SL Green Realty Corp. SLG is positioning itself well to capitalize on the recovery of the New York City real estate market and leverage the capital deployment interest of international investors in the market. Recently, it announced the closing of the 450 Park Avenue acquisition in a newly formed joint venture. It marks a notable boost for SL Green’s growing investment management platform.
The ownership group comprises institutional investors from South Korea and Israel. SLG, which retained a 25.1% stake in the property, will administer the leasing and management of the property on behalf of the partnership.
450 Park Avenue is a prominent 33-story Class A tower encompassing a total of 337,000 square feet of luxury office and prime retail space. With its premium location at the corner of 57th Street and Park Avenue, the property boasts of high-end boutique financial services and luxury tenants, including Banco Bradesco, BDT Capital Partners and Oxford Properties. Also, the corner retail location will be occupied soon by Aston Martin’s first-ever Manhattan showroom.
On behalf of the ownership group, SL Green has plans for capital investments, including developing a new amenity offering, providing high-quality, tailored programs and services for building tenants.
Markedly, SL Green has a mono-market strategy focus with an enviable footprint in the large, high-barrier-to-entry New York real estate market. This, along with the ownership of premier Manhattan office assets, has enabled the company to enjoy decent occupancy across its portfolio over the years.
Additionally, the company aims at maintaining a diversified tenant base to hedge the risk associated with dependency on single-industry tenants. As a result, its largest tenants include renowned firms from different industries. Moreover, with long-term leases to tenants with strong credit profile, it is well-poised to generate stable rental revenues over the long term.
The U.S office real estate market continues to struggle with the aftereffects of the health crisis, with negative absorption and increasing vacancy levels. The lackluster environment can be attributed to pandemic-led job cuts and remote-working models, which have diminished office space utilization.
While a significant government stimulus and increasing vaccination coverage are likely to support job growth, a significant turnaround is less likely, specifically at older office properties that are witnessing rent declines amid the increasing tenant preference for high-quality buildings. Also, the emergence of the new variants of COVID-19 could further dampen the ongoing recovery in the office real estate market.
Shares of this Zacks Rank #3 (Hold) company have declined 36.2% over the past six months compared with the industry's fall of 19.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Stocks to Consider
Some key picks from the REIT sector include Extra Space Storage Inc. EXR and OUTFRONT Media OUT.
The Zacks Consensus Estimate for Extra Space Storage’s 2022 funds from operations (FFO) per share has moved marginally upward in the past month to $8.25. EXR presently carries a Zacks Rank of 2 (Buy).
The Zacks Consensus Estimate for OUTFRONT Media’s ongoing year’s FFO per share has been raised 7.7% over the past two months to $2.09. OUT sports a Zacks Rank #1 currently.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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