Manhattan’s largest office landlord’s goal of selling $2.5B in assets this year is at risk of falling short as rising borrowing costs could push some deals into 2027.
SL Green reached a deal in September to sell 110 Greene St in SoHo for $226M.
SL Green has benefited from the city’s most active office market in decades, with occupancy up to 95% and 2M SF leases signed to date through 2026. In existing buildings, tenants have agreed to pay rents about 15% higher than they did previously.
But for a company with nearly $4.3B in debt, rising interest rates have been a “drag on earnings,” SL Green CEO Marc Holliday said in a call Thursday afternoon with analysts.
“Higher rates are affecting the whole real estate business, and pretty much every industry, and we’re talking about a swing of about 150 basis points throughout the year, from the level that we’ve been up to at the beginning of the year,” Holliday said.
The company offset the negative impact related to interest in the performance in the third quarter with a surprise transaction: SL Green sold a 20% stake in the food and beverage business for $200M, collecting $40M. The deal allows the company to raise its guidance on funds from operations – a key metric of REIT cash flow – for 2026 from $5.60-$5.90 per share to $6.50-$6.70 per share.
SL Green stock rose more than 6% late Thursday afternoon on the heels of a boosted guidance and beat in revenue and earnings.
The boost guidance would have been 25 cents per share higher had it not been for higher-than-expected interest rates, delaying the deal and eating into cash flow. The company had set a goal before the year to sell 11 assets for a combined $2.5B, and while six of those deals have been completed or announced, some will now close in 2027.
“The timing of dispositions definitely plays into our revision,” Chief Financial Officer Matthew DiLiberto said on the phone. “It took longer.”
When analysts on the earnings call asked for follow-up on the comments, Holliday and Chief Investment Officer Harrison Sitomer pushed back on the idea that plans were changed or delayed.
Holliday noted that SL Green has been refinancing loans for $7B – including the just-closed $2B mortgage at 245 Park Ave.
“That was a ferocious performance in my book,” he said. “There’s more to come. We’re not throwing in the towel at all.”
While Sitomer said there was “no delay” with the asset sale plan, he acknowledged that the two SL Green assets just starting marketing will experience “some price discovery” at higher rates.
“Tolerance is being tested by buyers and sellers,” he said.
The company is in the demolition stages for the next ground-up office building at 346 Madison and expects to enter the city’s rezoning process in December and deliver the tower in 2031, said Holliday. Another major project in the pipeline is the conversion of 750 Third Ave to apartments, which is in the midst of interior demolition and has done “most or all of the interior columns successfully and without incident,” Holliday said.
SL Green expects to close on a $500M construction loan for the development and deliver it in 2029 with some of the highest rents in Midtown East.
“For me, I think it’s a signature project for this company, because it really shows the ability to change the building that became a strong office player since the acquisition back in, I think, 2003 or so, whether it will be a multifamily project even better,” Holliday said.
One weak spot in the earnings report was Summit’s observation deck business, which launched five years ago at One Vanderbilt and expanded to Paris and Tokyo. Operating losses widened in the third quarter with slower-than-expected construction of the Paris location and slower-than-expected tourism to New York this year.
“We are below our initial expectations, and you have seen that through the first three quarters of the year,” DiLiberto said. “We are off bit, but we reduce what loss of revenue we see through reduced attendance through containment costs.”