The REIT to Beat: SL Green’s Holliday, Mathias, Named Most Powerful
Jotham Sederstrom May 8, 2012, 7 a.m.
It was April 23, two days before SL Green’s first-quarter 2012 earnings were announced, and chatter was reaching a fever pitch: Would Viacom, which occupies about 1.3 million square feet at SL Green’s 1515 Broadway, choose to renew its lease or opt to follow its Times Square cousin Condé Nast in taking space in Downtown Manhattan?
At the same time, the real estate investment trust was looking for a loan to place on 100 Church Street, negotiating what would be the largest mortgage in recent history for 1515 Broadway, and wrapping up a 361,044-square-foot lease for Random House at 1745 Broadway. In short, last month was a busy one.
Add it all up—owned interest in 38.7 million square feet in Manhattan, a nascent focus on residential, the retail footprint—and the REIT can take on a weight and life of its own. To the uninitiated, running a company as massive as SL Green might appear as untenable as safely launching a torpedo.
Instead, in the hands of chief executive Marc Holliday and president Andrew Mathias, it’s more like watching a thoroughbred on the final stretch.
At the moment, however, Messrs. Holliday and Mathias were in a conference room on the 19th floor of the REIT’s headquarters at 420 Lexington Avenue. They looked a little distracted.
“I think it will come down to price at the end of the day,” Mr. Holliday said when asked about the Viacom lease. He went on to explain that, if SL Green were to get some part of the building back, it wouldn’t be a big deal. “We would be very successful in re-tenanting at pretty significant rents for that market right now, but our first effort is always on trying to retain the tenant on best terms.”
Days later, when those terms emerged, they turned out to be fairly unique—Viacom would not only stay, but it would be increasing its space in the building, eventually taking all of the 1.6 million square feet of office space. After 2015, when the current lease is up, Viacom will pay an increase of $5 per square foot.
Their start at SL Green began in the years leading up to the company’s 1997 initial public offering. Both had been at Capital Trust, a mezzanine lender. While there, they advised Stephen Green on the IPO, with Mr. Holliday ultimately joining the newly formed public company in 1998 as chief investment officer and Mr. Mathias coming on board the following year.
“The REIT formation was really the critical moment when the capital markets expertise came into play,” said one source, who requested anonymity. “They convinced him there were ways to leverage joint ventures, the capital markets and relationships. The ability to capitalize and recapitalize portfolios and individual properties enabled the company to get where it is today.”
“Steve Green was a client first and foremost—now a partner and friend,” Mr. Holliday said when asked what it was about the way that Mr. Green ran the business that attracted him to take on a permanent role. “He was a great entrepreneur and he had developed a great platform that we felt we could work with to convert it from what was then a smaller footprint.” In fact, the company went from two million square feet at the IPO to its current 27 million square feet.
“Usually that kind of asset accumulation is multi-generational,” Mr. Holliday offered. “That’s the storied land owners and building owners in the city—that’s a multi-generational process—this has all been pretty much amassed in 15 years.”
It’s no wonder that sources reached for comment used terms like “shrewd” and “smart” in describing the two, with “smart” by far outnumbering all others.
One of the few people willing to comment on the record, real estate attorney Stephen Meister, related the legal case surrounding 3 Columbus Circle.
“There was a case that I handled where Steve Ross bought the mortgage on 3 Columbus Circle,” Mr. Meister said. “SL Green partnered with Moinian and was able to write a very large check and they fended off Ross.
“I do consider them to be powerful people,” Mr. Meister said of the two and their ability to swoop in with the check—for $258.6 million—and keep Stephen Ross from foreclosing on the building. The Moinian Group and SL Green went on to sell the 214,372-square-foot base there to Young & Rubicam, which leased an additional 125,000 square feet above for its New York headquarters.
“They don’t throw their weight around in an ugly way,” said another source. “But those two guys, when it’s necessary, they do what they need to do to succeed but all within the confines of doing the right thing.”
On a call a few days after the REIT’s first-quarter 2012 earnings came out, the two explained some of the timing involved in the past days’ flurry of activity.
The $775 million Bank of China first mortgage on 1515 Broadway had closed first, since it wasn’t contingent on a Viacom renewal. “That was a loan that we worked hard to arrange over the last couple of months, absent really knowing which direction the Viacom conversations were going to take,” Mr. Mathias said. Once those conversations started, though, they went pretty quickly.
“The entire deal, from negotiation to lease, was actually very compressed and moved very rapidly,” Mr. Holliday said. “At the point when we met and you asked the question I think Andrew and I looked at each other knowing that we were very likely to end up with a signed lease in the near term.”
Another recent Times Square invention—this one from SL Green and its frequent retail partner Jeff Sutton—also demonstrates the savvy and creativity the REIT applies to deals under Messrs. Holliday and Mathias.
Last summer the joint venture closed on 1552 Broadway for $135.6 million and leased the surrounding area in 1560 on a long-term basis. They’ll be breaking through and creating one large, 40,000-square-foot swatch of pricey retail. The spot and its corresponding signage are currently being marketed and drawing interest, though the two declined to name any prospective occupants.
Asked about the future and any possible headwinds the REIT might face as the office market continues to recover and tenants’ priorities vacillate between location, quality and price, the two were upbeat.
“New York is a fiercely competitive market,” said Mr. Mathias.
“There’s always the everyday headwinds that you face—competition for space, competition for capital,” added Mr. Holliday. “That’s not something that were facing today that we haven’t faced for the better part of 22 years.”