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SL Green Realty Corporation (SLG 2.79%)
Q3 2019 Earnings Call
Oct 17, 2019, 2:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you, everybody for joining us and welcome to SL Green Realty Corp.'s Third Quarter 2019 Earnings Results Conference Call. [Operator Instructions]
At this time, the Company would like to remind listeners that during the call management may make forward-looking statements. Actual results may differ from the forward-looking statements that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the Company's Form 10-K and other reports filed by the Company with the Securities and Exchange Commission.
Also, during today's conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the Company's website at www.slgreen.com by selecting the press release regarding the Company's third quarter 2019 earnings.
Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call, please limit your questions to two per person. Thank you.
I will now turn the call over to Marc Holliday. Please go ahead, Marc.
Marc Holliday -- Chairman and Chief Executive Officer
Okay. Thank you. Good afternoon, everyone and thank you for joining our call today. The third quarter ended up being very much in line with our expectations and puts us on a very good glide path to meet many of our full year goals and objectives. We've made great headway on a number of strategic fronts and we believe, as the Company continues to shrink, simplify, develop and lease that shareholders will benefit from these actions that are focusing all of our resources on creating significant value within the remaining portfolio.
It appears based on stock performance that this value creation is neither appreciated nor understood by the public markets, but time and time again through sale of non-core and mature assets, we are realizing prices and profits that routinely and dramatically outpace the values implied by our stock price. The recent sale of The News Building, 220 East 42nd Street for $815 million is another such example of this having generated substantial gains over an 18 year hold period. In fact, the unlevered IRR was 11% compounded over that period of time, a true champion of investments. This sale comes on top of the $9.1 billion gross asset value of other product we have sold just since 2016 which has generated $3.4 billion of net proceeds to the Company, and we have no intention of stopping there. We are already at work on lining of additional sales of assets that don't meet our long-term plan and we will provide more detail on these planned dispositions at our upcoming December investor meeting.
These assets will largely be in the $500 million and under range to take advantage of a still active and healthy market for leverageable midtown assets that can be acquired for an equity check size of $250 million or less. We will also expand our joint venture investments in premier portfolio assets that we intend to hold or develop like the initiative we just launched to identify capital partner for our exciting new development project at One Madison Avenue and more on that. One Madison is now a 100% complete on design development drawings and we expect to have a complete biddable package of CDs by April and be in full blown redevelopment by sometime middle of 2020.
Tenant response to this early stage project has been impressive and we are quite confident that we are building the right product in the right market at a rental price point that appeals to a wide variety of users. On the leasing front, we are well ahead of schedule on leasing volume and projected mark-to-market, which is causing our FFO to be trending towards the high side of our estimated range, notwithstanding aggressive dispositions and intended reductions in the debt and preferred equity portfolio both dilutive activities has offset in part by debt reduction and stock buyback.
With another 71,000 square feet of Manhattan office space leased so far by us in our portfolio in October, we now stand at 1.25 million square feet lease for 2019. Now, add another 260,000 square feet of leases that are out for signature with signings expected imminently plus an additional 1.4 million square feet of leasing pipeline on top of that and you have the makings of what we hope will be a very big year-end for this Company. We expect to add nearly 100 basis points of occupancy between now and year end, bringing us to our original goal for the year. And at 22% mark-to-market on our Manhattan leases which is where we are currently, we are far ahead of our goal and expect to improve on that by year end.
Of particular note, the current pipeline of leases, it stands at about 1.65 million square feet, is the highest we've ever experienced with low single leasing the pipeline exceeding 335,000 square feet, which is a testament to the broad underlying strength of demand from tenants across all sectors. And that completely excludes all ongoing discussions we are having at One Madison, none of that is in that stated pipeline. So, leasing activity Manhattan wide is robust and it's within that environment that we have been achieving our successes this year, and the market as a whole is trending towards last year's record setting totals fueled by the 10th consecutive year of private sector and office using job growth in New York City.
Job growth is being driven, of course, by technology and healthcare with lesser gains, but gains nonetheless in finance and business services. There has been nearly 23 million square feet of leasing through Q3 and expectations are for the full year total to again eclipse 30 million square feet in Manhattan. Large block and high rent demand has been concentrated around new construction projects and One Vanderbilt has been a big beneficiary of this trend. This transformational project at the crossroads of Midtown is now 61% leased after the recent signing of an additional four floor to The Carlyle Group representing Carlyle second expansion of their -- since their original lease, bringing their total presence in the building to approximately 165,000 square feet or thereabouts.
Of course, there continues to be a number of ongoing and advanced negotiations for additional space and we feel comfortable that we're on track to meet our goal for the year and more importantly vastly exceed our original underwriting for this project that we first unveiled in 2015. We topped out the steel at One Vanderbilt at 1,401 feet on September 18th, just almost one month ago. And we broadcast the images of local 40 iron workers standing on top of the buildings 157 foot spire in celebration of this amazing accomplishment.
The ribbon cutting is still scheduled for August 4, 2020, a full three months ahead of our original schedule. So with that in the words of Andrew Mathias, reports of New York's demise are greatly exaggerated and we, if you want to hear more and we hope you do, please join us at our Investor Conference on December 9th, where we'll unveil our view of 2020 and up -- and provide an update on our very, we think thoughtful and executable strategic plan.
With that I'd like to open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] And our first question is from Manny Korchman from Citi. Your line is now open.
Manny Korchman -- Citi -- Analyst
Hey guys, good afternoon. Marc, you mentioned the sweet spot for deals being sort of $250 million equity check, deals under $500 million. Are you seeing any other sort of changes in the market other than the size and has the buyer pool at all changed in either of those assets or larger ones?
Marc Holliday -- Chairman and Chief Executive Officer
Let's -- I'll start off. Andrew will give you some thoughts and commentary about the market. The market has become, I think more domestic in nature. So -- and the amount of fund raising going on in the real estate sector right now with private funds is extraordinary and we see no dearth of capital for many of the different classes or food groups or projects we can offer. I think development seems to be the most interesting for a lot of people. But also in order of priority, probably value plus, a value, core plus and core, different buyers for each one. But a very, very high proportion of domestic investors flushed with capital, but all -- I don't want to say constrained but all looking for check sizes that probably top out at about $250 million.
Above that there are still buyers, it's just -- it's thinner probably than it was a year or two ago and I think in large part that's just directly attributable to the absence of the Chinese buyer who is not really participating the market at this point although other groups are filling in that void and the market still continues to be firm and aided by declining interest rates. So Andrew, additional thoughts on depth in market.
Andrew W. Mathias -- President
Yeah. I do -- I would agree. And I think the debt markets are very, very aggressive right now and there's a lot of foreign capital coming into the market via the debt as opposed to via the equity. They seem to be more comfortable playing in that seat these days, but that's fueling transactions like a 711 Fifth Avenue where that equity check, even though that's a larger deal size is still only going to be around that $250 million level with a very high level of financing.
Manny Korchman -- Citi -- Analyst
Got it, thanks. And then in terms of your comments on the tech companies being obviously the leading demand source in the city right now, how does that play into your portfolio and is that a reason that you're looking more on the west side?
Marc Holliday -- Chairman and Chief Executive Officer
Yeah, I just want to -- I didn't say it was a leading source. It's where a lot of the growth is coming from. By far, the market is still dominated by financial services. Tech is taking -- is growing off of a very small base, so every addition to tech is very meaningful, but the 30 million square feet that's referenced, the majority of that demand or 23 million current, 30 million projected for the full year is certainly not tech. I think the basic business services, finance, healthcare, certainly technology, media, all form part of it, but I just -- I just want to be careful, it's not -- the majority of that leasing is not technology.
Matthew J. DiLiberto -- Chief Financial Officer
Well, I mean, the big news is that technology is a growing percentage of the tenant demand. Financial services, to Marc's point, have been the leader of what's leased -- of the industries that have leased space, particularly in midtown year-to-date, followed by TAMI broadly. And I think within TAMI and tech, specifically what's really changed and you've heard us say this in the past is, in this current cycle, it's the story of the large, well established, profitable mainline tech companies. So it's not the start up, young companies without a bottom line. And we think that's a tech, it's an industry that's growing, it's going to continue to grow and our portfolio has some well suited buildings to be receivers for that industry. One Madison Avenue in particular, 460 West 34th Street, our newest acquisition on 50th street all are ideal buildings for that kind of profile tenant.
Operator
Thank you. Our next question is from Michael Lewis from SunTrust. Your line is now open.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Great, thank you. Just based on your in-place leases and what you think the current asking rents are. It looks like you're looking at some rent roll downs in 4Q and then next year as well. I was just wondering, is that kind of a broad-based thing or is there a few large roll downs that maybe you could point us to?
Matthew J. DiLiberto -- Chief Financial Officer
It's Matt, Mike, I think there is a mix in there you're probably going to schedule includes all storage retail office everything in there, I would say there is nothing, no one driver in there. And we've pretty steadily beat the numbers that we put out there as evidenced by the mark-to-market we've achieved to date and what we see for the balance of this year and into next. So, there is nothing -- when you're rolling off of older vintage leases that have escalations for 10 years, your benchmark is a high number, but we are by and large still seeing positive mark-to-markets in the portfolio.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Okay, great. And then for my second question, I just wanted to ask, how you evaluate and maybe we should evaluate the effectiveness of the stock repurchase program. The Company has a long history of strong NAV growth, but the NAV -- the consensus NAV right now is the lowest it's been in a few years and the stock price, you already talked about. So I'm just curious how do we -- how can we know and look at this and how do you look at it and know that this has been a good use of capital?
Marc Holliday -- Chairman and Chief Executive Officer
No, we look at it solely as an investment alternative. I mean that's and when we line up the investments almost every time the stock repurchase wins out because we're buying more interest in a portfolio that gets better and better as we shed some of the non-core assets. And we're buying it at deep discount to private market value and our own internal values. For assets that we own control, operate and there's really very little in the way of risk of unknown or there's really nothing in the way of risk of unknown.
So, we look at that, both absolute return and risk-adjusted as by far the best place to park our money and we do believe that the program has been a complete success that we've been able to continue to make significant gains in our embedded NAV in a market that probably in the past year, values topped out a year ago maybe cap rates are probably, what, 25 basis points to 50 basis points. That would have an enormous effect on value to your point about, hey, the NAVs are dropping. Well if cap rates are gapping out 25 basis points, 50 basis points, you would expect to see that obviously, but the point is we did much, much more mitigation of that almost eliminated all of that down flow risk, because of the stock buyback program.
And the gains on that program I think will be fully appreciated and realized when we stabilize the eight development assets we now have in portfolio. There's just an enormous pipeline of assets that we buy into every time we buy our stock at essentially below cost. And when we achieve stabilized value and we impose that on an ever decreasing shareholder base, I think the results will be very powerful. At that point whether we get credit for it or not now in the public markets we can entirely control but we certainly see the benefits on paper of an investment program that yields the highest returns.
Operator
Thank you. Our next question is from John Kim from BMO Capital Markets. Your line is now open.
John Kim -- BMO Capital Markets -- Analyst
Thank you. I was wondering if you could provide some more color on the announced acquisition from this morning as far as your expected investment yields post capex. And also is this part of the strategy to make Hell's Kitchen along with Worldwide Plaza, like more attractive to tech tenants going forward?
Marc Holliday -- Chairman and Chief Executive Officer
Well, on the first question I think, we'll unveil some of those economics in December. We haven't closed on the asset yet, so I'd like to yeah, we're just in contract...
Matthew J. DiLiberto -- Chief Financial Officer
Development plan.
Marc Holliday -- Chairman and Chief Executive Officer
We're -- the period between contract close shortly -- after closed, we’ll put our development team together, we're going to get live numbers. We've done the underwriting, we know the kinds of returns under different scenarios we think are achievable. The asset is in an opportunity zone, we will likely use it as a receiver. There's a lot of different benefits we get from this asset in different ways we think we can make outsized returns here, returns that would be on par with stock buyback as I just mentioned. But with that said, I don't think we're prepared on this call to go through any detail on that, other than to say, we're in contract and give you a little information about what it is. So, Steve you can respond to the target market.
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Well it's -- this is a prewar building, it's timber construction, timber and brick. So it's got the creative cool factor that everybody searches for in today's world. Hardwood floors, wood beams, oversized windows, kind of an industrial vibe to it. And we'll celebrate that as part of our redevelopment and repositioning of the building. It's been owner-occupied for a good number of years at this point. So it's not a product that's familiar to the brokerage community. And therefore, step one will be introducing the building to the brokers community educating them about the opportunity. It's an ideal building that could go multi-tenant, could just as easily have one big tenant take down the space that we've got. And it's got a few roof setbacks to do great outdoor space as well. So we're excited about it and, you know, we've got a little bit of air rights to play with, that we find somebody that want to take advantage of that, we can offer that up as part of the menu choice as well.
John Kim -- BMO Capital Markets -- Analyst
And my second question is on the observation that I think your last presentation assume 1.8 million visitors annually and a $39 ticket price. And I'm wondering if any of those major assumptions have changed?
Marc Holliday -- Chairman and Chief Executive Officer
Not materially, I mean -- we have different scenarios all which go up from there, in terms of viewership, not in terms of ticket price. So I'd say 18 is the underwritten floor, if you will, that would be operating far less than full capacity where most of these, if not all of these objects operate. So we will hopefully eclipse those numbers, but are -- the underwriting in what we've shown publically generally, in December is -- have been at those metrics.
John Kim -- BMO Capital Markets -- Analyst
And that's something that you'll provide more update on at your Investor Day?
Marc Holliday -- Chairman and Chief Executive Officer
Not much. I think Investor Day we're going to focus not exclusively, but primarily on the eight development projects that we, that I mentioned at the outset, to give more color on those and really to convey the enormous earnings and profit potential of those properties upon completion, some of which are as early is 21, and as late as 23 or 24.
John Kim -- BMO Capital Markets -- Analyst
Thank you.
Operator
Thank you. Our next question is from Alexander Goldfarb from Sandler O'Neill. Your line is now open.
Derek Johnston -- Deutsche Bank -- Analyst
Hey, good afternoon. Two questions, first for Steve. Steve, can you just comment a little bit on your sense of the market, sort of post WeWork. From broker decks looks like last year, the co-working were a big leasing driver last year and this year they dial back, but obviously with the failed IPO, WeWork has pulled back more. So one, are you seeing an absolute impact in leasing volume overall with WeWork pulling back in the city, and then two, your sense if something happened to them, do you think that landlords or other operators would step in or you think that some of those tenants may not lease their space if they weren't leasing in a WeWork building?
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Okay. Well, I think a couple of things to help put it in perspective. Co-working generally speaking is only -- is less than 3.5% of the overall Manhattan market. And when you look at sort of the midtown submarket where we have the bulk of our portfolio, it's only 1.5% exposure to WeWork. So what you've seen in the co-working industry over the last couple of years, including with WeWork, they've migrated away from true co-working, and it's been more of a focus on the enterprise model. So when you think of Industrious and Knotel and WeWork's focus for the past couple of years on the enterprise model, what that means, that's leasing large blocks of space to companies that have a 1,000 employees or more.
So if WeWork too were to fill, which we don't believe they're going to, but if they were to fill, the enterprise tenants are easily converted over to a direct tenancy with the landlord. Take our exposure to WeWork in particular like at 2 Herald Square, where 100% of that space is occupied, and leased to Amazon. So if there were no WeWork Amazon would simply be our tenant, they step into that lease the next year, there will be no interruption of services and no break in our income. So I think, co-working, generally speaking, with the enterprise model helps sort of stabilize the landlord's exposure to the industry. And I think, we are going to see a little bit of pull back from that industry as they sort of find their way going forward, but you've seen other drivers in the market to take up the slack with the big tech tenants in particular.
Derek Johnston -- Deutsche Bank -- Analyst
Okay. And then the second question is on the DPE book. You guys are starting to pull it back, as you guys have indicated you would over the course of the year. But it's also been an incredible source of not only gains, but also opportunities like the 712 Madison or 2 Herald or 3 Columbus, etc. So as you guys reduce the DPE book, is there not a concern, but sort of a risk that maybe a lot of the good fodder that you guys have gotten out of it, you may not get out of it going forward, or there is enough, in that DPE book where you can still get the sort of the successful deals versus that, just the generic refinancing deals that get paid off in normal course?
Marc Holliday -- Chairman and Chief Executive Officer
Well, I think the intention is definitely to stay active in the DPE market. And it may take the form of more syndications where we're selling larger pieces of positions, but retaining total positions. I don't, I think we always put a high value on that aspect of the program and the ability to, on-earth opportunities through the program. So we definitely intend to continue that to pace. And if anything, as you said, will shift away from more of just the bread and butter income producing opportunities and try to shift towards assets that have more potential for ultimately making a deal with ownership or some equity upside etc.
Operator
Thank you.
Matthew J. DiLiberto -- Chief Financial Officer
I would add to that -- operator, just, DPE is a very important part of this program whether the balances you know $2.3 billion or $2.0 billion, $1.7 billion, it's still by market standards, probably the largest position of subordinate debt interests of any holder in New York City. So it's a big progress, and we've got a lot of relationships, a lot of positions modulating that balance up and down, is something we've always done in times sometimes market response. In this case, it's a source of liquidity for us, stock buyback and debt reduction. So it's, there's no hard and fast rule here, but at the moment, it's trending down which is plan, and in 2020 will have a new plan.
Operator
Thank you. Our next question is from Derek Johnston from Deutsche Bank. Your line is now open.
Derek Johnston -- Deutsche Bank -- Analyst
Thank you. Hi, everyone. So I've been getting a lot of client questions regarding high leverage levels. So I'd like to get your take on how you look at leverage and how are you planning on balancing buybacks and debt repayment going forward given the elevated leverage levels right now?
Andrew W. Mathias -- President
Well, I mean again in every presentation we don't, we don't believe our leverage levels are elevated. I think there is, that's a popular misconception, but if you look at things by LTV we're actually under-levered and we feel we're very reasonably levered on a debt to EBITDA basis. So we don't believe our leverage levels are elevated and we've kept within the guidance we issued at the beginning of the year expect to end the year within those bands for where we laid out the share buyback program is going to take us. So, Matt, I don't know if you have anything to add.
Matthew J. DiLiberto -- Chief Financial Officer
Yeah. I think I agree with Andrew, you know the program, the share buyback program was predicated on leverage neutrality. It has been throughout. That is our view going forward as well. And on an LTV basis, to Andrew's point we are prudently if not under-levered.
Derek Johnston -- Deutsche Bank -- Analyst
Okay, great. And then just switching gears to One Vande, hopefully Mr. Durels is in the room. How are things going with the top floors and leasing discussions progressing. I don't know if there are any executed loot leases on the top floors that you would share. But do you see them coming in higher or lower than you underwrote and could we expect greater than 200 per square foot and the levels? Thank you.
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Sure. I'll remind you that we've already signed one lease in the -- on Penthouse floors with McDermott Will & Emery, which is one of our early leases in the building and the rent was in line with our underwrite for that part of the building. We're trading paper with tenants as we speak today and are hopeful that will -- you have some good news to report in the not too distant future on some signed leases in that part of the building. So, you know, as we generally expected when we started the leasing exercise at One Vanderbilt, we knew that the building would lease from the bottom up, partly because that's where the larger tenants who make their decisions further out in time would focus and the smaller tenants, because the building tapers in its form to get to the smaller floor plates when you get to the top of the house, those tenants who make their decisions closer to their current lease expirations they would be last, those floors would be last to lease.
And that's what we're experienced – is what we expected is what we're experiencing and we're completely confident that the rents that we've signed to-date, the deals that we're negotiating and the balance of the building will lease up in line with plan.
Operator
Thank you. Our next question is from Steve Sakwa from Evercore ISI. Your line is now open.
Steve Sakwa -- Evercore ISI -- Analyst
Thanks. Marc, I guess I just wanted to try and follow-up on the buyback program. I mean I realize you will give a little bit more detail at the Investor Day. But to date, you've been able to tax efficiently sell a lot of assets. And I'm just wondering how deep that pool is, my understanding was the tax efficiency pool was sort of shrinking and I didn't know if that meant, you had to use the DPE book to kind of effectuate more buybacks. So, is there any color you can sort of share with us on that?
Marc Holliday -- Chairman and Chief Executive Officer
Well, look, I don't -- we'll see what we go through and don't go through in December. I mean, that every deal has a unique structure and tax planning optimization model and it's very hard to generalize. I'm not trying to avoid the question. I'm just, like every deal is different, and every deal, a solution is different to maximize after-tax, net cash flow proceeds, we've done a great job of that. I think if we saw an end to it as you were. And I think you'd hear that from us, but that's not what you hear from us. If anything I think what you hear in December is we want to go further, we are fully committed to this program. And we believe it's a program that's working as it, as we mapped it out, all the stock price, which unfortunately is the thing we control the least.
But, we like where we're headed and we think we have the fuel to do more partially from asset sales and partially as was always intended from DPE, but the downdraft in DPE that you've seen, one is a little bit more just sort of cyclical timing, two, we're a little pickier right now about the kinds of deals we're doing and we're not toughening upper standards, but we're certainly not relaxing standards like some other lenders might be. And I think we've done just an incredible job over the 21 years in this company of creating, what I’ll call best-in-class track record with respect to New York City mezz preferred deal on mortgage, rates of return and loss history. So, I wouldn't link those two things together, but yes DPE is a source for buyback, but we see continued ability to sell assets and sell big assets and manage the tax situation in ways where we'll be able to continue to do buyback with most if not all of the proceeds. And but I wouldn't expect a full presentation of that in December, because it's just not something that I think is in the interest of the Company and our shareholders for us to do other than just to let you know that we are doing it, and we feel we can go deeper.
Steve Sakwa -- Evercore ISI -- Analyst
All right. But you don't feel like it would require a lot of 1031 exchanges in order to tax shelter gains, which typically if you've got big gains you got to pay them out or...
Marc Holliday -- Chairman and Chief Executive Officer
Yeah. No, it wouldn't require that. I mean we're doing a little of that it just so happens on the 50, we're doing 1010 Washington. But that's -- that's just because for those two deals they married up in a way that works. So we're doing it, but we haven't really done much in a way 1031s, I don't think in the past year or two. And we might do more 1031s going forward, but not -- it's not linked to the buyback program, that’s all I'm trying to say. We'll do 1031s where they makes sense. And we're going to sell assets where we can and use our DPE to buyback stock, where we can.
And we think we have a way to go. If we ever ran into a situation where you know we had a gain and we had to do a special dividend we are a 100% comfortable with that, we just haven't been in that position. Will we be there or not with The News Building that's something I guess Matt will give further guidance on in December or next year, beginning of next year when we close. If we do, we do and, but we think we have strategies where we won't have to, we want to do very big one. So I would just I can’t generalize it, I would just say let's take it as it goes.
Steve Sakwa -- Evercore ISI -- Analyst
Okay. And then second, I know the -- you've got a large lease with Ralph Lauren coming up at the end of the year and you've got a building there with you know a ground lease that’s sort of coming up for reset. Is there any color you can just sort of provide as it relates to the leasing of that space or how we should be thinking about kind of the burn-off of that lease and kind of the redevelopment and capitalization of that building moving forward?
Marc Holliday -- Chairman and Chief Executive Officer
Well, the Polo lease was in place for about 15 years. And the deal for us has been very, very profitable. We've taken out all our basis and then some from the original purchase. So at this point, we're in a profit participation really with no downside at least with the original capital investment. And now we're looking to maximize the next...
Andrew W. Mathias -- President
Building is positive NOI without...
Marc Holliday -- Chairman and Chief Executive Officer
Yeah, you got positive NOI without Polo, so we're still making that on basically no basis. And now it's our job to figure out how to create a new 15 year asset out of that which we would typically do with a fairly middle of the road redevelopment program for an asset that's in a great location and we can deliver at a very competitive price point, but we will likely wait until the rent reval before committing any substantial sums of new capital. So, we know exactly what the -- what the economic returns look like to us, once that's known. And we're – we’re preparing our 2020 guidance without leasing up that space and we feel we're in a very good place without it, if we are to lease it in 2020. That will be upside, but that's not the plan right now. But when I say that, Steve is out there showing the building, or showing that space. The space that we show is better when there is no tenant in there. Right now, Polo is still operating. I think they maybe even are extending their time a bit or...
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
A little -- for a couple of months on the part of the space.
Marc Holliday -- Chairman and Chief Executive Officer
Yeah. So I mean, let's first get the space, which we know right now, it's fully leased building and it's a high cash flow building. We will get it back we will develop a redevelopment plan, we will take it through the rent revaluation. We think we're in a good position there given how that works and given the state of the market. And then be in a position to share with you specifics as to tie, lease up and capital and NOI creation. But it's all -- we look at it all is upside to our baseline at this point.
Operator
Thank you. [Operator Instructions] Our next question is from Blaine Heck from Wells Fargo. Your line is now open.
Blaine Heck -- Wells Fargo -- Analyst
Thanks, good afternoon. Steve, can you talk a little bit about capex trends out there, it looks like your TIs per foot and concessions on signed deals we're just a little higher this quarter, but we've heard from other sources that concessions may be leveling off in the market. Can you just talk about what you're seeing on the ground at this point?
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Well I -- I've been saying that concessions have leveled off since the second half of last year. Our numbers fluctuate depending on how much of the leasing that we do at any one point in time is our new leases for raw space versus renewals, versus installations that may be leased by new tenants that have a salvage value to it. So it's -- but to do an apples-to-apples comparison for long-term lease on raw space, concessions have generally been around $100 a foot in TI, sometimes a little heavier on the higher price point rents, sometimes a little lower on more -- some of the more commodity buildings. But when you blend that together with renewals and retrofits that's what pulls that weighted average down. But broadly speaking, I think concessions have been leveled for quite a while and certainly the free rents is definitely leveled off more than a year ago.
Blaine Heck -- Wells Fargo -- Analyst
All right. That's helpful. And I guess related to that, given the current supply demand dynamics, you guys are seeing in the market, do you think you could give us updated thoughts on expected not effective, market rent growth or decline in Manhattan, over the next 12 months and maybe which submarkets you think are poised to outperform or underperform at that average?
Matthew J. DiLiberto -- Chief Financial Officer
Blaine it's Matt, I think that's a little bit of commentary you should wait for December to hear.
Blaine Heck -- Wells Fargo -- Analyst
Fair enough. Thanks, guys.
Operator
Thank you. Our next question is from James Feldman from Bank of America Merrill Lynch. Your line is now open.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Thank you. So I guess sticking with capex, we get a lot of questions about whose portfolio needs to be upgraded to be competitive. Can you just talk through as you think across your portfolio, I mean what percentage of your asset base, you think is kind of in prime fighting condition for beat and how much you think actually still needs to have whether it's lobby upgrades or other types of upgrades as you think about the next couple of years?
Marc Holliday -- Chairman and Chief Executive Officer
I think all but 625 is probably meets that maybe 750 Third. Two out of 30 something assets, I would say are in need. We may be considering round trippers where we've done it already, 10, 15, 20 years ago where we're -- it's not like one and done. So, our capex spend has been drifting down on the -- let's call the steady state portfolio. We've been devoting the money to new development, separate issue but on the same-store portfolio, our capex spend for base building redevelop is down materially. And it was for '19 it will be, I think again for '20 for sure. 625 Mad, you heard me speak about before, at some point that could be ’21, ‘22 that will be on our docket for sure.
And 750 Third, not a heavy spend, but we'll be doing some work there because that's where we have some vacancy coming up and it's the time and it's life cycle where we should be attending to that property. But by and large, I'd say we're in excellent shape in terms of our buildings. Just walk in and you'll see they're all fresh and redone and look great.
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
So just to add to that, as to Marc's point, we continually reinvest in the buildings. By way of example, over the past year and a half or so, we redid the lobby in public areas of 1185 out of the Americas and we redid 461 Fifth. So not huge repositioning efforts, but the money that we've spent has been very effective and has contributed to some very effective leasing as well.
James Feldman -- Bank of America Merrill Lynch -- Analyst
Okay, that's helpful. And then just latest thoughts on the street retail market, have you seen any change over the last quarter or so?
Andrew W. Mathias -- President
I would say it's hard to pick quarter-to-quarter as a barometer I mean. We announced the graph lease on Madison and there is still, there is still decent activity we just don't have a lot of vacancy it's a lease right now. So it’s still a correcting market from the top. And I think a lot of landlords are holding out, because they have capital structure issues for rents that were sort of yesterday's rents as opposed to today's rents. But we've been able to meet the market in circumstances where we've needed to and attract high quality tenants.
Marc Holliday -- Chairman and Chief Executive Officer
We've got good activity on One Vanderbilt. We have like a corner or left on Madison that we've got multiple deals we're renegotiating. We're going through the early stages of a repositioning Worldwide Plaza retail. We've got some leases, there we're renegotiating. So on first gen we have activity on the same-store portfolio. As Andrew said it's like leased. So we're in great shape.
James Feldman -- Bank of America Merrill Lynch -- Analyst
All right. Thank you.
Operator
Thank you. Our next question is from Nick Yulico from Scotiabank. Your line is now open.
Nick Yulico -- Scotiabank -- Analyst
Thanks. Steve, I was hoping you could talk through some of the leasing activity on some of the other larger tenant expirations you have coming up, putting aside 625 Mezz and maybe you could talk about 1185 Avenue in Americas. We have NHL and News Corp leaving and then also the Advance Magazine group space?
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Yeah. So starting with the 1185, we have role in that building over the next couple of years. We're not, we're sitting with a modest amount of space right now. We're trading proposals with one tenant for two floors with another tenant for as much as five floors, not to suggest that either of those tenants will end up executing leases on, but we're getting good exposure to the market and feel very good about the space because most of it’s high up in the building. And as I said earlier, the building has recently received some capital enhancements with a new lobby, new entrants, new elevator cabs and they look fantastic.
On the Advace space, Advance is sort of spread, which is Conde Nast, just for those who don't know, they're spread between 711 Third Avenue, 45 Lexington Avenue and 750 Third Avenue. At 750 Third Avenue, we have leases out on two of the floors. At 711 Third Avenue, we have leases out on two of their floors. And on, at 45 Lexington where they've got the bulk of the space, we're trading proposals on another 80,000 square feet. So that space doesn't come back to us for I think depending on which building it is anywhere between a year to three years out. So I think we're going to knock off a good chunk, if not the majority of it in advance of lease expiration.
Nick Yulico -- Scotiabank -- Analyst
Okay. It's good to hear. Thanks. And then on 1 Madison market, I think you said redevelopment could start by middle of next year. And I'm just wondering, does that mean that Credit Suisse would move out early ahead of the December expiration and then what does that mean for I guess the rough time frame for delivery of the newbuilding and I guess, Matt, how should we think about, well what point the building gets -- becomes capitalized and remove from FFO? Thanks.
Marc Holliday -- Chairman and Chief Executive Officer
Right. So we're going to start doing soft demo actually in the beginning of the year and then we'll do some more invasive demo towards the second and third quarter of next year. Credit Suisse, I think they're out of most if not all the space, but they are certainly out of most of the space. And so we have arrangements with not just Credit Suisse, but some of the other small subtenants there where we will be able to launch this project in the middle of next year and have a timeline that would bring us to a TCO by the end -- by middle to end of the third quarter of '23.
So it's not a long particularly long development, given the complexities of a tower overbuild on a building that is going to go through complete repositioning with new facade, new lobby redevelopment, new store fronts, outdoor space creation. It's going to be incredible project, equal in my mind, in many ways to One Vanderbilt just different, but sort of equally exciting and equally attractive to a tenant base that wants to be there. So that's the timeline and that hasn't really changed since whatever timeline, we've spoken about initially, it's always been a 2020 start and kind of a middle to just after middle of 23 finish. Matt?
Matthew J. DiLiberto -- Chief Financial Officer
And to answer your question on capitalization, capitalization starts whenever CS vacates, whenever that might be. Their lease expiration right now is end of 2020, so the capitalization would start then if they left earlier, we’ll start at that point.
Marc Holliday -- Chairman and Chief Executive Officer
They still have some presence there.
Operator
Thank you. Our next question is from Vikram Malhotra from Morgan Stanley. Your line is now open.
Vikram Malhotra -- Morgan Stanley -- Analyst
Thanks for taking the question. Just wanted to -- I had a couple of specific ones, just on any updated thoughts on plans around worldwide given the news on Cravath, moving out specially there?
Marc Holliday -- Chairman and Chief Executive Officer
Well, I mean Cravath move I think is like 2024. So that's going to be -- we're going to be – where we have plans, but they are -- if I said they were preliminary in nature, I'd be understating it. It's ‘19 there in their hard through ‘24. Five years is a lot of time for a lot of different things to happen, which we've thought through in terms of redevelopment or advanced leasing or growth within the building, etc. And so, I'm not sure I understand what the question, what is the question exactly, Vikram?
Vikram Malhotra -- Morgan Stanley -- Analyst
Just specifically I mean any other thoughts around. I mean you have a JV there, any other thoughts on any capital in the building, any changes around kind of...
Marc Holliday -- Chairman and Chief Executive Officer
No, I mean way too early, but let me just -- I don't want to not answer I mean it's just. Trust me when I say it's like way too early. I mean under that guys we'd be planning for our entire portfolio. I mean you got to remember, our average lease term in this portfolio is 9 to 10 years. So in 9 to 10 years, we have 30 million feet roll. I mean that's, so there's always space, it's something that's five years out...
Matthew J. DiLiberto -- Chief Financial Officer
That were only 25% of...
Marc Holliday -- Chairman and Chief Executive Officer
That's, you know it's five years out for built building, it's really quite excellent space, it will have to be tailored to someone at that time with a refresh if you need to, but who knows what's going to happen next five years in terms of the kind of demand that may materialize for that, whether Cravath has to hold over or not, I mean just all sorts of variables that it's way too early to have any kind of serious dialog about it now, in my opinion. I think that's right. I'm just saying that's where we are.
Vikram Malhotra -- Morgan Stanley -- Analyst
Fair enough. And then just on the Polo space, Matt, just on what potentially can be capitalized before redevelopment or can you give us a sense of how that might play out?
Marc Holliday -- Chairman and Chief Executive Officer
So capitalization is based on property level, debt, its stated interest rate, if there is any. In the case of 625 there isn't, and then you would capitalize based on book basis at the weighted average cost of debt of the company, at the point that the building is vacated and put into redevelopment.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay, great. And then just one last thing, if I can clarify the McDonald's lease, given they've relocated, is that -- can you give us any sense of plan -- plans there in Times Square?
Andrew W. Mathias -- President
Well, I mean the space is on the market they have vacated, they continue to pay rent through '23 I think, to 2023. So we're going to market the space and hope to find a quality tenant, but we're also going to be careful about who we select as we have McDonald's, they are still paying rent.
Operator
Thank you. [Operator Instructions] Our next question is from Anthony Paolone from JP Morgan. Your line is now open.
Anthony Paolone -- JP Morgan -- Analyst
Thanks. Just two quick ones. One, I think Marc you mentioned at the outset, 100 basis points of occupancy pick up I think in the fourth quarter, anything particular driving that or is it...
Marc Holliday -- Chairman and Chief Executive Officer
Well, the 1.7 million square foot pipeline we're going to try and make as much of that as humanly possible by D 31 [Phonetic], is a lot of -- there's a lot of money lines going around this place right now as to where it's going to ultimately land by today, well, that's, that line is already set by December 9th, which is Investor Day and then the ultimate D 31, if you want, in that pool, we can call you after.
Anthony Paolone -- JP Morgan -- Analyst
Is that -- is that a leased numbers or like commenced like sequentially...
Matthew J. DiLiberto -- Chief Financial Officer
That's a lease number.
Marc Holliday -- Chairman and Chief Executive Officer
Only lease square footage occupancy.
Matthew J. DiLiberto -- Chief Financial Officer
Up from 95.3 to the goal of 96.2. So we're right on the trajectory we expected it to be as of the end of the quarter.
Marc Holliday -- Chairman and Chief Executive Officer
Yeah, that's not to say there is not work to be done. It's not -- it's not locked and loaded. We've got to go sign a bunch of leases, but I think that's, you know, that's what we're here to do for the next 2.5 months.
Anthony Paolone -- JP Morgan -- Analyst
Okay, got it. And then, just second one, I know you and Vornado did a nice job with 280 Park, a few years ago, and it seems like you have done some lift in rents from that project, but maybe just a small deal, but I noticed in the soft -- in the quarter you had a deal that rolled down like 20%. I'm just curious like is there anything to read into that in terms of where rents in Park Avenue corridor may have gone.
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
No, it was a small deal of a tenant that went bust on us. As I recall, it was a 5,000 square foot tenant. That was in a pre-build space that the rent reflected the fact that we’ve put much capital into that unit. But we have leases that are in negotiation right now of much larger than that one, that one little tenant in the high 80s to low 100s. So very healthy rents, much higher than where the building was pre-development. It used to be a $55 to $65 building and now, it's a $85 to $120 building depending on where you are. And we've got, we don't have a lot of -- we have very little vacancy to begin with and very little to roll. So what we've got to play with is all -- some of the best parts of the building, because the base of the building is all locked down long-term.
Operator
Thank you. At this time, I'm showing no further questions, I would like to turn the call back over to Marc Holliday for closing remarks.
Marc Holliday -- Chairman and Chief Executive Officer
Okay. Well, I guess no questions, maybe no one's on the line. But for those that are, we again thank you for giving us the hour and enjoyed answering the questions and mostly look-forward to see you all right and early 9 o'clock kick off December 9 Jazz at Lincoln Center and we promise to keep it interesting.
Operator
[Operator Closing Remarks]
Duration: 56 minutes
Call participants:
Marc Holliday -- Chairman and Chief Executive Officer
Andrew W. Mathias -- President
Matthew J. DiLiberto -- Chief Financial Officer
Steven M. Durels -- Executive Vice President, Director of Leasing and Real Property
Manny Korchman -- Citi -- Analyst
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Derek Johnston -- Deutsche Bank -- Analyst
Steve Sakwa -- Evercore ISI -- Analyst
Blaine Heck -- Wells Fargo -- Analyst
James Feldman -- Bank of America Merrill Lynch -- Analyst
Nick Yulico -- Scotiabank -- Analyst
Vikram Malhotra -- Morgan Stanley -- Analyst
Anthony Paolone -- JP Morgan -- Analyst
