Office Menschmark: Holliday Takes a Measure

Location: When do you see the real estate market recovering?Mr. Holliday: Recovery in rents is going to happen when there

Location: When do you see the real estate market recovering?
Mr. Holliday: Recovery in rents is going to happen when there is competition for space.

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When do you see that happening?
I hope soon. It’s hard to project or put too much conjecture into when exactly that will occur. I look at things more trend-based. And I feel that’s going to happen sooner than later. In the near term. So whether that’s 12, 18 or 24 months, to me it doesn’t matter exactly when it occurs. What matters is that people’s perceptions are that it’s going to occur.

Will financial services remain the major underpinning of New York real estate?

I don’t think personally there’s any reason not to believe that these firms are going to come back leaner, stronger, healthier and continue to be a major growth engine here in the city. … I think it’s gonna be as strong as it was in the past, and in the future, stronger.

Might not leaner and more efficient firms need less office space?

You know, profits will drive the need for office space, because profits are going to drive growth. And I think that the companies are going to use their space more wisely. But as they do that, they become more profitable and they add overhead and they start to grow. It’s kind of self-fulfilling. … Your point that, well, maybe that will mean less jobs if they’re more efficient, that could be the case, but midtown Manhattan is such a draw, is such a magnet for businesses that … if one of these financial service firms doesn’t need that space anymore, somebody else will be there to fill that void: a new business, somebody relocating in from a satellite market. Midtown is still the allure of this region, and of most major markets here in the country.

Are you worried about the fate of 388-390 Greenwich Street, which is 100 percent leased to Citibank?
Citi has been a great tenant for us. They are our largest tenant, I believe, today. And, they occupy the building, it’s a terrific building; they backfilled a lot of people into that space that they vacated from other buildings in Manhattan. So, as an investment, it’s performing lockstep with how we underwrote it, and in terms of Citibank as a company, we have a terrific relationship with them, and they seem to be fighting their battles; and we’re very hopeful that they’re going to continue to be a great and number one tenant for the company.
… There’s nothing available for sublet as far as I’m aware of in Greenwich. And in 485 Lex, there was some availability, but Citi has since reduced or eliminated entirely that availability over at 485, because they’ve backfilled with other uses. And those employees have typically come out of more expensive buildings in midtown, where they’re looking to shed cost. … We were at a price point with Citi that they would consider generally affordable, by old standards and by new standards, as opposed to the very high rents of $70, $80, $90 a foot. …

Speaking of 485 Lexington, why didn’t SL Green end up selling this building, which was in contract, reportedly to Murray Hill Properties? [Editor’s note: SL Green did not confirm the name of the buyer.]
We had a contract on that building, and the buyer wasn’t able to perform the contract and lost its deposit.

Are you still looking for a buyer for 485?
We’re still entertaining negotiations with various parties. We’re in a position where if we think we can get a deal that makes sense, we will conclude one there. And, if we don’t, we’re very happy to own that asset.

What do you think is the new paradigm for building sales? Is it $600 a square foot? Three hundred?
I’m not a per-square-foot kind of guy.

What kind of guy are you?
You know, rate of return. I think people will pay whatever they have to pay if they think they can make an adequate rate of return on the equity they’re putting out. So, for fully leased buildings, that will translate to a higher per square foot. For buildings with vacancy, that will translate to a lower per-square-foot amount. And I don’t think that unto itself is a good barometer. I think yield is really what to look for.

Office Menschmark: Holliday Takes a Measure