Finance  ·  Analysis

SL Green Turning to Asia for New $1B Debt Fund Targeting Distress

New York City’s largest office REIT reported major sales at the end of last year, but the new fund could mean some near-term purchases


Like much of the greater commercial real estate industry, SL Green (SLG)’s is showing both signs of recovery amid alarming indicators of intractable distress. At the same time, the company says it plans to capitalize on that very distress across the landscape.

New York City’s largest commercial landlord reported poor cash flow numbers during its fourth quarter of 2023 earnings call Thursday, but the firm also announced strong leasing totals and several building sales that have generated hundreds of millions of dollars in income. 

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SL Green reported $49.7 million in funds from operations (FFO) — a figure used by real estate investment trusts to designate cash flow — in Q4 2023. That is down from the $100.7 million FFO the firm reported in the fourth quarter of 2022. Moreover, the company reported an annual FFO of $341.3 million for the entire year of 2023, which is far less than the $458.8 million reported in annual FFO at the end of 2022. 

“Look, nothing is easy in this market for sure,” SL Green CEO Marc Holliday said on the earnings call. “But between what we showed you last year and we continue to show this quarter, there’s going to be differentiation in this market between sponsors that partners and lenders will want to work with, and sponsors where lenders and partners may not want to.”

Amid a depressed office market, SL Green signed 160 office leases in 2023 totaling 1.7 million square feet. This is compared to 141 office leases totalling 2.1 million square feet the firm signed in 2022. The firm’s office occupancy generally held the line in 2023, staying at roughly 90 percent on the year. 

“[This] happens every time you get a market dislocation like this. There’s a weeding out process and then the market recovers and then it happens again,” explained Holliday. “I feel happy and fortunate that as a company we have the reputation, the platform, and the resources to work productively with our counterparties to come up with solutions that are the best available solutions for all.”

Some of the solutions to SL Green’s intrinsic market pressures have been a recapitalization of some of its older assets, or the outright sale of others during the final quarter of the year. 

Together with Jeff Sutton’s Wharton Properties, SL Green closed the sale of the 115,000-square-foot retail portion of 717 Fifth Avenue for $963 million on Dec. 4. Holliday described the deal as “seismic news,” and said the distribution to SL Green and Wharton Properties equated to $8,000 per square foot of the sales price. The firm’s retail space at 21 East 66th Street sold for more than $40 million to the Swiss firm Akris in the fourth quarter as well. 

“Obviously, 717 Fifth Avenue wasn’t an anomaly,” said Holliday. “I have confidence in Fifth Avenue and [that] high street retail is once again on the rise.”

There was also SL Green’s sale of 625 Madison Avenue, a 17-story office building, to Related for $633 million. As part of the deal, SL Green and its joint venture partners agreed to provide a $235 million preferred equity investment in the building. That deal closed on Dec. 4 as well. 

SL Green also acquired 95 percent of the leasehold interest in 2 Herald Square for virtually no consideration — the joint venture the firm was previously involved with satisfied an existing $182 million leasehold mortgage for a $7 million payment from SL Green. 

“There’s more work to be done for sure, but we are on our way to stabilizing this asset,” said Holliday.

When questioned by Evercore’s ISI’s Steve Sakwa on the earnings call as to why the bank holding the $182 million mortgage on 2 Herald Square allowed SL Green to pay off the debt for close to zero, Holliday noted that it’s just another indicator that both lenders and sponsors are seeking compromise amid an ocean of dislocation.  

“Everybody in this market is trying to come together to make sure that these assets have a safe landing,” said Holliday. “This is a great asset, I love the location … but it’s also an asset where we’ll really have to start thinking about what’s the best use.”

Holliday hinted that 2 Herald Square, which was originally built in 1910 and whose mixed-use tenants include Mercy College, Capital One Bank and Ultra Beauty, could be ripe for conversion into residential. 

“It has the ability to flex as residential — both dormitory and potentially for some conversion to other residential use,” said Holliday. “That’s what we like, deals that give us optionality. But we’ve got to roll up our sleeves; and righting the capital stack is just part one, and executing the business plan over time is part two.” 

Finally, the REIT also announced its intention to launch a $1 billion debt fund devoted to investment opportunities in distressed New York City real estate, namely office. SL Green senior leadership members will travel to Asia this week to meet with investors to capitalize that plan through fundraising, according to Holliday.  

“There’s billions of dollars of announced capital forming from credit and equity, targeting not exclusively, but certainly a significant amount is targeted to the office sector, including our own efforts,” said Holliday. “This is a playbook you’ve seen a couple times before — it’s not everyone’s first rodeo. It’s been four years since the pandemic and the business fundamentals of this city are very strong.”

SL Green said it was not ready to announce how much equity it would invest in its planned $1B credit fund. 

“We’ll have real skin in this game,” said Holliday. “But it has to fit within our overall liquidity program for the year. When we feel very good with the levels we’re going out with, then we’ll show our confidence and belief in this program.” 

Brian Pascus can be reached at