision for Caesars Palace Times Square. We had the opportunity to meet with hundreds of stakeholders, grow coalitions, and gain significant support. We now know that this will be a long process with bids likely not due until 2025, and we will use this time to continue strengthening our bid because the project is worth the extra effort and Times Square stands to gain so much. One thing we know for sure, ours is the only proposal that is a true New York approach to gaming, providing benefits far beyond its walls. Thank you, and we'd like to take your questions on the quarter’s results please. Operator questions? Operator, are you there?

Operator, Operator

Our first question comes from Alexander Goldfarb with Piper Sandler. Your line is open.

Alexander Goldfarb, Analyst

Hey, good afternoon. Marc, let me first go to the Office-to-Residential conversion. You know, I guess a two-part question and hopefully Matt doesn't say that's all my questions. But, you know, if we look at what Douglas Emmett did out in Hawaii, they've been able to convert a building, you know, a building floor by floor so they didn't have to take it out of service. Obviously for you guys, you've done 750, I think it's pretty fully vacant. But one, does this accelerate your plans and thoughts on how you would convert buildings? And then two, the buildings that are coming out, that 25 million to 40 million square feet, are those really competitive with you guys? Meaning, if those buildings go out of service, does that really force more office demand into your portfolio, or what do you think the carry-on impact of that 25 million to 40 million going offline is?

Marc Holliday, Chairman and CEO

Some of these buildings are competitive to a certain extent as they represent the lower end of the market. They are not bad buildings, but I would categorize them as secondary buildings. Being secondary does not imply poor quality. When I refer to some as obsolete, it means they don’t justify the extensive capital redevelopment needed compared to the rents achievable, considering the concessions required. These buildings aren't bad; for instance, the Midtown buildings, after taking many tenants out and relocating them to existing spaces like we did at 750 Third, which is a fine office building, have higher potential for better use. We've moved many tenants into our portfolio and nearby properties. Do not interpret "secondary" or "obsolete" as indicators of low quality. These buildings can be optimized for residential use and should be, rather than requiring the same investment as our properties that achieve rents of $90 per square foot and above. Those should be the focus of investment. Buildings that could rent for around $60 per foot for office could easily reach $100 per foot in residential terms. Your observation about Douglas Emmett’s actions in Honolulu aligns well. It’s a different market, but the principle remains. If one building can significantly impact an office market, consider the effect of multiple buildings converting, with tenants relocating. The way this bill is structured necessitates that to maximize tax benefits, permits need to be filed by sometime in 2026. Prompt action is essential; it’s not a matter of delaying plans until 2027 or beyond. The intent is to facilitate a quicker transition toward building because we want to tackle the challenges of affordable and workforce housing immediately, not years down the line. The tax benefits seem strategically designed to encourage timely action, which is beneficial for the city and for renters seeking solutions urgently.

Alexander Goldfarb, Analyst

Okay, second question is, the $2 billion of debt that you guys did clearly I think exceeded what anyone would have expected, especially with only $40 million of debt pay down. But as you guys look to future asset sales and really the stake sales out of 1 Vanderbilt and others of your top tier assets. Does the calculus change because everything is interconnected, right? You do refinancing, you do better than you expect, it means less pressure to sell a stake here or do other things. How does the $2 billion that you have achieved so far, does that change anything that you've laid out at your Investor Day? You know, either accelerating things or taking the pressure off the need off to do other things?

Marc Holliday, Chairman and CEO

Our business plan remains unchanged, and we don’t feel any pressure. We are passionate about what we do, and after 33 years, this is our progress and our way of delivering value to shareholders. We are pleased to see the positive impact on our stock and the resurgence of New York. We have identified certain buildings for sale or joint ventures and may make adjustments to that list over the year, but our overall activity remains our goal, including debt modifications, extensions, and restructurings. We still have four or five significant deals in the pipeline. On the disposition side, we believe there is strong demand for well-located premium assets both domestically and internationally. We are committed to monetizing these assets as we have for many years, taking advantage of our gains and reinvesting them.

Alexander Goldfarb, Analyst

Thank you.

Operator, Operator

Thank you. One moment for our next question. And our next question comes from John Kim with BMO Capital Markets. Your line is now open.

John Kim, Analyst

Thank you. I had a question on earnings, excluding all the debt extinguishments and other one-time items, that was $0.98 for the quarter, which on a run rate basis is kind of modest. I was wondering if this is a good run rate and what's your visibility on additional one-time items, whether it's debt extinguishment or sourcing any fees from your debt fund?

Matthew DiLiberto, CFO

Yeah, John, it's Matt. I've seen quite a bit of commentary suggesting this was a miss, which surprised me because our quarter exceeded our expectations. Our new guidance range, including the adjustments we made in January and last night, is based on the additional DPO gains and discounted debt extinguishments at 2 Herald, 280 Park, and 719 Seventh. This indicates that all the assumptions we used for our guidance back in December are still valid. We don’t provide guidance on a quarterly basis; we focus on the full year, and our full-year guidance remains unchanged. If the first quarter seemed low to some, it's likely due to their models rather than ours. We outperformed our model by a few cents, mainly in the NOI and summit areas. If people need to adjust their models to reflect higher numbers in the second, third, and fourth quarters to align with our core guidance, they should do that. Our quarterly earnings aren't linear; we have fee streams that cause fluctuations and expect our NOI to grow over the year as occupancy increases. So, the first quarter was better than we anticipated, and our full-year guidance is still fully intact.

John Kim, Analyst

Can I ask about 280 Park and the loan refinancing? It seems like there's very little residual equity in the assets. You didn't have to pay down any of the senior mortgage, although part of the loan. What was really in it for the senior lenders on the transaction?

Matthew DiLiberto, CFO

So first, just to make a statement up front, I disagree with the assessment about the residual equity. Not at all. With respect to just the market in general, as we saw with all these extensions and what we're seeing both in the CMBS and the balance sheet side, and as we demonstrated with all those announcements, we're able to get substantial runway and term on all these deals and in return, the lenders want to see some form of skin in the game. At 280, we put up reserves for leasing costs that we were otherwise going to spend at the asset and in assets that have free cash flow the lenders were looking for some form of skin in the game, which we demonstrated through some symbolic paydowns. So as we've been telling people on the past few earnings calls, you know, these are lenders that we have big relationships with and they're looking and they have tremendous faith in us. So you should expect to see more of what we got done over the past quarter as we get done the balance of the $5 billion program.

John Kim, Analyst

Great, thank you.

Operator, Operator

Thank you, one moment for our next question. Our next question comes from Tom Catherwood with BTIG. Your line is now open.

William Catherwood, Analyst

Thank you. Good afternoon, everybody. Obviously, very strong quarter on the leasing front and Marc, you sound convinced on the durability of this demand. How does your leasing pipeline compare to the 1.4 million square feet roughly that you had at the start of last quarter and could you provide some more color on the reemergence of the tech sector that you mentioned in your remarks?

Marc Holliday, Chairman and CEO

Yeah, I'm going to actually hand that ball off to Steve Durels so we can go right to the source here because he's in charge of that pipeline, obviously, and can go into some discussion about, you know, after having done, by the way, big leasing in the fourth quarter, big leasing in the first quarter, you would think that pipeline's depleted, but maybe not. And on the tech sector, we have some thoughts on that as well.

Steven Durels, Executive Vice President

Sure. So just to give you a little color on the pipeline, we actually have grown the pipeline despite very strong leasing in the first quarter, we're now at a current pipeline of over 1.6 million square feet. Of that 1.6 million, 840,000 square feet of it is leases that are out in current negotiation, as opposed to over 700,000 square feet of term sheets that are in negotiation. Of that, two-thirds of the space is for new tenants as opposed to renewal tenants. I think another point to make within the pipeline is that – of the leases that are out almost 500,000 square feet of those leases cover current vacancy within the same store portfolio. With regards to the increasing demand from the tech sector, there's over 5 million square feet of current tech tenants that are being tracked in the market today, not necessarily just within our portfolio, obviously, but active tech requirements with tenants that are searching the market, that's a 53% increase from a year ago. Just to give you a flavor, we've seen tenants like Intuit and Fanatics and Figma and a couple of other big household names that have started to kick tires in the market as a result of adding headcount to their Manhattan employee population.

William Catherwood, Analyst

That's great. Thank you for that, Steve. And then maybe on dispositions, obviously it was great to see 719 Seventh and Palisades go into contract. And we understand that the mix can potentially shift throughout the year, though the aggregate remains the same. That said, is OVA, the partial interest sale there, still in the plan? And what is the expected closing on 625 Madison?

Marc Holliday, Chairman and CEO

Those assets are still part of the plan, and we are actively negotiating significant deals. Major deals do not happen quickly and do not need to be rushed, but we are optimistic about the results. As for timing, I am not sure if we have provided any guidance beyond this year. We hope to finalize them sooner rather than later, especially OVA, which is further along. As for the second one, I am not sure what you referred to.

William Catherwood, Analyst

Yeah, it's about 625.

Marc Holliday, Chairman and CEO

Okay. That deal is slated to close at the end of this month. And so it's another two weeks or so. And we're going through the motions with the buyer to go through that closing process and expect that to happen in this second quarter. And OVA, I mentioned, we're steaming away on. And then 245 Park is another one that we're getting enormous traction on leasing. We have more leases pending that are in that 1.6 million. The JV execution is enhanced for all of us. The company, shareholders, everybody, the more leasing we get done the better so we're just going to keep leasing ahead of even really having started the redevelopment but on the promise of the redevelopment and the commitment to that redevelopment which I think is going to make it one of the best non-new buildings on Park Avenue.

William Catherwood, Analyst

Great, appreciate the answers. Thanks everyone.

Marc Holliday, Chairman and CEO

Thanks.

Operator, Operator

Thank you. One moment for our next question. And our next question comes from Ronald Kamdem with Morgan Stanley, your line is now open.

Ronald Kamdem, Analyst

Great. I have two quick questions. Regarding leasing, could you discuss the mark-to-market on the leases currently in the pipeline? I noticed you reiterated your expectations for both occupancy targets and leasing volumes this year, which suggests you are on track. Can you provide more insight into the mark-to-market?

Steven Durels, Executive Vice President

Thanks. Yeah, just to give some color on, you know, the negative mark-to-market in the first quarter were really driven by two buildings. We had a number of leases at Graybar Building and 800 Third Avenue that, you know, were sort of drove the negative mark-to-market for the overall leasing for the quarter. On balance, most of the leases signed in the rest of the portfolio were generally positive. So it's unfortunate that we had a couple of stragglers that pulled us down. But as we look forward into leases that are out right now and then beyond that, the overall pipeline of 1.6 million square feet, we've got some big positive mark-to-markets and that's what gives us confidence to assure ourselves that we're going to be positive for the year.

Ronald Kamdem, Analyst

Great. My final question relates to asset sales, which you mentioned earlier. Looking at the target for the year regarding the amount of debt you aim to reduce on the balance sheet, how is the refinancing process and the plan for asset sales progressing? Is it in line with your expectations, or is there a possibility of exceeding them? I’m trying to understand how much debt can potentially be removed from the balance sheet this year. Thank you.

Matthew DiLiberto, CFO

What Marc said earlier is that our business plan remains intact and that's true. So we laid out in December north of $1 billion of debt reduction through execution of this plan. So at a minimum we would expect that. But we've had some additional success in things like the discounted debt extinguishment at 2 Herald and some asset sales we didn't have wired in like 717 and 719 in Palisades. So that would see us be even ahead of that original target that we laid out back in December, if we execute the entire business plan we have laid out.

Ronald Kamdem, Analyst

Great, thanks so much.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Michael Griffin with Citi. Your line is now open.

Michael Griffin, Analyst

Great, thanks. Maybe just going back to the refinancing for a bit that you did in the quarter, should we take this as an indication that lenders are more willing to work with owners as opposed to having to take back the keys? Or is it mainly specific to the existing relationships that you have in the market?

Marc Holliday, Chairman and CEO

Yeah, I don't want to generalize the activity to anything beyond SL Green, our assets, our relationships, et cetera. I think it's still a tough market out there. And as Harry said earlier, it's going to come down a lot to belief in the sponsor, the sponsor's plan, making sure skin is in the game, equity in the deal, et cetera. Where it all lines up, I think many lenders have and will conclude that that's the best path towards loan resolution optimization and payoff. But that isn't necessarily every case. You see throughout the city, there's examples of what we've done and there's examples that have gone in the other direction and it's going to take a while to work through all of the effects of the interest rate increases which have occurred over the past two years. But we feel very fortunate that we're positioned in a way that we think we can manage through all of that in a steady, responsible way and position ourselves for growth this year, which I think is what you're hearing. With the backdrop of an improving leasing market and an office-to-residential conversion program, that harkens back to what I said earlier today. I think the trajectory we're on is very, very good and we're optimistic. But I don't think you can really just sort of generalize from that or extrapolate that.

Michael Griffin, Analyst

Got it. That's helpful. I have a question regarding the 10 East 53rd transaction. You're evaluating this property, and the rent appears to be quite appealing, around the mid to high-80s. It's fully leased and seems to be generating positive cash flow. Can you provide any insight into why your joint venture partner chose to exit that building? Also, is there a possibility that we might see similar exits from some of your other joint venture relationships?

Marc Holliday, Chairman and CEO

We have a policy here not to comment on what our partners or lenders are thinking and don't want to put words in their mouth. But we'll continue to look for opportunity. We invest in real estate, and if we see opportunities that make sense for us, we're going to continue to do it.

Michael Griffin, Analyst

Great. That's it for me. Thanks for the time.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Camille Bonnel with Bank of America. Your line is now open.

Camille Bonnel, Analyst

Hi, everyone. Can you speak to the thought process of moving forward with the disposals of 719 and the conference center, just given these assets were not in your December pipeline? And how should we be thinking about further de-leveraging opportunities since you're working on another $3 billion?

Marc Holliday, Chairman and CEO

Sure, in both cases, those were opportunities that presented themselves. Specifically regarding Palisades, it wasn't an asset we had a long-term strategy for and it doesn't fit into our core business plan. However, we will continue to explore opportunities that arise, even if they don't align with the main business plan.

Camille Bonnel, Analyst

Okay, and as you work through your disposition and de-leveraging program, how do you think about the earnings volatility when more and more of your cash flows are becoming weighted to ancillary income?

Matthew DiLiberto, CFO

I don't think that's the case at all, but we are building additional income streams. I don't believe it's becoming disproportionate to that. We're working on growing areas like our special servicing business, entering the fund business, and managing joint venture interests. This is good business and helps diversify our revenue streams, which is important. Furthermore, we have plans, as we always do, to acquire and dispose of assets. We have implemented a deleveraging strategy for the past couple of years, and we have more to do this year before we shift our focus back onto offensive strategies. So I see these aspects as separate and distinct. We'll continue to work on growing and diversifying our income streams while managing the balance sheet and the portfolio with opportunistic acquisitions and dispositions.

Marc Holliday, Chairman and CEO

Yeah, I wouldn't want to minimize the attractiveness or the importance of a business line like some – some entertainment and the ability to grow that globally. You know, technically you can call it I guess an ancillary business income line but I look at it as a substantial additional attractive business that we've developed organically in-house. It's very profitable. It was fairly capital light. We're working to expand that into other locations now and making good progress. I think it's quite an important reason overall to be interested and attracted to SL Green Stock is not only our prowess in what we do in commercial space in New York City but what we're doing in the areas of hospitality, food and beverage, entertainment, soon hopefully in the funds management business, definitely already deep into the special servicing business, which is a fee-for-service business where we've gotten incredible traction over the past, well, really since inception. I don't know, we didn't mention, but we just got an additional rating from Morningstar. What's the acronym? DBRS Morningstar just gave us our third designation as an accredited special servicer, large loans, SASB loans. These are accreditations not easy to come by. Having that now from S&P and Fitch and Morningstar gives us an ability to create all sorts of new client and customer relationships. I think we've got close to $10 billion specially serviced right now, and that's on top of about another $7 billion that we've serviced previously, and we're just getting started there. So they're important business lines. We focus on them. We have people internally who specialize in those areas, and we're looking to grow all of them.

Camille Bonnel, Analyst

Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Omotayo Okusanya with Deutsche Bank. Your line is now open.

Omotayo Okusanya, Analyst

Hi, good afternoon. Can you hear me?

Marc Holliday, Chairman and CEO

We can now.

Omotayo Okusanya, Analyst

Excellent. Could you talk a little bit about the lumpiness of earnings in Summit? Specifically, I'm kind of wondering whether that's why you may have been getting some of these comments in the first quarter saying there was an earnings miss, given that probably most of the earnings associated with that business happens over the Summit.

Marc Holliday, Chairman and CEO

I've got to restrain that.

Matthew DiLiberto, CFO

Yeah, Marc's going to hold me down because if I hear earnings miss one more time, I'm probably going to lose my mind. So there was no miss. If we missed anybody's model, it's because your model was wrong, not the numbers. Separately, as to Summit, it is actually fairly linear. The fourth quarter is slightly better and the first quarter is slightly lower. We actually do only shut down for two weeks a year at Summit, and that happens in the first quarter. Obviously, the fourth quarter is buoyed by holiday sales, but generally speaking, the Summit is pretty linear because we're sold out just about every time slot on every day and maxed out.

Omotayo Okusanya, Analyst

Okay, thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Peter Abramowitz with Jefferies. Your line is now open.

Peter Abramowitz, Analyst

Thank you, yes. Just continuing on kind of the topic of the earnings trajectory throughout the year, I think if we back out the debt extinguishment and one-time items, it's implying about $1.11 per quarter for second through fourth quarter versus kind of the $0.98 without the debt extinguishment in the first quarter. So just kind of curious if you could provide an overview. I know you said it's lumpy throughout the year, but if we average it out, should we be getting to that $1.11. So what kind of bridges the gap from first quarter to where you expect it to be for the rest of the year?

Matthew DiLiberto, CFO

I’m not going to provide quarterly guidance as we always focus on annual guidance. Earnings can vary based on success fees from special servicing or fees recognized from sales and similar transactions. We issue guidance for the full year, with income expected to accelerate after the first quarter since it is typically lower. Using a run rate from the first quarter won't align with the full year guidance we provided. The fluctuations from quarter to quarter will depend on the closure of deals, the recognition of special servicing fees, or occupancy levels. However, we are confident in our full year projections, which is why we have kept them unchanged.

Peter Abramowitz, Analyst

Got it. So I guess to the extent that if you're expecting say an acceleration on the NOI side, is that mainly just improving occupancy?

Matthew DiLiberto, CFO

Yes, of course. We leased a 1.8 million square feet last year. We're going to lease 2 million square feet this year. Occupancy is increasing. Rents are increasing that translates into NOI increasing.

Peter Abramowitz, Analyst

That's all for me. Thanks.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Steve Sakwa with Evercore ISI. Your line is now open.

Stephen Sakwa, Analyst

Yeah, great. Thanks. Matt, I was going to ask about the earnings miss in the quarter. I'm just kidding.

Matthew DiLiberto, CFO

You're banned, Steve. That's it.

Marc Holliday, Chairman and CEO

Okay, Marc, I know you prefer not to discuss partners. However, the transaction at 280 and your collaboration with Vornado to pay off the mezzanine portion at $0.50 on the dollar was quite surprising. Although you can't speak for your partner specifically, was it a case where their cost basis was not at full par, allowing them the flexibility to work with you at a lower rate? If the building was perceived to have significant equity value, I understand that if you were in their position, selling it at $0.50 on the dollar might not be your choice. We're just trying to understand how this unfolded, as it reflects excellent execution on your part. I think trying to overanalyze people's motives in situations like this can be risky. This lender is foreign and has their own specific goals and issues that we aren't privy to and don't need to delve into. It's not uncommon for lenders to have mandates that require them to reduce real estate as a percentage of their assets. This isn't about being right or wrong; it's simply a goal, and it’s not unusual. In such situations, negotiations can arise about the appropriate price and value for a debt instrument, especially in a market that is capital constrained but improving. Some will choose to restructure and hold on, having different objectives. We have always been able to calculate the equity in a deal by running the numbers, which yield both current and stabilized values. Although interest rates and values may fluctuate, this process isn't complicated. We believe there is equity in this particular deal, and I suspect the lender also sees potential future stabilized equity. However, that perception may not align with what anyone decides to do at this moment in April or March of 2024. Each party acts in their own best interest at any given time. Trying to predict the future value of this building or when the debt matures from that moment might not be practical.

Harrison Sitomer, Unknown

In September 2028, values vary, but I don't think it's a black box. We believe there's equity in the deal. I think the lender probably believed there was certainly stabilized future equity in the deal. However, I think that's disconnected from the decisions that any party makes at a specific moment in March or April of 2024. You act in your best interest at that time. It's difficult to take a moment like that and try to predict what this building is going to be worth, especially concerning when the debt matures, Harry?

Marc Holliday, Chairman and CEO

So we'll revisit this issue closer to 2029, and we'll have the conversation then about the equity in the deal in 2029. I believe this building will ultimately respond well to the market. We're working hard to lease it up, and I think we secured the Antares lease for 76,000 square feet. We're in discussions about that. Steve Sakwa, come on board maybe. We have more pending leases. So both us and Vornado are committed for the duration, which is defined as the next 4.5 years. Every party acted in their best interest; it's not a conflict or a game. This was a reasonable business deal, and everyone decided where they wanted to be, and we move forward from there.

Stephen Sakwa, Analyst

Okay, great. Thanks for the color. Maybe Matt, on the dividend, just how are you guys thinking about the dividend if you've got these investment opportunities in front of you? Just remind us kind of where the dividend is in relation to taxable net income, and might that dividend be served better either through debt reduction or through kind of the investments that you made, say, at 10 East 53rd?

Matthew DiLiberto, CFO

Yeah, the dividend was set based on taxable income which is 100% of taxable income that's the basis for it and we've been monitoring that closely because we've been generating incremental gains, these DPO gains or taxable income as well. But we have strategies we can employ and try to maintain that taxable income trajectory that we've been on to keep the $3. So, you know, very comfortable with our $3, as we were when we set out, even more so now. We'll look at the dividend again at the end of the year, but we've said over and over again how important the dividend is to us.

Stephen Sakwa, Analyst

Great. Thank you.

Operator, Operator

Thank you. One moment for our next question. Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is now open.

Caitlin Burrows, Analyst

Hi. Good afternoon, everyone. As you mentioned earlier, the fourth quarter was quite active for leasing. In the first quarter, we've heard from various industrial companies expressing some hesitancy about committing to large leases. I'm curious to know if you're observing any of this hesitancy linked to macroeconomic uncertainty affecting your pipeline, or if the situation feels different.

Steven Durels, Executive Vice President

No, not at all. I mean, there's no doubt that if you looked at the stats for overall market stats for the first quarter, big tenants, there was a dearth of big leases signed. But if you looked, you know, scratch the surface on the pipeline and deals pending not only within our portfolio, but if you looked on tenants in the market list, active tenant searches that are out there, there's some very, very large requirements. I mean, I don't recall a moment in time where I had the same number of large leases out or term sheets out with large tenants that we do today. So I think what you saw in the first quarter was simply a quirk in timing. There were a lot of big deals signed in the fourth quarter and I think you're going to see a bunch of big leases signed second quarter and through the balance of this year. One other point I'll make is that you know the vast majority of big leases that are being signed or were signed in the first quarter were all relocations. Those are long-term commitments by tenants of size, as they bring their employees back to the office.

Caitlin Burrows, Analyst

Got it. And then I know earlier you guys talked about some of the disposition and JV outlooks. Just going back to 245 Park briefly, were you saying that you're planning to maybe do more leasing before focusing on the additional JV sale or is that something that's kind of moving along and could be done anytime? Any update on the 245 Park JV in particular?

Matthew DiLiberto, CFO

The message we conveyed at the meeting was that this is a major focus for the second half of the year. We have some leasing activities in progress that we are aiming to finalize, and I believe it will come together nicely as we enter the latter part of the year and accomplish more of our business plan objectives from the first half.

Caitlin Burrows, Analyst

Got it. Okay, thanks.

Marc Holliday, Chairman and CEO

Operator, do we have any questions?

Operator, Operator

Our next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Blaine Heck, Analyst

Great, thanks. Just two quick ones for me. Just following up on the potential sales of interest at OVA and 245 Park. Obviously, we've seen some fluctuation in foreign exchange rates and a pretty dramatic recent increase in the 10 years. So I guess the question is, have those dynamics impacted the interest level from any of the prospective investors on those deals? I guess has anyone fallen out of the running?

Marc Holliday, Chairman and CEO

No.

Blaine Heck, Analyst

All right, fair enough. And then I think you mentioned putting some leasing cost reserves in as part of the modification of the 280 Park loan. Can you quantify how much that was?

Matthew DiLiberto, CFO

The amount that we put in collectively with Vornado was approximately $68 million. So, $34 million each.

Operator, Operator

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Chairman and CEO, Marc Holliday for closing remarks.

Marc Holliday, Chairman and CEO

Thank you. You know, again, kudos to the whole team here at SL Green, because I know they listened in on this call. It was a great launch to the year. Fantastic three months. We're busy at work here making sure that when we speak again in three months we'll have hopefully some equally good news, maybe even better news, and we look forward to it. Thank you.

Operator, Operator

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