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Q4 2023 Paramount Group Inc Earnings Call

Participants

Tom Hennessey; VP of Business Development & IR; Paramount Group, Inc.

Albert Behler; Chairman, CEO & President; Paramount Group, Inc.

Peter Brindley; EVP & Head of Real Estate; Paramount Group, Inc.

Wilber Paes; COO & CFO; Paramount Group, Inc.

Camille Bonnel; Analyst; BofA Securities

Vikram Malhotra; Analyst; Mizuho Securities USA LLC,

Steve Sakwa; Analyst; Evercore ISI

Tom Catherwood; Analyst; BTIG, LLC

Blaine Heck; Analyst; Wells Fargo Securities, LLC

Presentation

Operator

Good day, ladies and gentlemen, thank you for standing by, and welcome to the Paramount Group Fourth Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation please note that this conference call is being recorded today, February 15, 2024.
I will now turn the call over to Tom Hennessey, Vice President of Business Development and Investor Relations.

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Tom Hennessey

Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our fourth quarter 2023 earnings release and supplemental information, which were released yesterday. Both can be found under the heading Financial Results in the Investors section at the Paramount Group website at w. w. w. dot PGRE. dot com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results, prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2023 earnings release and our supplemental information Hosting the call today we have Mr. Albert Behler, Chairman, Chief Executive Officer and President of the Company, Wilbur Paes, Chief Operating Officer, Chief Financial Officer and Treasurer, and Peter Brindley, Executive Vice President, Head of Real Estate. Management will provide some opening remarks, and we will then open the call to questions. With that, I will turn the call over to Albert.

Albert Behler

Thank you, Tom, and thank you all for joining us today. Yesterday, we reported core FFO of $0.21 per share for the fourth quarter, bringing our total for the year to $0.87 per share, the high end of our most recent guidance range. We leased 174,000 square feet in the fourth quarter, bringing the full year leasing volume to 740,000 square feet, roughly in line with midpoint of our guidance, which was established at the beginning of 2023. Today, we are initiating 2024 core FFO per share guidance with a range between $0.73 and $0.79 per share and the leasing guidance range between [650,900] square feet. Wilbur will review our financial results and guidance in greater detail.
2023 was an eventful year for Paramount. We began the year in rising interest rate environment and one was elevated inflation. We had the regional bank crisis early in the year in which two of our key tenants, SVB securities and First Republic, who also happened to be our largest tenant failed. We work diligently it make good for a bad situation. And we did we negotiated with JPMorgan Chase to assume 75% of space that was leased by First Republic under the same economic terms, the remaining 25% that they didn't assume was because it wasn't utilized at a large portion was subleased to other tenants we then entered into a direct lease with the subtenants for most of the remaining space. Paul said we took a potential $43 million problem and mitigated it down to $5 million concurrently with that negotiation in San Francisco, we also negotiated a new lease with the entity acquiring substantially all of the assets of SVB securities. The new entity retained about 62% of the space previously leased by SVB securities on a long-term basis and cap the remaining 38% on a short-term basis, we focus on protecting our balance sheet by making strategic decision on which debt maturities we sought to extend were modest debt paydowns, new at favorable interest rates and extended terms made sense like a 300 Mission Street and where investing additional capital to support the assets didn't make sense. Like at one 11 Center Street, we deployed capital into Paramount club, our 32,000 square foot state of the art amenity center that will serve the Paramount campus. Paramount club is set to open this spring and it already served as a magnet in attracting our New York's most discerning tenants and also reduced our dividend, enabling us to retain an additional $40 million in cash annually.
Now with 2023 behind us, we will carry that momentum into 2024 by our primary focus in 2024, but undoubtedly be on leasing. Our lease expiration profile over the next couple of years is elevated and our goal is simple, derisk the role the biggest expiration in 2024 was Clifford Chance of 329,000 square feet lease at 31 West, which is set to expire at the end of May. As you know, we have already de-risked 106,000 square feet or over 32% of the space, and we are underway in dealing with the remaining availability. Peter will provide additional color on this and our leasing pipeline.
Though headline vacancy rates in Manhattan remain elevated, it's important to understand each submarket and the quality of the assets within each submarket has variations can be pronounced. For instance, Sixth Avenue submarket has among the lowest overall availability rates over 500 basis points lower than the overall midtown office market. We have continued to capture more than our fair share of demand in this corridor where a majority of our assets sit and that is demonstrated by the same-store leased occupancy rate of our New York portfolio, which is at 90.2%. The bulk of our current availabilities also happened to be on assets in this corridor, and we are poised to continue to capture more than our fair share in 2024. We believe this has to be reflective of the quality of our assets and our ability to execute in all different types of competitive market environments. We are confident that we will continue to benefit from the ongoing demand for high-quality office space and the Sixth Avenue corridor in San Francisco. The market continues to lag, although there are green shoots in the form of record venture capital funding, a high base leasing demand and an improving return to the office statistics. We are long-term believers in the San Francisco market and our focus here will be to remain a core portfolio of assets in this market that will flourish as the market recovers. Just last week, we announced the modification and extension of the loan at One Market Plaza, wherein we paid down less than 13% of the principal balance of the loan in return for a three year extension and a favorable interest rate on Market Plaza continues to raise the bar in San Francisco. In 2023, we signed two leases over $130 per square foot and the asset is currently 94.7% least.
Yes.
Turning to the transaction, market activity remains muted. However, we anticipated 2024, we'll see increased activity. We believe the number of distressed assets coming to market will rise and once interest rates begin to decline as many expect bid ask spreads will begin to narrow that set. Equity markets have remained volatile and there have been very few high-quality assets brought to the market. As always, we will be strategic and disciplined in allocating capital towards external growth opportunities.
Lastly, we are very proud of the remarkable progress we've made in our sustainability initiatives this year. Our dedication to sustainability and ESG as a whole is one of our fundamental operating tenants. We are leaders in the field and we know that this has not only enabled us to reduce operating expenses to secure high quality tenants and ultimately increase portfolio value, but also minimize the environmental footprint we leave behind. For this reason, we were honored to receive the 2023 ENERGY STAR Partner of the Year Award for the second consecutive year with ENERGY STAR labels for 100% of our portfolio. Additionally, we earned a five star rating in the 2023 RSV real estate assessment for the 5th year in a row. We aim to build on these impressive achievements in 2024 as ESG will remain a priority in how we run our business to close.
Our priorities for 2024 are clear. We are laser focused on the lease-up of our available space with our portfolio of stable trophy assets and our proven ability to allocate capital, we remain well positioned for the long-term.
With that, I will turn the call over to Peter.

Peter Brindley

Thanks, Albert, and good morning. During the fourth quarter, we leased approximately 174,000 square feet with approximately 139,000 square feet leased to New York and approximately 35,000 square feet in San Francisco. The weighted average term of leases signed during the quarter was 10.2 years. During the fourth quarter, we signed a 49,000 square foot lease with Major League Baseball Players Association at 1325 Avenue of the Americas for an initial term of approximately 17 years. We also signed a 41,000 square foot lease with Smith Gambro and Russell, a leading law firm for a term of approximately 11 years. Miss Gambro will relocate within 1301 Avenue of the Americas and expand our footprint by approximately 40%. These transactions demonstrate our ability to attract and retain high-quality tenants in our Midtown portfolio and service. Two good examples of tenants expanding their existing footprints, a trend we are seeing more of in our own pipeline, particularly in New York. For the full year, we leased approximately 740,000 square feet for a weighted average lease term of 9.6 years. Tenants continued to prioritize the highest quality assets in our two markets choosing to pursue well located amenity rich buildings run by best in class, well regarded Our portfolio is uniquely positioned to capitalize on these pronounced trends. We remain laser focused on delivering exceptional services and executing on our business plan. At quarter end, our same-store portfolio-wide leased occupancy rate at share was 87.7%, down 40 basis points from last quarter and down 360 basis points year over year.
As we look ahead, our 2024 lease expirations are manageable with 9.8% of annualized rent or approximately 764,000 square feet at share expiring by year-end. Our focus for 2024, the renewal of tenants in our portfolio with expirations over the next several years and the lease up of currently vacant or soon-to-be vacant spaces. Our pipeline continues to strengthen. We currently have leases in negotiation and proposals in advanced stages for more than 300,000 square feet, a good portion of which is for vacant or soon-to-be vacant space. Beyond the 300,000 square feet. We have a healthy and growing pipeline with ongoing negotiations at various stages.
Turning to our markets, Midtown fourth quarter leasing activity of approximately 4.3 million square feet, excluding renewals, was up 49% quarter over quarter and 29% ahead of the 5-year quarterly average. While availability in Midtown remains elevated at 18% select submarkets in Midtown score of far less availability hovering at or close to equilibrium. The result of this has been improved economics in Premier buildings, particularly on upper floors in the sought-after submarkets. Absorption in Midtown was positive during the fourth quarter and positive for the full year first full year of positive absorption in Midtown since 2018. This was driven by leasing activity largely by the financial services industry and by space withdrawals attributable to building purchases from residential conversions. Tour activity in our New York portfolio continues to increase as does our pipeline of prospective tenants, most notably for the remaining vacancy at 1301 Avenue of the Americas and the block of space. We are currently marketing at 31 West 52nd Street at 1301 Avenue of the Americas. Our market leading amenity center set to open in May 2024, and it continues to be a differentiator in our pursuit of leading companies. Our New York portfolio is currently 90.2% leased on a same-store basis at share, down 20 basis points quarter over quarter and down 190 basis points year over year. During the fourth quarter, we leased approximately 139,000 square feet with a weighted average term of 12.4 years with an initial rent of approximately $78 per square foot in New York lease expirations during 2024, it will be 10% of annualized rent or approximately 572,000 square feet at share, driven largely by the known move-out of Clifford Chance at 31 West 52nd Street.
Shifting our focus to San Francisco. San Francisco recorded 1.5 million square feet of leasing during the fourth quarter, up 25% above the pandemic era quarterly average for 34.8% below the quarterly average during the preceding 10-year period. For the full year, leasing activity in San Francisco remained muted with very little demand coming from the traditional technology companies. Despite a lackluster year of leasing transactions. We are optimistic as San Francisco remains a hotbed for Premier tech talent with high growth potential. Return to office continues to accelerate and San Francisco-based companies, particularly AI based companies continue to attract significant venture capital funded. As a result, total square footage of tenants in the market continues to increase will be closer to San Francisco's historical average as these companies contributed to approximately 25% of the leasing activity in 2023 and have become an increasingly large percentage of the demand pipeline in San Francisco pursuing space of varying sizes in San Francisco's premier buildings. At year end, our San Francisco portfolio was 80.8% leased on a same-store basis at share down 120 basis points quarter over quarter, down 810 basis points year over year, driven by the known move-out of over which we have partially backfilled with the previously announced Waymo lease. Looking ahead, our San Francisco portfolio has 9.3% of annualized rent or approximately 192,000 square feet at share expiring by year end. We look forward to updating you on our progress. With that summary, I will turn the call over to Wilbur, we will discuss the financial results.

Wilber Paes

Thank you, Peter, and good morning, everyone. I will start off my prepared remarks by covering the details of our fourth quarter results and then get into the building blocks of our 2024 earnings guidance. Yesterday, we reported core FFO of $0.21 per share for the fourth quarter, which came in at the high end of our guidance range and $0.01 above consensus estimates. Same-store growth in the fourth quarter as expected was negative 8% on a cash basis and negative 7.2% on a GAAP basis, driven by tougher comps and the previously talked about lease termination of an 83,000 square foot tenant at 1633 Broadway in our New York portfolio and over lease expiration at Market Center in our San Francisco portfolio. During the fourth quarter, we completed 173,770 square feet of leasing at a weighted average starting rent of $80.17 per square foot and a weighted average lease term of 10.2 years mark-to-markets on 112,898 square feet of second-generation space, it was negative 2.5% on a GAAP basis and negative 7.5% on a cash basis.
Turning to our balance sheet, outstanding debt at year end was $3.66 billion at a weighted average interest rate of 3.9% and a weighted average maturity of 3.1 years, 87% of our debt is fixed and has a weighted average interest rate of 3.28%. The remaining 13% is floating and has a weighted average interest rate of 8.01%. Our liquidity position at year end remains strong at over $1.2 billion, comprised of $469.1 million of cash and restricted cash at share and the full $750 million of capacity under our revolver. As you all saw last week, we announced that we together with our partner had modified and extended the loan at One Market Plaza. We paid the loan balance down by $125 million, of which our share was a little over $61 million. There was a minimal uptick in the rate and we pushed out the term by three years to 2027. Needless to say, this was a terrific outcome and a very challenging capital markets environment. As we have reiterated throughout the year, protecting our balance sheet has been and continues to remain our top priority on the one hand, we have dealt with several near-term maturities by opting to pay down a portion of the debt on certain assets like One Market Plaza and 300 mission in exchange for favorable rates and extended terms. On the other hand, we have opted not to pay down any debt or invest additional capital in certain assets like one 11 Sutter Street and now Market Centre one 11, Sutter and market center have been dealt a hard blow with the timing of several key lease expirations, coinciding with a tough leasing environment and upcoming debt maturities in the case of one 11, Sutter at year end 2022, we wrote down our investment to zero. And in early 2023, we defaulted on the loan and negotiated a cash flow loan, whereby we did not invest any capital from our balance sheet, the loans set to mature in May of 2024, and our position on the asset hasn't changed from the fourth quarter of 2023. We also wrote down our investment in market center to zero. The occupancy at Market Center dropped significantly as a result of all those move-outs and currently sits at 55.1%. Furthermore, over 110,000 square feet set to expire in 2024 and the debt is scheduled to mature in January 2025. These two assets are in workout mode. We do not know what an ultimate resolution will look like, and there is a strong possibility that these assets may not be in the Paramount portfolio going forward. The value of these assets on our books have been taken down to zero and the fair value of the assets are significantly below the existing debt amounts. They are currently a drag on occupancy, a drag on earnings and a drag on leverage, and we get no credit for it in our stockprice. So all that said, we have decided to remove these assets from our core and same-store portfolio effective January 1, 2024 until we reach a resolution with our respective lenders on a solution that makes sense for all parties involved to that. And we have provided additional disclosure in our supplemental package and our investor deck to help investors understand the impact those two assets currently have on portfolio operations.
Let me spend a minute on the assumptions used in deriving our 2024 core FFO guidance. We expect 2024 core FFO, which again excludes the impact of the two non-core assets I described earlier to range between $0.73 and $0.79 per share or $0.76 per share at the midpoint in order to facilitate an apples to apples comparison between '23 and '24. We have also presented in our supplemental package, a 2023 core FFO figure as adjusted, which is $0.86 per share and excludes $0.01 per share of earnings contribution from the two non-core assets. So on a comparable basis for FFO is expected to decrease by $0.1 per share from adjusted from an adjusted figure of $0.86 in '23 to $0.76, which represents the midpoint of our 2024 guidance. The $0.1 per share decrease in core FFO is comprised of the following an $0.08 net decrease in cash NOI, driven primarily by significant lease expirations, a $0.03 decrease in termination income that is not budgeted for in 2024 a $0.02 decrease in interest fee and other income net of taxes, a $0.04 increase in interest expense and a $0.01 increase in G&A. These negatives aggregated $0.18 per share, partially offset by an $0.08 increase in straight-line rent adjustments due to new lease commencements. Our same-store growth is expected to range between negative 6% and negative 4% on a cash basis and negative 4.5% and negative 2.5%. On a GAAP basis, we expect to lease between 615,900 thousand square feet, and we expect to end the year with a same-store leased occupancy rate between 86.1% and 88.1%. For additional information on our 2024 guidance, please refer to our supplemental package and investor presentation, both of which are available on our website at w. w. w. dot PGRA. dot com. With that, operator, please open the lines for question.

Question and Answer Session

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two, if you would like to remove your question from the queue For participants using speaker equipment. It may be necessary to pick up your handset before pressing Sarkis.
Camille Bonnel, Bank of America

Camille Bonnel

Good morning. Appreciate your comments, Wilbur on Market Centre and over 111 Sutter. So just wanted to better understand the motivations here because the refinancing risk has been known for a while. And if we look back to prior discussions around these assets and they've been highlighted as top-quality and uniquely positioned within the market, so has something around the team's expectation for re-leasing these buildings just been pushed so far out that it just doesn't make sense to own anymore?

Wilber Paes

Yes, Camille, I mean, obviously, we bought these assets because we do believe they are top-quality assets. We invested in these assets in 2019, and the world has changed dramatically since then with COVID and interest rising interest rate environment, inflation, et cetera, et cetera. And San Francisco continues to lag New York in terms of fundamentals. And we have limited resources and we got to make relative to that. We have a certain amount of cash. We have a certain amount of ability to work these loans and we have to make the right capital allocation decisions on where we see fit to invest additional capital and where we deem it not. And in the case of these two assets, they will also Delta terrific terrible blow in the midst of this declining fundamental environment with significant lease expirations, they sit at 55% and in the case of Market Center will probably go down to the 40% with the roll in 24 and you have an impending debt maturity there. So we sit here the group on the capital allocation table and making a decision on which assets we think makes sense to invest the capital and which it doesn't. And so we decided the ultimate resolution of this will take some time to play out, but it muddies our core portfolio operations. So by excluding it from the get-go, our investors are able to appreciate the impact on a go-forward basis. Should the resolution be where we end up handing the keys back to the lender.

Camille Bonnel

And so --

Albert Behler

Camille it also shows that we are that we are really focusing on shareholders, shareholders value yet and then doing the right thing for for the Paramount shareholders. There's certain assets where it makes a hell of a lot of sense to invest more capital. And normally, these situations, they get negotiated and we are we are starting that negotiation at Market Centre. And we are you might recall, I mean, we are in the good situation as a company that we have a clean balance sheet without any debt and with cash available. And we want to keep the company strong. And there's like a burger was saying we are focused on the assets where there's equity currently Could there be equity in Market Center and one 11 further, of course, if the market turns around since San Francisco seems to be historically turning around quicker and more dramatic in both ways up and down, we will see what time will bring, but for you, but currently it doesn't make sense to invest expensive shareholder capital.

Camille Bonnel

Got it. Sounds like this is more of a capital allocation decision on looking though at how tight your concentration is in that market? And sorry, if I missed your earlier comments, Peter, but how confident are you in backfilling or retaining the large lease expiry in one more country and One Market Plaza through 2025?

Albert Behler

Yes, Camille, good morning.
So you're right, we do have some significant lease roll in 2025 in San Francisco, approximately 1.1 million square feet or 35% at share. Approximately roughly 65% of that role is made up of three three tenants and those being KPMG, Google and JP Morgan. I will tell you that we enjoy a very, very good relationship with all three. We are in discussions with all three, and there's not much more I can say beyond that.

Camille Bonnel

Okay. And just finally, the mark to market on leasing during the quarter declined quite a bit. Has anything changed around how you're approaching your leasing strategy? And overall, how should we be thinking about pace of Pace leasing this year?

Albert Behler

No, I think I think it's hard to look at it on a quarter-by-quarter basis.
What I would say is that our properties and I'll start in New York are in submarkets, predominantly the Sixth Avenue submarket, which has an availability rate that's hovering close to equilibrium. And I think what we are seeing is for the first time a bit of pricing power on upper floors, as an example, we do know that a disproportionate amount of Midtown availability happens to be concentrated on lower floors. So we're when and where we have availability in our very high-quality buildings, of course, we are starting to push on spaces that we're now marketing on upper floors.

Wilber Paes

Camille, I won't say on your mark-to-market comment, as Peter said it, it does fluctuate quarter to quarter. It's a function of tenant mix that expires in that given quarter and leases that you execute. But if you look at the full year for 2023, mark to market was on a GAAP basis and down less than 3% on a cash basis.

Camille Bonnel

Thank you.

Operator

Vikram Malhotra, Mizuho

Vikram Malhotra

Thanks and I guess I just want to go back to the buildings that you mentioned, one 11 Secca markets and I guess in the K you've also mentioned seven, 17th and then 60 wall in terms of the bases and additional capital. So maybe just any thoughts on those other two properties? And I guess, Wilbur, if you can clarify if these buildings are given back, is there a tax implication in terms of the debt value versus you're writing them down to zero?

Wilber Paes

Sure.
Let me let me start with the first part of your question. Vikram, on your you're talking about the basis being negative. There is an accounting convention for investments in equity method joint ventures upon which when you get to zero or you get to negative basis you discontinued the equity method of accounting.
Okay.
And so you're no longer allowed to pick up your pro rata share of earnings from that venture. And you only recognize earnings to the extent of cash flow distributions. And so that's the comment with respect to 60 Wall and what center the impairments on these assets have taken our investment down to zero in the case of ARM, one of them is southern market center. That's a deliberate decision for us, not to invest additional capital in that so that the strategic decision versus the others are more an accounting convention. As far as the second part of your question, I'm sorry, can you repeat that again?

Vikram Malhotra

Yes.
Just a are there any tax implications like if you give back the arrow here.

Wilber Paes

So there are essentially the way you should think about it is you apply these assets for some number in 2019. The if you hand the keys back, you're handing it effectively at the debt balance and that's your your your your proceeds, you'll have a delta between that and the basis of the asset, which in this case will generate tax losses given when these assets were acquired. So there's no punitive an element of handing back the keys if that's where you're trying to focus.

Vikram Malhotra

While I was just trying to clarify like if the base is actually zero. So there's actually a tax bill, but you're actually clarifying that.
No, there's it's a punitive impact. So that's helpful. Just a second question on the --

Albert Behler

German minus figure from my end. With regard to seven, 12 seven 12 as an asset, there's no negative would that asset as such, the asset is a prime asset in Paramount's portfolio. It has been bought a long time ago and Wilbur, I think answered that question, but I don't want investors to get away from this seven 12 is in any kind of financial distress.

Vikram Malhotra

That's helpful. I guess, Albert, just sticking with you, the you've some of your peers have decided to buy out JV stakes and take I guess operational or execution opportunities down the road, are you hoping for lease up or just redevelopment? I'm wondering, either in the fund business or in general, how are you thinking about you're deploying select capital towards some of these JV stakes or even mezzanine investments like you have. I do have a debt book. If you can just clarify that is the time right now, what are you watching for us not ?

Albert Behler

I think it's too early to really go into this in detail.
We like to we like to treat our partners as real partners, we wouldn't take advantage of them unless they really decide against certain on a going forward situation. And we have the opportunity and two to buy it piece at a below market level, we will be again in each and every case, very, very selective because I said over and over on these calls that our cash is very valuable to us and we don't want to spread it out amongst other assets, if it's not crystal clear that we can generate superior returns to our shareholders.

Vikram Malhotra

Okay, great.
And last one, if I can just clarify, Peter, did you say there were 300,000 square feet of deals under LOI or is that sort of a pipeline that you're pursuing towards the leasing goal That you laid out?

Peter Brindley

My Victory, my reference to 300,000 square feet was specifically related to leases in negotiation or proposals and very advanced stage stages. Beyond beyond that, we have a pipeline that we feel good about as well. It is growing. And as I mentioned in my remarks, it is healthy and better than it was a year ago. I would say, but but specifically leases out or proposals in advanced stages, that was my reference to the 300,000.

Vikram Malhotra

And could you break it up just roughly between New York and San Fran, it's roughly 50 50?

Peter Brindley

Okay.
Thank you.

Albert Behler

Thank you.

Operator

Steve Sakwa with Evercore ISI. Please go ahead.

Steve Sakwa

Yes, yes, thanks. I guess, Albert, we've seen a couple of very high-profile retail transactions along Fifth Avenue at sort of eye-popping pricing. I know you still have some vacancy from the old Henry Bendel space, and I'm just curious how you're sort of thinking about some of those street retail positions that you on today?

Albert Behler

Well, we are we have a quite a presence on Fifth Avenue, as you rightfully said, seven 12 is right in the mix and the Peter and his team have been cautiously marketing the I would call it left over space from Andrew Van Daele. You might recall that be the lease term as a relatively small space of that, some of that former Henry window space to Harry Winston at roughly the price of the entire Henry Bendel space brought for the investors. The retail market is clearly picking up, not only on the investment side, but also on the demand side in the luxury area. And we are also in discussions with with various opportunities with regard to the assets where we hold 1%, which is seven 50th Avenue, it's an asset management opportunity for Paramount. And I don't want to go into into more details. Of course, we have watched the up the <unk> transactions that just happened between end of last year and early this year. So we think it's great news that the first avenue is in that location, which is <unk>, a world leading retail location is picking up significantly. It's good for Paramount. It's good for New York. It's good for our shareholders.

Steve Sakwa

Okay, thanks. I will break out the refinancing that you and your partner did it at One Market was certainly Great. I guess we were certainly surprised, I guess pleasantly at the rate that you guys were able to achieve. And I can understand the banks and the CMBS folks sort of pushing problems out. I guess I was just really surprised that the wait, it was basically flat to where the old rate was, which is certainly sort of a below market rate today. Any color you can sort of offer on how the banks and lenders are thinking about resetting these loans if they're willing to push them out?

Wilber Paes

Dr. Stephen, I think I kind of alluded last quarter on this each spot process is bespoke on it. It depends on the quality of the asset. It depends on the quality of the sponsorship. And in this case, obviously One Market Plaza is arguably the best asset in San Francisco and it's close to 95% leased. In-place rent is north of $100 a foot. So it has it has a great, great quality together backed with great sponsorship. I think you know, we were very early on talking to our lenders in this instance. I think the sponsorship, the relationships all display into into the factor of getting a superb execution done.

Albert Behler

And the relationships I mentioned at relationships is very important. It's part of our culture at Paramount, and we think that is very important for the long term. And we tried to have the best relationships with our our lenders. And I think the straightforward newness and the fourth rightness and dealing with these situations, I've helped help the Pilbara and his team, and that's the way how we approach things?

Steve Sakwa

Okay.
Just last question, maybe for Peter, just on the leasing. Appreciate the color on the kind of the pipeline. Just any color around the types of tenants that you're speaking to? Is it broadening out at all from financial services and legal? And I guess I know you've got this big Google expiration coming up in 25, the loan there got extended for three years. Does that does that is that sufficient to maybe allay any fears that maybe they had about kind of the ownership of that building as they think about space needs in San Francisco?

Peter Brindley

Certainly, I think they acknowledged that it was really very important what we accomplished and it shows our investment and our commitment to that to that property.
And then we've had productive conversations. And there's not much really, as I said earlier, I can say as it relates specifically to Google, but I will generally say one market in terms of the limited availability and vacancy that we do have happens to be active currently. And so we feel good about that.
As it relates to the types of tenants we're speaking to in New York, it's predominantly financial services and legal. The legal industry in 2023 contributed 20% towards leasing velocity. They represent about 11%, 12% of our market in Midtown. So so they continue to show up and we're seeing them with proposals and tours and they're generally very active in San Francisco. It's predominantly tech that we're communicating with and we're speaking and trading paper with some smaller AI based companies. It's interesting at this time last year, I was not really much in terms of part of the tenants in the market pipeline. And by year's end, they contributed about 25% towards total leasing activity in 2023.
So these requirements come about very quickly.
We have our eyes wide open. We're in front of every one of these requirements from when I refer to the 25%. Of course, that was made up primarily of Entropic and OpenEye.
But these are these are requirements that come about very quickly and we're in front of them and we're trading paper with them.
So as Albert mentioned earlier, this is a market that can change very quickly. And I think the team is doing a very nice job being in front of every single requirement. And when we have an opportunity at our building show very, very well. So we are hyper-focused on on on leasing our vacant spaces then, of course, dealing with the role that we have in front of us in San Francisco.

Steve Sakwa

Great.
That's it for me.
Thanks.

Peter Brindley

Thank you, Steve.

Operator

Tom Catherwood with BTIG.

Tom Catherwood

Thanks, and good morning. Everybody., maybe going back to your comments about capital allocation and focusing on retaining tenants with expiring leases over the next few years. Do you have near term plans to invest additional capital into select buildings to facilitate these expansions beyond just the normal course.
Leasing expenses?

Albert Behler

Well, we have, as you know, we have worked on the amenity center that we call the Paramount club here 1301 Sixth Avenue that's going to open in the second quarter of this year. Peter has talked about it a couple of times, we get some very positive feedback already from tenants. They are already booking Space four for full events. And that's something that's really the team has spent a lot of time on it to really structured. So it's helpful for the infrastructure of the of the Paramount, our buildings here in Midtown. So we are very focused on hospitality. We are very focused, but these are soft factors on security in these assets. And other than that, I think we Tom, we talked about in the past, our assets are and pretty well maintained and that Kip, very modern and dumb. We do upgrades where they are necessary and we have done that in San Francisco. We have a couple of amenity facilities in the various buildings there. And Tom, I think that's why wide tenants in tenants like these kind of assets.

Tom Catherwood

Appreciate that.

Wilber Paes

Tom.
Maybe just to just to add to what Albert said. Obviously, in terms of major CapEx. When you when you look at the portfolio, it's really the amenity center that we have about $10 million or so left to spend. We had talked about that being roughly a $39 million project, of which our $29 million has already been spent through the year. So you've got about a $10 million of spend there and the only other outside of regular TI. CapEx is the our share of the development on 60 Wall. And again, that's going to get offset by the fee stream that we generate from that project.

Albert Behler

If you only have 5% in that asset.
So that's a long negotiation that was held would be with the lending team and with our partners and the there will be a large amount of capital being invested. And we talked about that. And as we were saying, that's basically for Paramount since we our shares Limited and it will be relatively benign.

Tom Catherwood

Got it.
Appreciate that. Let me just make sure I put this together. Understand it. So going back to Peter's comments on the 1.1 million square feet expiring in San Francisco through 25. So there are then major capital projects to get ahead of some of those expirations in one front or One Market Plaza that the buildings are upward. And in that case, it's just the leasing costs on it from a capital allocation front?

Albert Behler

That's correct.

Tom Catherwood

Got it.
Got it.

Peter Brindley

Then maybe 1.1 million square feet in 2025 in 2025, not through 2025.

Tom Catherwood

Got it.
Thanks, Peter.
And then maybe going over to the non core portfolio, and we'll break I appreciated all the exploration thought process and the capital allocation. But what is the risk of other assets heading in that direction, especially given the impairment on 57 in 4Q?

Wilber Paes

Look I think you know, each asset has to be looked at differently. We've said this and not at risk of sounding like a broken record, but the impairment that was taken on 57nd end market center. It was taken at the joint venture level. It wasn't us impairing our investment in the JV, the two very different models for impairment. So there was a real estate impairment at the property level that we picked up our pro rata share, which caused our basis to go to zero. So in the case of fifty five seconds you run through the model you run through lease expirations, you know, and obviously you have KPMG's lease lease expiration that's looming on that. And so all those things were factored in and you went to an undiscounted model. And if the undiscounted cash flows are lower than the basis, then you go to step two approach where you measure it on fair value, and that's how that impairment loss was derived. I would not take a guess impairment loss as an indication of strategy.

Tom Catherwood

Appreciate that color, Wilbur. Thank you for that. And kind of last one for me, Albert, you mentioned very distinctly remaining disciplined on allocating capital. Along those lines, though there's number of firms out either raising opportunistic funds are now deploying opportunistic funds and over time, that was very much part of Paramount's DNA. What is your appetite for maybe expanding your involvement in this side of the fund business again?

Albert Behler

while we this is not a not do. We are we have been in the market to a just now to raise our special opportunity fund and that that fund is. And second, if it's focused, especially on these opportunities. It's a fund, very similar to the previous funds. We had a special situation funds fund before we had before the Company went public in 2007, 2008 that a special situation fund number one did very well too for our investors and we are out marketing that fund. I don't want to have Yes say what kind of numbers. We we are expecting. We are hopeful currently that we have the first closing in the first half of this year and then we take it from there. I think it's a great opportunity because I think the later part of this year and in 2025, there will be opportunities there and we will take advantage of it.

Tom Catherwood

I appreciate all the interest.
Thanks, everyone.

Albert Behler

Thank you.

Operator

Once again, if you would like to ask a question, please press star one on your telephone keypad. Next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Blaine Heck

Great.
Thanks.
Good morning.
So just to be clear, the core 2024 guidance excludes the income from one 11 Southern Market Centre, but also excludes the interest expense from those assets. So first, is that correct? And second, I guess I understand putting some NOI in discontinued operations, but I'm not sure I've ever seen the associated interest expense excluded. So can you just talk about how you came to that decision and whether you guys or continue to in your presentation give both total FFO, including the impact from noncore assets along with the core FFO, excluding all impacts from those assets as long as they're still in the portfolio?

Wilber Paes

So to answer your first part, that is correct. The core figures exclude any contribution, positive or negative from those assets we have dimensioned in both for 2023 and 2024.
On to answer the second part of your question it will absolutely be included in FFO, hence the alternative measure core FFO, where we are taking out elements that distort the comparability of earnings period-over-period. And because a decision has been made on these assets not to invest additional capital nor fund the interest and expense shortfalls are it is entirely appropriate to remove that from your core operations and show it as the way we look at our business so that investors can appreciate the comparability of results quarter or year over year, but it absolutely will be included in the Navy definition of FFO.

Blaine Heck

Okay.
Yes, I've definitely seen some of your peers carve out non-core portfolios. One of them did that late last year, but they're still including the interest expense on debt secured by those assets in guidance.
So I just I'm not sure I've seen that part of it before, but --

Wilber Paes

That's going to help you hopefully a commentary here that blame that peer that you're referring to does not present two measures of FFO just to be clear.

Blaine Heck

Okay.
All right. That's helpful. And then just second question, you're sitting on a relatively large cash balance at $428 million. You guys talked about the $10 million for common area development with Tom's question, and you'll have leasing costs as well. But past those. Can you just talk about potential uses for that capital in the near term? Are you guys interested in share repurchases here or you have better opportunities to pay down debt.

Albert Behler

Blaine, this is Albert. We have been saying over and over on these calls that we want to be very selective in what we do with our capital, especially in times like this, and these are very unusual times. We want to we want to protect our cash on balance sheet. I think that's in the best interest of shareholders from there. Could be things coming up that require cash and there could be opportunities to pay down debt. But we want to we want to keep our optionality. I think there's nothing more important and we have the wonderful opportunity that our balance sheet is crystal clear. We don't have any debt on balance sheet. I say this again, and we don't want to get in a situation where the company gets into any kind of distress. So we will be firm we will be very, very selective in using that cash.

Blaine Heck

Okay, great.
Thank you, guys.

Albert Behler

Thank you, Blaine.

Operator

I would now like to turn the floor over to Albert Behler for closing comments.

Albert Behler

Thank you. Thank you all for joining us today, and we look forward to give you all an update on our continued progress when we report our first quarter 2024 results, Goodbye.

Operator

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.