Business Management Executive Q&A
Oct 16, 2007
Editor-in-chief Suzann Silverman spoke with Andrew Mathias, who in April added the title of president to his position as chief investment officer for SL Green Realty Corp., about the fast-growing New York City-area office REIT’s investment strategy since closing on the acquisition of Reckson Associates Realty Corp. in January.
CPN: Since closing on the Reckson deal, you have remained an active buyer. Is the capital crunch slowing you down now at all?
Mathias: We’ve certainly taken a more measured pace to acquisitions. I think the last building we purchased (without partner Gramercy Capital Corp.) was 16 Court St. in Brooklyn, which was more of an opportunistic buy there, and we took in a joint-venture partner on that acquisition. And then before that I think we bought 333 W. 34th St. from Citigroup, which we had a very deep existing relationship with, so we were able to get a very attractive deal with them. In today’s environment, we are definitely still looking at acquisition candidates, but we’re being cautious with our capital because we want to allow for the fact that there may be better opportunities in the months to come.
CPN: Are you doing more joint ventures as a result of that?
Mathias: We will do joint ventures. We have a very active joint-venture program, and given where our stock price is today ... we’re actually buying back some stock. We’re not issuers of equity, and there’s not readily available high-leverage financing for properties, so that leads us to look more at the joint-venture program as a source of equity for future acquisitions.
CPN: New York City is always a particularly competitive market. How do you continue to find good deals there? Has it become more difficult?
Mathias: The answer for SL Green is, we really do not chase heavily marketed deals. We’ve never made a business of being the high bidder in processes. What we instead find are sellers that have specific needs that we’re able to meet as an institutional buyer, be that continued tenancy with a great landlord, where someone is not looking necessarily for the very highest price, or sellers with tax issues, where we’re able to construct win-win structures and clear them net after taxes more than they would in an arm’s-length sale. And we’re able to build in a pricing discount for ourselves because of our structuring ability. Those are the deals we continue to go after on a day-in-and-day-out basis.
CPN: Are you still focused on Midtown Manhattan and transportation hubs?
Mathias: Our primary focus is Midtown Manhattan. We dominate the Grand Central submarket, which is one of those transportation hubs. We have a lot of holdings around the Port Authority and Penn Station as well. ... Downtown we track closely as well, and then the five boroughs and the suburbs we do (some) business in. ... There are a lot of very exciting things going on Downtown, clearly. ... We don’t own a lot of properties Downtown now. We have investments in a lot of properties but mostly through our debt business, so Downtown is an area that’s clearly getting our focus. We still love the supply-demand metrics in Midtown, where we have a 5 percent or less vacancy rate, which is leading to a great landlord-friendly market here.
CPN: How high do you see prices going in Manhattan on a per-square-foot basis during the next six months to a year?
Mathias: We have seen the highest per-foot trades for an office building; 450 Park Ave., for example, is around $1,600 a foot. ... The leasing market is still very strong, and there are still a lot of people who want to own high-profile Class A Manhattan office buildings. So we don’t see those prices necessarily dropping off sharply. It has definitely made it more difficult to purchase these properties because of the state of flux that the debt market is in. … However, most of the properties that have gone to market have found buyers, and they’ve been at pretty historically high levels. … Flat to down is probably our view.
CPN: What are your biggest concerns about the New York market today?
Mathias: We’re not immune here in Manhattan to the nation’s economy. And … we’re keeping a close eye on (the housing market crisis). … And then the debt markets are really in a state of flux right now; it’s rather difficult to get financing even at very reasonable levels for properties. … Buyers of property have got to be able to get fairly efficient financing in order to pay the prices that sellers expect. We don’t want to see a standoff where buyers can’t get financing and sellers can’t get their prices so then things don’t trade.
CPN: Did the Reckson acquisition launch your strategy for the area surrounding Manhattan?
Mathias: We had done a bunch of investing outside Manhattan previously; we just had not had an operating platform outside New York City—it was all run from our New York City office. Reckson gave us a platform in White Plains … and a much larger inventory of properties in Westchester and Connecticut. And we intend to employ basically the same strategy we have with SL Green, which is actively buying new opportunities and actively selling buildings and inventory, and we’re doing some of both now.
CPN: At this point, are you a net buyer or a net seller?
Mathias: We’re active on both fronts. Since we signed the contract for Reckson, we announced that we wanted to use the opportunity to tax-efficiently dispose of a bunch of assets. We wound up selling about $1.8 billion of properties between last August and this July, so there we were very active sellers. We’ve also been active acquirers, so you’ll see that balance continue going forward, where we sell assets if we can get deals done at prices that we find compelling and we’re active on the buy side as well.
CPN: Are you doing that purposefully to take advantage of the tax benefits?
Mathias: Definitely. We’ve made it a business not to let money leak out of the system to taxes, so every time we sell a building we’ve been able to reinvest the proceeds of the sale, and some really large gains that we’ve generated we’ve been able to reinvest tax free into new acquisitions like the Reckson deal, where we were able to use that deal as a receiver for a tremendous amount of gains from our sales of those $1.8 billion of properties.
To read more about SL Green’s suburban strategy, search key words “Andrew Mathias”
Editor-in-chief Suzann Silverman spoke with Andrew Mathias, who in April added the title of president to his position as chief investment officer for SL Green Realty Corp., about the fast-growing New York City-area office REIT’s investment strategy since closing on the acquisition of Reckson Associates Realty Corp. in January.
CPN: Since closing on the Reckson deal, you have remained an active buyer. Is the capital crunch slowing you down now at all?
Mathias: We’ve certainly taken a more measured pace to acquisitions. I think the last building we purchased (without partner Gramercy Capital Corp.) was 16 Court St. in Brooklyn, which was more of an opportunistic buy there, and we took in a joint-venture partner on that acquisition. And then before that I think we bought 333 W. 34th St. from Citigroup, which we had a very deep existing relationship with, so we were able to get a very attractive deal with them. In today’s environment, we are definitely still looking at acquisition candidates, but we’re being cautious with our capital because we want to allow for the fact that there may be better opportunities in the months to come.
CPN: Are you doing more joint ventures as a result of that?
Mathias: We will do joint ventures. We have a very active joint-venture program, and given where our stock price is today ... we’re actually buying back some stock. We’re not issuers of equity, and there’s not readily available high-leverage financing for properties, so that leads us to look more at the joint-venture program as a source of equity for future acquisitions.
CPN: New York City is always a particularly competitive market. How do you continue to find good deals there? Has it become more difficult?
Mathias: The answer for SL Green is, we really do not chase heavily marketed deals. We’ve never made a business of being the high bidder in processes. What we instead find are sellers that have specific needs that we’re able to meet as an institutional buyer, be that continued tenancy with a great landlord, where someone is not looking necessarily for the very highest price, or sellers with tax issues, where we’re able to construct win-win structures and clear them net after taxes more than they would in an arm’s-length sale. And we’re able to build in a pricing discount for ourselves because of our structuring ability. Those are the deals we continue to go after on a day-in-and-day-out basis.
CPN: Are you still focused on Midtown Manhattan and transportation hubs?
Mathias: Our primary focus is Midtown Manhattan. We dominate the Grand Central submarket, which is one of those transportation hubs. We have a lot of holdings around the Port Authority and Penn Station as well. ... Downtown we track closely as well, and then the five boroughs and the suburbs we do (some) business in. ... There are a lot of very exciting things going on Downtown, clearly. ... We don’t own a lot of properties Downtown now. We have investments in a lot of properties but mostly through our debt business, so Downtown is an area that’s clearly getting our focus. We still love the supply-demand metrics in Midtown, where we have a 5 percent or less vacancy rate, which is leading to a great landlord-friendly market here.
CPN: How high do you see prices going in Manhattan on a per-square-foot basis during the next six months to a year?
Mathias: We have seen the highest per-foot trades for an office building; 450 Park Ave., for example, is around $1,600 a foot. ... The leasing market is still very strong, and there are still a lot of people who want to own high-profile Class A Manhattan office buildings. So we don’t see those prices necessarily dropping off sharply. It has definitely made it more difficult to purchase these properties because of the state of flux that the debt market is in. … However, most of the properties that have gone to market have found buyers, and they’ve been at pretty historically high levels. … Flat to down is probably our view.
CPN: What are your biggest concerns about the New York market today?
Mathias: We’re not immune here in Manhattan to the nation’s economy. And … we’re keeping a close eye on (the housing market crisis). … And then the debt markets are really in a state of flux right now; it’s rather difficult to get financing even at very reasonable levels for properties. … Buyers of property have got to be able to get fairly efficient financing in order to pay the prices that sellers expect. We don’t want to see a standoff where buyers can’t get financing and sellers can’t get their prices so then things don’t trade.
CPN: Did the Reckson acquisition launch your strategy for the area surrounding Manhattan?
Mathias: We had done a bunch of investing outside Manhattan previously; we just had not had an operating platform outside New York City—it was all run from our New York City office. Reckson gave us a platform in White Plains … and a much larger inventory of properties in Westchester and Connecticut. And we intend to employ basically the same strategy we have with SL Green, which is actively buying new opportunities and actively selling buildings and inventory, and we’re doing some of both now.
CPN: At this point, are you a net buyer or a net seller?
Mathias: We’re active on both fronts. Since we signed the contract for Reckson, we announced that we wanted to use the opportunity to tax-efficiently dispose of a bunch of assets. We wound up selling about $1.8 billion of properties between last August and this July, so there we were very active sellers. We’ve also been active acquirers, so you’ll see that balance continue going forward, where we sell assets if we can get deals done at prices that we find compelling and we’re active on the buy side as well.
CPN: Are you doing that purposefully to take advantage of the tax benefits?
Mathias: Definitely. We’ve made it a business not to let money leak out of the system to taxes, so every time we sell a building we’ve been able to reinvest the proceeds of the sale, and some really large gains that we’ve generated we’ve been able to reinvest tax free into new acquisitions like the Reckson deal, where we were able to use that deal as a receiver for a tremendous amount of gains from our sales of those $1.8 billion of properties.
To read more about SL Green’s suburban strategy, search key words “Andrew Mathias”
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