Green Giant: Andrew Mathias on SL Green’s Changing Office Game
The REIT's president talks about three major developments and why he’s so interested in Madison Square Park
On SL Green’s website, there’s a map of the REIT’s properties where miniature versions of its offices dot the New York City grid like pieces on a gameboard. The lean and sharp-angled One Vanderbilt is a few moves away from the blocky 1185 Avenue of the Americas, which is in striking distance of the stately 825 Eighth Avenue with its copper crown.
In the middle of an office game that’s increasingly being played out in new and interesting neighborhoods, SL Green has been busy devising its strategy. After all, they’re among the city’s largest office landlords, with ownership interests in about 27.2 million square feet in Manhattan alone.
Andrew Mathias, the firm’s 45-year-old president, has been busy leading that charge. The 20-year veteran of the firm has been handling a slew of new developments as the REIT plots three major additions to the gameboard. The firm just topped out at One Vanderbilt in Midtown and is turning its attention to adaptive reuse projects at One Madison Avenue in Midtown South and at 410 Tenth Avenue (formerly 460 West 34th Street) on the far west side. And it’s also been strategically shedding assets with the announced sale of a major holding — the News Building in Midtown East — for $815 million.
Mathias, a legend in the real estate business, grew up in Buffalo, N.Y., and did his undergraduate studies at Wharton before moving to New York City in the mid-1990s. He landed his first job on the high-yield and restructuring desk at Bear Stearns, followed by roles at Capital Trust and Victor Capital Group.
Commercial Observer caught up with Mathias at the firm’s sleek Midtown headquarters to discuss the firm’s new blockbuster projects, interesting moves in biotech, and the question we’ve all asked but won’t admit: Where the heck is Midtown South, anyway?
Commercial Observer: Everyone slices and dices Midtown South in different ways. How do you define it?
Andrew Mathias: Traditionally, I think it’s been maybe east of Sixth, west of Park Avenue, south of 34th Street, and north of Houston … The area seems to have expanded; you have a huge core of technology companies in the city that are kind of spread across east to west, going all the way down south of, call it, 34th Street.
Besides the Flatiron District, where you’re working on One Madison, what pockets in and around Midtown South do you find most interesting?
We bought this building at 460 West 34th Street, which we’re renaming 410 Tenth Avenue, and we’ve had a lot of success with that building. We signed First Republic Bank; they have offices in Rockefeller Center, but they wanted to be in a more techie-type neighborhood, or modern neighborhood. And we’re completely redeveloping that building and the tenant response has been great.
Midtown South, as I define it, there’s just not that much inventory, which is why we’ve jumped at the opportunity to purchase One Madison and then 11 Madison, because buildings don’t trade that much in these areas.
We watched with a lot of interest as 345 Park South is going to turn into a biotech building. And to see that tenant base kind of move into the city, where you’ve had a lot of that in Boston, you’ve had some of it in Alexandria Center on the East River. But to really see biotech — and we’ve heard of these guys kicking tires all over the city — actually come in to a place like Park Avenue South is exciting.
We’re always looking for different opportunities. And the deals generally take a long time to come to fruition. On 410 Tenth, we made our first investment in that building in 2014 and then closed on our acquisition of the building this year, so it was a five-year process. We find we have to incubate opportunities to be able to get really exciting product to bring to market.
Would you ever consider going into the life sciences/biotech area?
We studied it for 410 Tenth. That building had the ceiling heights and the floor loads and the power that the industry requires. It just so happened that we wound up getting this great lease with First Republic. But we do have a high level of interest in that sector.
I think some of our peers, like Alexandria, have done a terrific job of figuring out how to evaluate those credits; there’s some easy decisions when you’re dealing with big pharma but there’s also some trickier decisions, where you’re dealing with new emerging technologies and trying to underwrite those credits and those businesses.
That would be a new skill for us, we’d have to figure out. It’s not as easy as just buying a building, fitting it out with fume hoods and power. You’ve got to figure out the right mix of tenants and how you underwrite the credit of the tenants as well.
Speaking of 345 Park, which was an off-market deal, have you seen an uptick in those kinds of inquiries?
We do always get a lot of approaches and reverse inquiry, as we call it. And it’s a challenge because a lot of times we find a marketed process will yield the best result, but not always. And we have sold in off-market deals — a lot of our purchases are off-market so we’re making a lot of those inquiries as well. And I think, these days, depending on the asset you’re selling and the return profile, sometimes a marketed process doesn’t feel like the best way to go.
Because trying to keep people to a very regimented schedule and a bid date and buyers these days, in some sectors with some return profiles, don’t necessarily want to be corralled. They want time to put their capital together, find the right equity partner, find the right financing. And that doesn’t always marry up well with a marketed process. In certain instances, for sure, these days we’re more open to off-market deals.
Although we sold 521 Fifth earlier in the year, and that was more of a traditional auction process where we put it out, we had a bid day, we had a second-round bid, we signed a contract and closed — sold the building to Savanna. So, there are definitely assets where that still works very well. And then probably larger assets these days, those deals are taking a little bit longer to put together.
Any news on the acquisition or disposition front?
Our focus right now is on the development projects, for sure; One Vanderbilt; One Madison; we’re building 185 Broadway, which is an affordable New York project downtown at Broadway and Dey Street, it’ll be rental residential; and then 410 Tenth, which is a reconstruction, but a significant reconstruction. So, we do have quite a number of development projects that are taking up a lot of our focus right now.
We continue to look for acquisitions, actively. But because so much of our time and capital’s going into the development, we’re more focused on our sales program, selling buildings like the newest building, like 521, and using that capital to buy back our stock.
There’s this strange phenomenon, I would say, where public equity is trading at a very low value, and then you have private market values for real estate significantly higher. We’re sort of trying to arbitrage that gap. We’ve bought back around $2 billion of stock, it’s about 20 percent of our equity capitalization. And our board is focused on keeping that program going. We have another $500 million authorization to continue to sell assets and buy back stock.
You’re getting ready to kick-off construction next year at One Madison. Can you talk a little about your vision for the project?
We conducted a big study in terms of the different variety of opportunities and uses we could explore in the site. And we settled on a plan with KPF, who we have a deep relationship with from One Vanderbilt, on this very exciting reuse of the base of the building, but demolition of three floors at the top, and then building this new spectacular glass office building; sort of melding an older, traditional look at the base with enormous floor plates, with this very modern glass office tower.
So that has generated a lot of excitement both within the firm and also within the tenant community, because I think it’s really what the tenants in this area are looking for; sort of that juxtaposition of old and new — as opposed to just new glass and steel, which is great and efficient and for a lot of tenants fits the bill. But I think part of what attracted tenants historically to Midtown South is a little bit more of the fabric and masonry and the streetscape feeling like it’s a little bit more older New York.
What other uses did you consider for the site?
The zoning is very flexible, so we could have done residential or hotel or commercial. But the area has a tremendous need for office space, there’s just a real lack of newer buildings offering modern space and modern amenities. And because of that demand, we really felt like office was our best use.
What will One Madison be bringing to the table for tenants?
I think we’ll certainly have some of the largest floor plates in the area in the base of the building. And that is definitely a big attraction to the types of users that are doing more open-plan spaces, less offices, and more traditional [uses] like a trading environment or a technology environment. So, we think those base floors will really appeal to those users.
We’re going to open up some of the park-facing frontage on Madison with new glass to really bring some more light and more views to that side of the building. And then the tower is going to be just a spectacular, column-free, glass space with the latest technology to really be able to accommodate the technology-type or finance-type user.
Does that help you compete against offices in Hudson Square, which has access to things like the transatlantic cable?
I think that [One Madison] has a lot of infrastructure from Credit Suisse and MetLife before it, we’re going to piggyback on that infrastructure, enhance it, and I think we’ll compete well with Hudson Square and a bunch of those areas.
This is prime core in the center of Manhattan; it’s arguably a better location, then some of those outlying areas, because we’re on Madison Square Park. You have all these tremendous corporations in the area, amenities in the area, hotels and restaurants.
We’ve heard you already have tenants kicking the tires on the building. Who’s been looking?
It’s definitely technology and finance, the TAMI [technology, advertising, media, information] sector and the FIRE [finance, insurance, real estate] sector. You have Credit Suisse and Sony at 11 Madison, so there’s a juxtaposition of a technology user and a finance user. And I think this building will likely follow suit.
We’re seeing finance, probably more so than we expected, look here. And as these finance companies all migrate towards becoming fintech companies, the line between finance and technology is getting blurred a little bit. Big technology groups within JPMorgan, within all these commercial banks, these technology groups a lot of times will locate in satellite locations away from the main offices. So, you see that with JPMorgan, their technology group is headquartered at 450 West 33rd, or 5 Manhattan West as it’s called.
We’re talking to some interesting big financial players and some of their fintech groups about potentially locating within the building. And then obviously, large technology players who are really attracted to this neighborhood and see this as a key recruiting tool to really get the best talent, by having a great location and the best office, we’re talking to a lot of those users as well.
Rents at One Madison are expected to start at $100 per square foot and average around $130 per square foot. How you see rents trending for newer construction in Midtown South?
Technology companies are becoming more accepting of rents for new construction in Manhattan, and that it just costs a lot of money to deliver these buildings. So they can’t have modern infrastructure and modern space at $60 or $70 per square foot, which is historically what they want to pay in these areas.
I think what you saw with Microsoft on Houston Street, and what you’re seeing increasingly even with Facebook at Hudson Yards, the rumored rent on that deal, I think these companies are getting their heads around paying a fair rent, but a higher rent, for new modern space.
What’s the update at One Vanderbilt?
We topped out [in September]. On leasing we’re at 60 percent. And we have four other floors in lease negotiations now so that would take us north of 65 percent if we’re able to convert all of those lease negotiations; they’re mostly financial-type tenants which is pretty consistent with the balance of the building.
The exciting part for me is that, as we put curtain wall on the upper floors and as you see the glass sort of grow up the building, I can finally take tenants up and show them their floor with their windows, their space. It has a real impact on people. It’s had a big boost to the lease-ability of the upper floors; we would expect to start to do some leases in the top of the building.
SL Green is among the firms moving into One Vanderbilt. Have you picked out your office yet?
We are designing our offices as we speak, same architect as who did our current office, and we’re on the 27th and 28th floors. We’re exploring the modern workplace and trying to figure out how we can be more efficient in our use of space … starting with a blank slate has given us that opportunity at One Vanderbilt, which we’re very excited about.