SL Green Realty Corp. is one of the largest office landlords in the city. The 19-year-old Manhattan-based real estate investment trust’s vast portfolio spans 47.7 million square feet in the borough—including ownership interests in 29.9 million square feet of commercial buildings and debt and preferred equity investments secured by 17.8 million square feet of buildings.
But while its investments in or financing of commercial real estate in New York City garners splashy headlines, the Manhattan-based company has an extensive leasing business with a total of 1,100 tenants. The company’s 22-person leasing team closes 250 lease transactions a year. At its helm is Steven Durels, 56, an executive vice president and the director of leasing and real property, where he has worked for 17 years. At the end of the day, he said, “I’m the guy that ultimately signs the lease.”
His job entails managing “everything related to leasing, marketing and participating in the underwriting of our acquisitions,” said Mr. Durels, whose younger brother, Thomas Durels, is an executive vice president and the director of leasing and operations at Empire State Realty Trust.
SL Green has 1.3 million square feet of transactions that are currently being negotiated, and they range in size from 1,100 square feet to 330,000 square feet. The two biggest deals of the year so far are Credit Suisse renewing 186,000 square feet at 11 Madison Avenue and Omincom Group’s 167,003-square-foot 15-year renewal at 220 East 42nd Street, also known as The News Building.
Commercial Observer met with Mr. Durels, a married Upper East Sider and father of a 25-year-old, in a conference room at SL Green’s offices at the Graybar Building at 420 Lexington Avenue between East 43rd and East 44th Streets. He talked about the uniqueness of the under-construction One Vanderbilt, adjusting rents and the coworking phenomenon.
How did you first get into real estate?
Ah, well I graduated from one of the better real estate colleges in the country, University of Iowa, which specializes in real estate. It’s Iowa—real estate, farming [laughs].
What was your major?
Business—economics and political science. I came out of college and got introduced to the industry through a family connection, and it appealed to me right away. I couldn’t say specifically why, but I think [it was] true to the fundamental aspect of being able to understand bricks and mortar and what people want as far as office space and being able to deal with the day-to-day of a lot of different types of businesses—I think that was probably the main appeal from day one.
What was your first real estate job?
Straight out of college I was doing promotional brokerage. I started working for Helmsley-Spear [and was there for 16 years].
It seems like a lot of people got their start there.
At that moment in time Helmsley-Spear was probably the biggest commercial landlord in the city.
What makes a good agency broker?
So you really need to be broadly trained on many different aspects, everything from where the market is obviously for rents but also construction, accounting, building operations. You need to have some understanding of building mechanical systems. And then of course after the lease is signed, you’d have to negotiate a lease that you can live with for five or 10 years because you now have a relationship with that tenant that you have to manage for the life of the lease. [This is as] opposed to a promotional broker that negotiates, represents his tenant and then comes back around when the lease expires five or 10 years later.
On the landlord side, you have the advantage of not having to fight for your dinner.
It’s a different aspect of the business. When I started it was pure commercial brokerage commission, representing tenants. And then the company I was working for needed somebody to run several of the buildings. That was at Helmsley-Spear. So I started managing a building, and then I picked up two, then three buildings. And ultimately, I was there for 16 years, right up to the point where SL Green bought this building. At that point, I was general manager of the building. So I had both the operations and the leasing reporting to me.
So you oversaw operations and leasing.
Yes, for a portfolio of 2.5 million square feet—for Graybar, 230 Park Avenue and 25 West 43rd Street. I was running a portfolio bigger than SL Green had at the time. But SL Green came in and bought this building, and I was offered an opportunity to join the firm, and here I am 17 years later. It’s funny, with the purchase of the Graybar building that doubled the size of SL Green’s portfolio—if you think of it in terms of that. Now we’re 28 million square feet in New York City alone.
You said on SL Green’s recent first-quarter earnings call that you adjusted rents on a select handful of spaces and dropped them on others. Where did you do each?
We adjusted rents on a few spaces at 280 Park Avenue and 10 East 53rd Street. But by way of example, those were spaces that we had been increasing the asking rent in a very dramatic way over the past 12 months, and we had a few spaces that [sat on the market] for a longer period of time than we wanted to wait so we’ve just sort of backed [off].
Why did those spaces linger?
We just pushed the rents up too high [at 280 Park Avenue]. A good example is I had one unit at the very bottom of the building, looking into the back side of another building, and we adjusted it because it was somewhat struggling.
Did anyone take them after you dropped the rents?
We really just [dropped them] in the past 30 or 45 days, so it’s still early. We had a piece of space that we had raised the rents so high, to $150 a foot, and we dropped it back down to $140 a foot.
Where did you raise them?
Here at Graybar Building we raised rents on a selects basis. I think it’s important to keep it in context. Over the past couple of years, certainly all through last year, every six to eight weeks we were raising rents. The market’s been very healthy. We’re over 97 percent leased.
On your earnings call, SL Green announced that it had signed 850,000 square feet, or 43 percent, of your 2-million-square-foot 2016 target.
We had projected for the year to sign 2 million square feet and we signed over 800,000 square feet in the first quarter, and then another 73,000 square feet in the first couple of weeks of the second quarter.
So what’s the projection now?
We haven’t adjusted it yet. We said on the call, that we may assess it later in the year. Well, let’s put it this way: We have a million square feet in our pipeline, between a combination of leases and prospective tenant term sheets being negotiated. And we sign every year on average about 250 leases. Last year we signed 2.3 million square feet of leases, and I think we were about the same number for the prior year, so 250 leases [would put us] generally well over 2 million square feet a year.
How many leases have you signed year-to-date?
How do you feel about leasing to WeWork and other coworking tenants?
As a market segment, we’ve shied away from leasing to shared office spaces because of the credit risk. We’re fans of WeWork. We think it’s a fascinating business. In the past, we’ve actually leased to WeWork, at 315 West 36th Street last year [which SL Green then sold]. [Under] the right circumstances, we’d certainly do business with them again. But I think the broader conversation is the shared office suites business. That’s an industry that we’ve shied away from because our experience with that industry has always been a little mixed over the years. When times are good, it’s great. When the economy’s weak, they get themselves in trouble. Our focus is credit tenants, long leases, developing at maximum value.
SL Green’s under-construction One Vanderbilt office building is slated to reach over 1,400 feet in the air, making it the second tallest commercial building in Midtown after the Empire State Building when it’s completed in 2020. Is this your biggest undertaking to date?
Yes. And it’s got such unique characteristics as to be different than any other building ever built in Manhattan.
What makes the building unique?
It’s a combination of its proximity to transportation, being right next to Grand Central Terminal and floor slab heights that are well in excess of any other building in the city at 14.5 to 20 feet tall. And because of the relatively low-height buildings that surround us and the combination of the very high slabs, you get these amazing views all around with 360 degrees. And it’s got an extremely robust infrastructure system to support the tenants. And it’s got architectural design that’s really very forward looking as far as at both the crown of the building and at the base of the building. It has a very, very dramatic architectural impact at the street level.
Who is the main competition for One Vanderbilt?
I think we’re really one of a kind, quite frankly, you know, because of the size of the floors [ranging from 22,000 square feet to 47,000 square feet], when we’re delivering the building and the uniqueness of its design. I think our added advantage is that we’re a true Midtown location and the convenience that that provides. But I think what really differentiates the building beyond that is the quality of its design, the robustness of its infrastructure and the statement that it will make on the skyline and at the streetscape. If you really study the images of the building, it’s got an amenity package for the tenants where we’ll have a 30,000-square-foot tenant-only amenity floor. That’ll be a combination of auditorium space and sort of a social lounge-type space. We’ll have a world-class restaurant at the base of the building. And then we’ll have a very unique, most likely a cocktail lounge at the top of the building, but connected by elevators to the main restaurant.
Is a development like Hudson Yards be competition for One Vanderbilt?
Tenants considering us will consider other marquis buildings in Midtown. I don’t think we’re competing against Downtown. I don’t think we’re competing against the West Side. We’re competing for those tenants that value a Midtown location and what that has to offer.
You have TD Bank as a tenant in 200,000 square feet at One Vanderbilt. What sort of tenants are you courting for the building?
Primarily, the tenants that we’ve presented to have been in financial services, a couple of law firms and a couple of very large mature technology firms. But I would say 90 percent of the prospective tenants have been financial services companies.
What are the asking rents?
Well, we’re not really quoting it publicly, [but] they’re going to be in line with the highest quality marquis buildings in Midtown, equivalent to 90 West 57th Street, the GM Building, the Seagram Building.
What’s your prediction for the market?
My sense is that the market will stay very strong for the balance of this year, that there will be good leasing velocity and that rents will go up, but they’ll probably be moderately up, more in the 3 to 4 percent range.
Can you discuss re-tenanting 16 Court Street in Brooklyn?
We’re not going for startups per se. It’s a building that’s historically been tenanted primarily by law firms and nonprofits and city agencies. But as Brooklyn has really evolved into a more diversified office market, it was natural to take advantage of that and reposition the building so that it’s attractive to technology and advertising and media businesses. So in order to accomplish that, we set about to renovate the lobby of the building and the entrances of the building and rebuilt certain office floors to have an aesthetic and office layouts that are more appropriate to those industries.
How do you stay engaged in the business after all of these years?
I love the fact that we’re so active in the redevelopment part of the business. I really enjoy that when we take a building and reimagine that building and reposition it in the marketplace to really make it the best that it can be, so that’s everything from understanding when we buy a property, who our ultimate profile tenant is that we expect to lease to; redeveloping the building, from mechanical systems to the aesthetics of the building to appeal to that tenant base we think we’re going after. We recently redeveloped at 635 Avenue of the Americas, which was really repositioned to attract the [technology, advertising, media and information services] sector, and we achieved some of the highest rents in Midtown South on that building, and it has a look and a feel and amenities that appeal to those businesses.
What were the rents you achieved?
Anywhere from $85 to over $100 a square foot in that building on 18th and [Avenue of the Americas].
Does working for a public company hinder you in any way?
What’s allowed us to be so competitive, I think, is the fact that we’re very nimble. For the size of our company and the breadth of the company, we’re actually a small core group of people that move very quickly, and there’s a lot of the private company entrepreneurialism that’s been retained over the life of the public company. I’m quite certain there is no real estate owner in the city that buys, sells and lends as much real estate in any given 12 months as we do.
What do you do on the weekends?
I do a lot of traveling. I do a lot of family time. I spend weekends either, if it’s summertime, we’re in Bridgehampton; other times of the year, we’re in Sun Valley, Idaho. [In Idaho], in wintertime it’s skiing. In summertime, it’s fly-fishing, hiking and golf.
Do you personally own any real estate?
No, I have enough exposure to the real estate business.