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SL Green Realty (NYSE:SLG)

Q2 2011 Earnings Call

July 27, 2011 2:00 pm ET

Executives

Steven Durels - Executive Vice President and Director of Leasing

Matt DiLiberto -

Andrew Mathias - President

Heidi Gillette - Director of Investor Relations

James Mead - Chief Financial Officer

Marc Holliday - Chief Executive Officer, Director and Member of Executive Committee

Analysts

Jonathan Habermann - Goldman Sachs Group Inc.

James Feldman - BofA Merrill Lynch

John Guinee - Stifel, Nicolaus & Co., Inc.

Steven Benyik - Jefferies & Company, Inc.

Michael Knott - Green Street Advisors, Inc.

Alexander Goldfarb - Sandler O'Neill + Partners, L.P.

Ross Nussbaum - UBS Investment Bank

Michael Bilerman - Citigroup Inc

Anthony Paolone - JP Morgan Chase & Co

Brendan Maiorana - Wells Fargo Securities, LLC

Suzanne Kim - Crédit Suisse AG

Jordan Sadler - KeyBanc Capital Markets Inc.

Srikanth Nagarajan - FBR Capital Markets & Co.

Robert Stevenson - Macquarie Research

Operator

Thank you for your patience, and welcome to the Second Quarter 2011 SL Green Realty Corp. Earnings Conference Call. [Operator Instructions] I will now turn the presentation over to your host, Ms. Heidi Gillette. You may proceed.

Heidi Gillette

Thank you, everybody, for joining us, and welcome to SL Green Realty Corp's Second Quarter 2011 Earnings Results Conference Call. This conference call is being recorded.

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 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 second quarter earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I would like to ask that you please mark your calendars for Monday, December 5, for SL Green's Annual Investor Conference. If you would like to be added to the e-mailing list, please email your full contact information to slg2011@slgreen.com.

For those of you participating in the Q&A portion of the call, please limit your questions to 2 per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Marc Holliday

Okay. Thank you, and good afternoon, everyone. Andrew Mathias, Jim Mead, Matt DiLiberto and I will provide you with some commentary on the market and second quarter performance. I'm pleased that our significant efforts over the past 2 years of the recovery are evident in our reported results for the second quarter. The core earnings from the same store properties, lease up of newly acquired properties, high earnings from structured finance, substantial gains on sale and operational expense controls all contributed to a very solid quarter, which exceeded our already optimistic expectations.

While credit markets have come under pressure over concerns about domestic economic growth and European countries as debt problems, the local New York economy remains a relative bright spot. And it doesn't seem to be showing any signs of reversal that is in any way inconsistent with what we typically experience during these summer months.

In fact, over 11 million square feet of leasing activity has been recorded in Midtown alone during the first half of the year or 1.85 million square feet per month, which is an exceptionally high rate and higher than the 1.5 million square feet a month that we've mentioned in the past as somewhat of the threshold amount beyond which we get positive absorption.

With over 2.3 million square feet of absorption, the vacancy rate has broken through the 10% mark and currently sits at 9.8% in Midtown and 9.4% for overall Manhattan. Driving the absorption of Midtown is the continuation of growth in office-using jobs, which is predominantly made up of professional business firms. And that growth for the 6 months of the year stands at about 13,000 new jobs, approximately 5,000 jobs ahead of the city's forecast and on track with our estimates back in December of 20,000 to 25,000 jobs added for the full year.

Interesting to note that Wall Street is on track to greatly exceed the $20 billion of forecasted profits for the year, having already banked approximately $15 billion to $16 billion profits in member firm profits this year to date. New York City payroll and withholding data is running ahead of projections. And hospitality and tourism activity is at or near peak levels. So this marked environment clearly is consistent with what we've described in the past as market leading and performance and balanced performance, where we're seeing growth from all sectors of the economy. And while it's been somewhat slower growth than we've experienced in prior recoveries, we think it's a very good environment for us to execute our business plan. The environment particularly bodes well for our New York portfolio wherein we added 12 properties over the past 2 years, representing $4.5 billion of transaction values, $2.5 billion of which alone represents SLG share.

Many of these new additions contain substantial vacancies. I think it was about 1.8 million square feet of vacancy acquired to be exact in those 12 transactions, all of which represent redevelopment potential, re-lease up potential, such as 3 Columbus Circle, 600 Lex, 125 Park, 100 Church and 280 Park. With respect to this last property, 280 Park, we're feeling very confident that we will be able to reposition that property with our partner into one of the leading commercial properties on Park Avenue commanding among the highest rents. We will have large blocks that are -- will be able to be delivered into what we think will be the exact right time in the market and will be delivered after $150 million or more redevelopment project for that property. So in hindsight, we're happy with each of the 12 properties that we acquired. We think we played that market exactly as we wanted to over the recovery period. I think we've now moved into the middle innings, and while we still have a pipeline of real estate opportunities, I don't expect that you'll see us transact anywhere near the $4.5 billion of volume over the next 2 years as you did over the prior 2 years.

Looking specifically at our leasing performance, it's clear that we are garnering more than our fair share of the market with 1.05 million square feet of leases signed in the first 6 months of the year, with another 82,000 square feet signed in July and 645,000 square feet of leases that are out and being negotiated, and another 750,000 square feet of leases that are under active negotiation where we feel we have a reasonably likely chance to move ahead and turn those into signed leases. These kinds of numbers place us squarely on track to approach 2 million square feet of leasing for the year, ahead of our forecast back in December.

While the mark-to-market for the quarter may seem light on first look, I think it was 0.3% increase quarter-over-quarter, or if the for the quarter expiring leases relative to newly signed leases, recall our prior commentary about the fact that many of the leases rolling now represent leases that were signed in 2000 and 2001, which was a peak rent time and those rents have escalated significantly over that time as a result of operating and tax escalations and base rent increases.

So what you're seeing now are replacement leases that are at least 20% or more than the peak rents of '00 and '01. We had guided at the beginning of the year that because the rents in many of these cases had escalated so high, it would be difficult to replace leases positively and we have given guidance of minus 5% to plus 5% mark-to-market for the year.

In fact, year-to-date, we're already at 5 1/2% positive mark-to-market. So that's ahead of our -- ahead of the high end of the guidance. And if this activity had been happening a year ago, I would tell you that instead of looking at plus 5%, we might have been looking at negative 10% or more. So this market has moved. It's moved to cover escalated peak rents. And as we move into 2012 and '13 and '14, much of which will represent leases coming due that were signed 2002, '03 and '04 which were 12 years, I think you're going to see our mark-to-market GAAP out significantly in those years if this market continues on the pace that it's currently doing.

I would just make another note on structured finance. We did, in totality shows, almost $900 million or slightly over $900 million of funded originations in that same 2-year period of time in addition to our real estate acquisitions. So the real estate was sort of 4:1 ahead of structured finance. I think in these middle innings, you're going to see that allocation change as the real estate opportunities are still out there but are fewer.

Pricing has picked up, largely as a result of incredible demand from foreign investors and foreign capital sources. And you'll see that our pipeline for the balance of the year is going to consist much more heavily of structured finance being done at rates that are consistent with our portfolio and the rates that we've targeted and talked about in the past. But we do also have a pipeline of equity opportunities. So right now, we see this as a very balanced market with relatively low financing rates.

On the secured side, they were relatively low rates on the unsecured side, but that market right now is a little choppy so we'll have to wait and see with all other corporations, how that market settles out. But the mortgage market is showing no sign of let up whatsoever, and there is some new financings that I'm sure Jim and Matt will talk about in their commentary, which lowered our cost of funds significantly from prior expirations, and we also turned out maturity substantially.

So I think to sum it up, we've got a very durable balance sheet right now where we've turned out much of our debt, we've reduced our debt to EBITDA numbers, we've reduced our floating rate to total debt figures, and we're reducing rate and spread as we go. So all in all, we're funding this very high level of investment activity with very well-priced capital. We've been active issuers in the ATM market, issuers of equity in order to keep our new equity investments equity neutral, and that's something we've talked about in the past. And I think that with continued low interest rates, continued job growth and starting to roll into rents in the future years that were done at much lower points in the market, it all bodes very well for the company. So with that, let me turn it over to Andrew Mathias.

Andrew Mathias

Thanks, Mark. Good afternoon, everybody. Despite headwinds that are screaming in the headlines every day, the Manhattan market has shown no let up in demand for income-producing assets. Deals continue to go into contract and close with a full slate of buildings and interest in buildings on the market, bucking the usual summer slowdown. Foreign and domestic capital continue to compete ferociously with no buying sector really dominating. We expect to see another $2 billion of deals go to contract within the next 30 days in the Manhattan market with buyer return expectations continuing to hover around the 7% to 8% unlevered IRR area.

In our own portfolio, the most notable addition for the quarter was our completion of the equity restructuring at 280 Park. This brought all facets of our platform together. From a tactical acquisition of the mezzanine notes to creativity in structuring, the eventual takeover of the equity to the redevelopment and lease up of the asset in conjunction with our partner, we're hugely optimistic about this building's prospects and a tightening leasing market.

Also this quarter, we closed a deed in lieu on concurrent mortgage restructuring on 110 East 42nd Street, an asset we sold several years ago. At the time we owned this building, we didn't own 125 Park next door, which we subsequently acquired. The floor plates on these 2 assets lined up, allowing us to combine floors and offer a flexible and expanded floor plate to prospective tenants. Our A.B. restructuring of the senior loan also gives us the time and flexibility to be aggressive in making deals of the building. Early leasing returns are better than expected, we're happy to have 110 East 42nd back in the portfolio.

Also this quarter, we closed on previously announced consolidation of interests at 1515 Broadway and the previously announced disposition of 28 West 44th Street in the quarter. And expect us -- we're in the market with a retail condo interest, and we have another deal teed up to go into the market probably shortly after Labor Day. So expect us to continue to take advantage of the sales market into 2011.

We continue to be the dominant player in structured finance in Manhattan with over $250 million in new deal flow year-to-date. In addition to being very active in the secondary market, conservative first mortgage underwriting standards continue to create a hole in buyers' capital structures that we are more than happy to fill. It's been some time since we've seen risk-adjusted yields as attractive as those that exist today, oftentimes for positions where last dollar at loan-to-cost doesn't exceed 70% or 75%.

Expect to see us in several high-profile transactions on the market at planning and structured finance as our origination platform heats up with the dirt of an attractively priced product in the secondary market where most loans are trading for par or north.

Much of our activity this quarter was centered on the Retail business, where patience was richly rewarded with some notable milestones. On the leasing front, we signed a blockbuster lease with Dolce & Gabbana at 717 Fifth Avenue. The lease allows us to take advantage of our previously negotiated relocation clause with Escada within the building and position 717 as one of the finest retail sites in the city with Armani's flagship, Escada's flagship and now a D&G store all on long-term leases. Cash NOI at this property will be in excess of $32 million when these leases take effect, more than doubling from existing cash NOI when these leases commence.

In addition to retail leasing success, we also contracted to purchase 2 major retail properties. 1552 in the heart of Times Square, directly across the street from 1551 Broadway where we developed the American Eagle flagship store. 1552 will be vacant, allowing us to unveil a complete redevelopment so the retail tenant markets starve for opportunities in Times Square.

Additionally, within the last couple of weeks, we contracted to purchase the retail at 747 Madison, the current home of Valentino. Valentino's lease is also up, giving us another prime corner on Upper Madison to bring to market. Both of these deals we purchased in joint venture format with our partner Jeff Sutton.

We continue to scour for more retail opportunities given our successes to date. And with that, I'd like to turn the call over to Jim to take you through the numbers.

James Mead

Thank you, Andrew. I'm going to start the portion of today's call, my portion of today's call, with some overall observations and the discussion of our balance sheet and then I'll turn it over to Matt to review guidance for the remainder of the year.

Last night, we reported a $1.10 FFO per diluted share before giving effect to about $0.02 of transaction costs incurred during the quarter. Matt's going to discuss some of the details of the company's year-to-date operating performance when he discusses guidance. So I'll just touch on a couple of the broader observations.

I think it's worth noting that the composition of our EBITDA has become much more heavily weighted toward equity-owned real estate, benefiting from deployment of new capital and from converting debt positions. Comparing last year's second quarter to this year's, NOI from property operations increased $21 million or 12% while income from debt or from equity positions declined by $6 million. And despite fundraising that included common equity financings to maintain our balance sheet's strength, investment activities were accretive and improved our per share performance.

Today though, there's a large difference in our year-over-year identified pipeline. We're now positioned to accelerate our growth in the coming years as we conclude the final retail and signage enhancements of 1515 Broadway, lease up 3 Columbus Circle and 280 Park, complete the leasing of 100 Church, reposition 110 East 42nd Street, redevelop our 1552 Broadway Times Square retail opportunity and complete our ground-up development at 180 -- 182 Broadway in conjunction with Pace University. These in-process opportunities will be incremental drivers that will compound on the improving New York City market.

Despite real estate transactions totaling more than $1 billion during the quarter, we continue to strengthen our balance sheet by adhering to a few basic principles. First is what I call a balanced funding of growth. We've been disciplined in financing to maintain or improve our credit metrics. This means incrementing our equity base with growth in our balance sheet. The 2 ATM programs that we've used to date provide $525 million in new common equity and have benefited the company by allowing us to time financing activity with the actual deployment of capital to be in the market only when conditions are right and by incurring low fees and no discount to market.

Next, maintaining liquidity. At June 30, we had almost $450 million in cash and marketable securities on the balance sheet, which when combined with undrawn availability under our line of credit, gives us access to over $1.3 billion.

Third, to manage near-term maturities. With the closing of a $500 million 12-year mortgage on 919 Third Avenue with 2 life companies, and by the way, the interest rate on that financing was decreased from 6.9% to 5.1% while upsizing the financing from $220 million to $500 million, the company has largely refinanced its material near-term property maturities. Our line of credit that matures about a year from now is next on our list. And Matt and I will be working on a new facility with the objective of replacing the existing facility by year end. Despite a challenging corporate unsecured debt market, the bank market seems less affected and early discussions with our lenders -- or re-lenders over a new facility had been well received.

And finally, to lock in current low interest rates. We're operating in a historically low interest rate environment and have been executing on opportunities to term out our balance sheet. The just closed 12-year financing on 919 Third Avenue is 1 example. Our recently received corporate unsecured investment grade rating from S&P opens up a number of additional corporate financing options. However, credit market conditions have been unfavorable for the past few months. We will continue to watch market conditions and evaluate the potential for an unsecured long-term financing.

So at this point, I'll turn the call over to Matt.

Matt DiLiberto

Thanks, Jim. Clearly we are pleased with the earnings results we posted for the second quarter, both on an absolute and normalized basis.

As compared to the first quarter, where we recognized over $46 million of nonrecurring income, comprised primarily of the gains and our debt positions at 280 Park Avenue, the positive results from the second quarter include a very few income items of a nonrecurring nature.

On the special servicing side of our business, green loan services netted $3.2 million of fees in the second quarter on resolution of an assignment. Given the strength of our Servicing business as evidence in working out large real estate loan positions, we may realize similar fees in the future. However, that is a fee stream that we do not include in our guidance. Also during the quarter, we repaid the $108 million mortgage secured by Landmark Square in Stamford, Connecticut in anticipation of a new mortgage refinancing later this year. This repayment was accomplished at a $1 million discount, which results are recognized of earnings in the second quarter.

Turning our attention to the remainder of 2011. During last quarter's conference call, I recapped some of the basic operating assumptions included in the original FFO guidance provided at our December Investor Day. These assumptions included among other things mark-to-market on 2011 Manhattan leasing of minus 5% to positive 5%, the increased operating expenses of 2 1/2% to 3 1/2% and flat same-store NOI, and then increased our FFO guidance to $4.65 to $4.80 per share on our first quarter conference call, primarily as a result of the gains we recognized on our 280 Park debt positions and based on our view of New York City operating trends.

Through June, our real estate operating performance continues to trend modestly ahead of our original expectations. As Mark discussed, mark-to-market on the over 1 million square feet of Manhattan office leases signed through June 30 is approximately 5 1/2%, ahead of our original guidance. And our Manhattan volume is also trending ahead of the leasing goal we established for ourselves of 1.7 million square feet for the year.

Operating expenses are generally in line with our expectations as our operations team continues to do a spectacular job of controlling our variable costs, managing them to a 0 increase for the year despite market pressures to increase them, which leaves increases driven primarily by areas where they have less control, including union labor, real estate taxes and a portion of utilities cost that we did not manage to fixed price contracts. These factors have resulted in combined same-store GAAP NOI increase of 2.6% in the second quarter and 1.6% year-to-date. This is evidence of improving performance in the core portfolio, particularly at properties like 1515 Broadway where the NOI increased by over $8 million for the first 6 months of 2011 as compared to 2010, as a result primarily of the retail repositioning at the property.

However, it is worth noting that the positive trends we have seen in our same-store operating results during the first half of 2011 will be somewhat offset during the second half of 2011 by recent investments and the lease up and development plays we discussed earlier that have longer-term growth potential. In particular, 280 Park Avenue, where we look forward to commencing our capital and leasing program, but we'll recognize near-term earnings dilution until that property is stabilized.

With regard to the debt and preferred equity portfolio, our portfolio holdings remained at a historically low level and correspondingly, investment income does as well, following the sale and repayment of sizable position first 2 quarters of 2011, including 666 Fifth Avenue and conversion of our positions at 280 Park and 110 East 42nd to equity ownership.

Of note, during the second quarter, we recognized approximately $2.8 million from the bridge loan we provided at 3 Columbus Circle. But the recent refinancing of the property, the permanent mortgage provided by Bank of China, that position was repaid.

However, as was noted earlier, we continue to see many opportunities for the funding to work at healthy risk-adjusted returns within the capital stacks, New York City real estate. We can successfully execute on these opportunities. There's certainly upside potential in this revenue stream.

On the corporate finance front, among the items that will keep us cautious are interest rates. While we continue to see a strong mortgage market, we continue to be conservative in our overall thinking on rates and project forward not only using the publicly available forward interest curves but also a cushion over and above that curve. This methodology holds true for our in-place variable rate debt financing, as well as for purposes of underwriting and evaluating future transactions, also in maintaining consistent balance sheet strategy of appropriately funding our investment activity to maintain credit metrics.

During the second quarter and into July, we continue to issue common equity at a very efficient manner through our ATM program completing the $525 million plan. This was not contemplated in our initial guidance but is a direct measured response to the heavy volume of investment activity we have consummated in 2010 and thus far in 2011.

All that considered with 6 months under our belts and a better vision toward the next 6 months will hold, we are raising a lower end of our FFO guidance for 2011 from $4.65 per share to $4.75 per share while the high end of our range remains at $4.80 per share. In conjunction with the revision to our FFO guidance for 2011, we are also raising our FAD guidance for 2011 from $2.60 per share to $2.65 per share.

With that, I'll turn the call back over to Mark for some closing comments.

Marc Holliday

Okay. Well, before our closing comments, if today is like quarters past, I assume we have a lot of questions in the queue that we should get right to. We're sort of on track. We've allocated about an hour's worth of time to try and get through the entire queue. So let's turn it back to the operator and start.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Jamie Feldman of Bank of America Merrill Lynch.

James Feldman - BofA Merrill Lynch

I was hoping you could talk a little bit and give -- provide a little bit more granularity on market conditions, kind of which sectors and tenant types in terms of size and sectors are most active? And then also provide a little bit more color on your discussion with tenants and what they're thinking about the debt ceiling and weakening economic conditions out there and why that from your commentary, it sounds like you're just not seeing any kind of slowdown?

Andrew Mathias

I'm sorry the last part, Jimmy, from our commentary, we...

James Feldman - BofA Merrill Lynch

From your prepared remarks, it sounded like things are just flowing ahead, and it just seems like given the economic environment and more concern out there, I'm surprised the tenants aren't a little bit more cautious?

Andrew Mathias

Well, I think the tenants take a much longer term view than the street does when you're planning big space moves. So I'm not -- it doesn't surprise me all that much. At the second quarter was actually, by one reports -- by one agency's report, the most active quarter ever. There was like 7 or 8 million square feet in the second quarter. I assume that included deals like Conde Nast, Nomura, there was the city of New York downtown, the Trade Center. There was another one that I'm just forgetting, give me a second. Well, there was Wells Fargo, Morrison & Foerster. So that's a pretty broad range of tenants in those 5 tenants, everything from financials to public sector, to media and entertainment and the like, and law firms. So I would say to you quite honestly, Jamie, I've had maybe 1/2 dozen major tenant conversations in the past few weeks. The debt ceiling doesn't come up in those conversations. It's always about ways in which they can try to update their space to be the most sort of efficient and technologically current as they can be and that always is a big challenge for many of these firms. Its that after 5, 10, 15 years,their installations become outdated relative to their competitors and they're always trying to figure out how they can expand, become more efficient, become more technologically up-to-date, and we work with our tenants in that regard. So in trying to think in terms of that sectors in our portfolio, I gave you market wide just now looking at major leases. Steve, just write or walk up 5 or 6 that come to you.

Steven Durels

We've got deals coming with healthcare, with education, with service businesses. We've got more than a fair share of financial services that are in active negotiation, and legal. So its a pretty diverse group of tenants that are both in active lease negotiation and then, what Mark referred to, the 750,000 square feet of what we think is credible pipeline likely to convert over to a lease transaction, that's an equally broad base group of tenants.

Marc Holliday

Yes, I would just sort of finish that up, Jamie, by saying that, that's not to say over the next 6 months or so, we may not see a pullback. I mean, that's certainly possible. If companies can't borrow and they're kind of frozen out of the markets and we get a big correction of the data there, not raising equity of course, that's going to, I think, limit these financing activities of a lot of New York's big companies and that would have to have some kind of limiting effect on growth and expansion. But I would say at the moment, interest rates are still pretty darn low. Jim just talked to you about a 5% deal we closed, a 12-year deal. Term is extending, the secured markets are very good, the resig markets are good, and even with the widened corporate spreads, you're still looking at 5%, 5 1/2% deals largely if people are brave enough to go in this credit climate. But I think the expectation is sometime in August or certainly after Labor Day, there'll be hopefully a return to a more normal credit market. I can't really speak about the stock market and that I think fuels a lot of what you see for our customer businesses.

James Feldman - BofA Merrill Lynch

Okay. And just a quick followup. How much are conversations about downtown and the Hudson Yards creeping in to your discussions with tenants as they're thinking about space?

Andrew Mathias

We're certainly hearing from the bigger guys who have big requirements upcoming in the next 5 to 10 years. Downtown and Hudson Yards are part of the consideration. And I think there is a lot of question with the Westside in terms of timing of delivery, and I think downtown is certainly -- is more certain as the buildings are underway, and there is not massive infrastructure that has to be completed before you see any buildings going vertical. But it comes up quite often and people are considering them as real options.

Operator

Our next question will come from the line of John Guinee of Stifel.

John Guinee - Stifel, Nicolaus & Co., Inc.

John Guinee here. Just to clarify a few things, Marc, first, it looks like something happened on your ground lease at 711 Third Avenue. Second, can you go over the economics of the 110 East 42nd? And then third, it looks like you have a new $49 million mezz piece in New York City. Can you walk through as much as you're allowed to on that?

Marc Holliday

Okay. So let's make sure I got them right here. I got $49 million mezz, we have the 711 ground lease, what's was the third, John?

John Guinee - Stifel, Nicolaus & Co., Inc.

Just the economics on your...

Marc Holliday

110 East 42nd.

John Guinee - Stifel, Nicolaus & Co., Inc.

Essentially, what's your stabilized purchase price on that when you bring it back home?

Marc Holliday

Okay, so let's start with 711. What was disclosed 2 days ago, which went up from expiring 0 to -- so that John, is reflective of an SMB reset. So these ground mezz stayed static, could be anywhere -- sometimes they're very long term, they could be static at 20, 25, 30 years or sometimes as little as 10 years, usually, 15 to 20 years. And at the end of that period of time, you look at market conditions, and if the market conditions are better than when the last reset was made, there is an increase that's either done consensually or typically by arbitration. In this case, it was done consensually between us, as the lease holder, and half the fee owner. Well, in 711, we own half the fee and we own 100% of the operating position. But in a negotiation with the other half of the fee owner, we agreed to a revaluation, which we think was a market revaluation within -- it was expected. We have forecasted for it. I don't think we got the better or worse half of the result in that case. I think it was where everybody is sort of believed it would come out and that did result in an increase. But now I think that increase is locked for at least the next 10 years, possibly longer. And the increase is mitigated partially by the fact that we own half of the city. So whatever the increase was, it's got a 50% dilution effect. So that's 1.

Andrew Mathias

The other 2, the $49 million structured finance investment is a B Note that we made in a new acquisition of a property on Sixth Avenue. It's a 5-year fixed rate instrument with our total return being 8 1/2% to 9%. And that's at that 70% or so last dollar loan-to-cost. So similar profile to the -- what I discussed on the call, there's about $80 million of cash equity from the sponsors subordinate to us. And then on 110 East 42nd Street, we took over 100% of the equity interest there effectively. Our last dollar per foot on that acquisition, if you will, was settled to $500 a foot, and we've taken over leasing management and are actively working to lease the property up to current occupancies around 73%, and there's a bunch of capital escrowed with the senior lenders as part of the A.B. structure to complete the lease up of that property from 73% to a more stabilized level of 95% to 98%.

John Guinee - Stifel, Nicolaus & Co., Inc.

Okay and just one little follow-up, Marc. How was the land, if that's the way to look at it, how was the land valued on 711 Third when you did your fair market value reset? Or is that just too complicated to get into?

Marc Holliday

Well, I wouldn't say it's complicated. It's generally not thrown out there in the market. I would, I guess, feel comfortable in giving a range as opposed to an exact number, John. Because it's not one of those things we seek in the supplemental. That's just a negotiation between us and the fee owner. But I would say somewhere in the $200 to $250 range is we settled on an appropriate value for FAR.

John Guinee - Stifel, Nicolaus & Co., Inc.

And then are you looking to $200 to $250 per square foot or for the entire underlying land piece?

Marc Holliday

That's just for the land piece.

John Guinee - Stifel, Nicolaus & Co., Inc.

But for the land, not on a billable square-foot number? You are getting at $200 million to $250 million value for the entire land position or fee position?

Marc Holliday

No. $200 to $250 per square foot of FAR.

Andrew Mathias

That's determined completely by the language in the lease which can vary widely lease to lease. So it depends on -- it's an appraised value based on a certain use of the building. So the art is to try to get in there and negotiate the lowest value possible if you're the leaseholder based on those limitations on value.

John Guinee - Stifel, Nicolaus & Co., Inc.

And then that $10.5 million, is that your pro-rata share in terms of 100% of the fee, 50%?

Andrew Mathias

That's 100% so we receive half of that as -- because of our 50% share as a fee owner.

John Guinee - Stifel, Nicolaus & Co., Inc.

Okay, got you. And then what's your pay accrual on the $49 million? The $49 million mezz position, is that a pay accrual or per impact percent.

Marc Holliday

Per impact.

Operator

Our next question will come from the line of Rob Stevenson of Macquarie.

Robert Stevenson - Macquarie Research

Can you talk a little bit about how rents on comparable space is trending today versus at the end of last year, and where TIs and free rent are also trending on comparable space versus the end of the year?

Steven Durels

Yes. I think we've continued to see the same trend that we've spoken about in the last couple of conference calls. And that base rents have risen over the past 12 to 18 months, driven primarily by 2 groups: One is high profile best quality space generally defined as above the 20th or 25th floor, so the tops of buildings; and also big blocks of space. We have clearly seen a premium come back into the market where there is a short supply of big blocks of space. There's more big tenants floating around the market than anyone can identify of big blocks to satisfy that demand. Notwithstanding that, we've seen improvement across the board really on all types of buildings, whether it's our buildings on the farthest sort of fringe of the portfolio or our best located products. It's just a different level of appreciation in rents depending on which part of the building and which particular property we're talking about. On the concession side, I think TIs stayed fairly flat in the last quarter. Where space needs to be completely guided and rebuilt, the TI packages are generally $60 to $65 a foot, but I think the big differentiator is that we're seeing today is we are able to cap the dollars at kind of a maximum of $65 even when we're guiding and rebuilding this piece of space for a tenant, versus 1.5 years ago where we're happy to spend more than that to turnkey an installation. And free rent is anywhere from kind of 4 to 5 months of free rent post construction. And if tenants' choice on buildout, its kind of roughly 10 months of free rent.

Robert Stevenson - Macquarie Research

And so on an average basis, relative to, let's say 6 or 9 months ago, would you say that rents are up 5% on sort of similar space on average across the portfolio, you think, or more or less?

Steven Durels

Well, I think the rents are clearly up at least 10% to 15% and probably on a net effective basis, bigger than that. You don't see it in the mark-to-market per se because that's really measuring against spaces that are rolling off. Where we see it is by comparison to where deals were being written or where we thought the market rate was for space 1 year to 1.5 years ago, and that clearly had a material increase on both base rents and their effective rents.

Robert Stevenson - Macquarie Research

Okay, perfect. And then earlier this year, you guys were I think shopping one of the smaller Stamford assets. Are you still looking to sell? What was the sort of pricing that you guys were seeing or was it a situation where the pricing wasn't that attractive?

Andrew Mathias

I think we're looking to sell that asset. We're having active conversations with a couple of different buyers. And it's a slower process in the burbs to sell assets certainly because the city -- people sign non-diligence contention contracts, and the suburbs, they look for diligence periods and inspection periods, it's still -- it's a slower process. So, we'll see how it unfolds through the course of the summer.

Robert Stevenson - Macquarie Research

Is there still decent demand for stuff out there or is it just a matter of getting the terms? Or is the demand sort of coming and going?

James Mead

When you say is there still decent demand, you mean to buy buildings?

Robert Stevenson - Macquarie Research

Yes.

Marc Holliday

I would object to the words "still decent" because it's -- I think what we've been saying for several years now is it's been stalled. It's not decent. It's been -- we've had an inability to really to recycle our buildings since I would say beginning or middle of '07, -- probably, the middle of '07. And we're waiting for the market fundamentals to improve in our major suburban markets, and I think when you see some kind of demonstrated improvement, that's when you're going to see the lenders jump back in. And when the lenders jump back in, that's when I think you'll see the equity jump back in. But that has not really been the case throughout '08, '09, '10, and we've sold, again, little to nothing I guess really in the suburbs over that period of time. So this small property in Stamford was a little bit of a tester, and we do see some signs of market improvement and hopefully over the next 6 to 12 months, that'll take up pace as the rest of, as obvious, New York City does. The job growth in the private sector exclusive of New York City is starting to pick up. There's been about 50,000 new jobs created since the trough of the market private sector, not all office using jobs, but that's generally located on Long Island, Westchester. So that's a bit of a positive result we've been tracking, but we haven't yet seen that really translate to office demand. But I think when it does, then I think you'll see a market start to reform. But I would say right now it's a stable market but less than decent.

Operator

[Operator Instructions] Our next question will come from the line of Alexander Goldfarb of Sandler O'Neill.

Alexander Goldfarb - Sandler O'Neill + Partners, L.P.

As you guys have your talks with your financial service tenants and clients, how many -- how much do you think are you going to sense of the firms that the fact that a lot of folks raised base salaries has meant that we've had layoffs perhaps sooner or perhaps more frequently than would have occurred under the old system where it was a low base in a high part of variable comp?

Marc Holliday

It's a hard question to answer. I mean, they have raised base, they have lowered the bonuses, and that's reflected in the payroll and withholding taxes. We were talking with the budget guys, and they clearly see a change. And now they're wondering what's going to happen at year-end. Are bonuses really going to be reduced as a result of that increase in salary? Or is it the case where the Wall Street firms may make $25 billion plus in profits this year and the bonuses may wind up being big. Anyway, I don't know that anybody has an answer to that. In terms of driving the layoffs, we've seen relatively consistent but moderate job growth in the financial sector. The layoffs have pretty much subsided, and I know that's firm by firm in that. So there maybe examples where that's not the case. But I would say in total, the data would suggest that there is net additions to those jobs, and they seem to be operating at full capacity right now. There are some firms we talked to that talked about possibility of some layoffs at the end of the year, but then that's offset by others who say they're completely stretched and looking to hire people. We know certain firms that are actively rating other firms on hiring. So net-net, it seems to be positive, but I don't really know if we have a view as to how that kind of restructuring of compensation is going to directly affect that hiring. I think we're all in a wait-and-see mode.

Alexander Goldfarb - Sandler O'Neill + Partners, L.P.

Okay. And then the second question is with the recent ruffling that's going on in the CMBS market and BP Spires, has that resulted in you guys being able to get more attractive rates on your new mezz [mezzanine] or new debt positions? Or is that not -- or the 2 markets have been sort of separate from that perspective?

Andrew Mathias

They're pretty separate from that perspective. I mean, I think, as opposed to single asset lenders like us, don't really bench ourselves too much off of diversified pools, spreads and diversified pools. And when those spreads compress into 250 over wind track as they widen back out 5-7 under over, it doesn't have too much impact. And I think we're competing more against pools of capital that are raised specifically for the purpose of making single asset subordinate investments. And when those pools are raised, they're passing along to those investors in expectation of the returns they're going to deliver. And that's really what we're competing with.

Operator

Our next question will come from the line of Sri Nagarajan of FBR.

Srikanth Nagarajan - FBR Capital Markets & Co.

Question has to do with your ATM programs, you will. Obviously, you are now sitting on about $390 million in cash. From the prepared remarks, it appears that acquisitions are perhaps in the middle innings, and the structured finance is perhaps flat, if anything else. Would it be a right perception that you're not eager to start a third ATM program here? Or is that a consideration that you're looking at more growth here?

James Mead

Sri, the answer is -- it's Jim. The answer is that we wouldn't discuss with you whether or not we were going to put another ATM program on. But I think that again, the great thing about having an ATM program is that we can time the usage of the program against what we consider to be balance sheet growth around real estate assets. So I think if to the extent that we continue to exercise on a real estate pipeline, you would see us coming back in for a blend of capital to fund that pipeline. So I think that, I think you just have to wait and see how the rest of the year unfolds with regard to acquisitions.

Marc Holliday

I would to add to that, Sri. Whether or not we put a third or fourth or fifth in place, the issue is more to the utilization than having in place. I think what we've said in the past -- I think we've said in the past but maybe haven't -- this wasn't maybe discussed in as much detail in December, was that we were looking to do the ATM issuances generally to keep leverage neutral, not increase, not decrease, as we buy new real estate properties. And we've found it to be a much more efficient product where we don't have to accumulate, accumulate, accumulate and then equitize and bring a deal. Here, you can sort of do it as you go. You get the benefit of a rising stock price in a market like this, and you can do it in relatively small amounts. We've been an active issuer. But when you really look at the amounts, they're modest amounts and they're really just done to rightsize the acquisition. So going forward, I just want to make sure what you heard from me was that having just done $4.5 billion of equity purchases, $2.5 billion our share in 2 years, that our rate of investment would be less than that. But even less than that could still make us one of the top acquirers in the city. So just want to make sure it's clear in that. And when you talk about flat structured finance, I think what I had mentioned in the earlier part of this call was that I actually think structured finance will take on a more prominent role in the middle of innings and increase the balance as opposed to having a flat balance.

Srikanth Nagarajan - FBR Capital Markets & Co.

My second question is on some color on a mark-to-market conversation or remarks that you had made, specifically with regards to the rest of 2011. It appears that obviously, you still have some 2000, 2001 kind of leases rolling. And then it's perhaps only in 2012 when we begin somewhat of a relief in the MTM here.

Marc Holliday

Well, I would say, yes, that's what we've said. But also the fact that were up 5% midway through the year, that's not bad. I mean, I don't want to minimize the achievements for the half of the year. We've done 1 million square feet of leasing, and we've increased 5%, 5.5% over expiring leases, which were really kind of peak leases. So I think that's very good. I think that, that was done with a shrinking concession package, as Steve outlined earlier. We're hoping those concessions continue to shrink. And with vacancy now at about 9 peak, 9.8%, and we talked about 9% being in our minds, that threshold number which tips it in the favor of landlords to be able to increase rents back towards an equilibrium against construction costs, which they clearly aren't at now. That's another 80 to 100 basis points away. So I would agree with your comments that bodes well, we should see an acceleration. But I don't think that necessarily takes away from the limited activities.

Operator

Our next question will come from the line of Jay Habermann of Goldman Sachs.

Jonathan Habermann - Goldman Sachs Group Inc.

Marc, just a question on acquisition strategy as you look forward. I know you mentioned the foreign capital and institutional capital, which seems to prefer the more Premier Class A types of assets. But as you look at sort of opportunities in the near term, are you seeing much in that sort of B, B plus realm, you missed some of the deals with perhaps some near-term issues like Columbus Circle?

Marc Holliday

Well, let me just make sure what you said. When you said you're asking is foreign capital attracted to A minus, B plus assets, is that the question?

Jonathan Habermann - Goldman Sachs Group Inc.

Well, it sounds like you're referencing that the sort of Class A assets are getting a bit frothy, and I'm just curious what you're seeing perhaps in some of these other deals out there that you've done in the past, whether it's the Columbus Circle or other transactions like 1515 Broadway?

Marc Holliday

I think they're just as frothy. I mean, there has been foreign interest in assets less than just trophy assets. We sold 19 West 44th Street to Deka Bank, we sold 28 West 44th Street to accrue advised fund, German Fund.

Andrew Mathias

Starrett-Lehigh Building is closing this week at a sub-5% cap rate, 626 is in the market now, expected to trade institutional also at a sub-5% cap rate. So I'm not sure you can really draw a distinction. I think this competition across property types and class, all really from institutional capital.

Marc Holliday

1186 Avenue sold to a Chinese investor. I mean, the list goes on and on. So I think that location matters as much as asset vintage. And I think some of the better older assets can command as good or better cap rates than some of the newer products if they're well-located in this big mark-to-market in the leasing where there's a big vacancy or repositioning opportunity. So...

Andrew Mathias

The difference for us, Jay, is our deals are off-market. I mean, if you go through our list, we don't really compete for marketed deals. So everything we're sizing is marketed deals, with a broker and a book and sort of a worldwide process. And our franchise is off-market deals.

Jonathan Habermann - Goldman Sachs Group Inc.

Okay. And maybe a question for Jim or for Matt. As you look at the line of credit, can you talk about your expectations as you go into the back part of the year? And do you expect to reduce that balance as you move towards your year-end?

James Mead

In the Investor Conference last year, we laid out a target of $500 million for the year-end balance on the line of credit, which we're at today or we are at by the end of the quarter. And I think that our expectations haven't changed. It'll depend on, frankly, the uses of capital we have going through the end of the year.

Marc Holliday

That's down, Jim. It's down from where...

Andrew Mathias

$650 million at the end of last year.

James Mead

$650 million at the end of last year.

Marc Holliday

There's the $500 million. That was our year end target when we're in the middle of the year.

James Mead

Correct.

Marc Holliday

We could certainly see it being reduced further or not. But I think certainly we've exceeded our timeline.

Operator

Our next question will come from the line of Michael Knott of Green Street Advisors.

Michael Knott - Green Street Advisors, Inc.

Marc, can you give us little more color on the comments on leasing pipeline, I guess? And maybe just in the context of your guys' leasing volume this quarter was a little lighter than it's been for a while, and maybe part of that is just that 1Q is a big number and maybe it sounds like 3Q might be a bigger number. Can you just maybe kind of talk about that a little more?

Marc Holliday

Look, I've been telling Steve. He's just got to pick it up in the second quarter but...

Steven Durels

That's a good question, thank you.

Marc Holliday

Look, I think that it's hard to really parse it down quarter by quarter. I think our annual objective was $1.7 million, okay? So we're $105,000 into $1.7 million. It's dramatically ahead of schedule. I've got another -- looks like $1.4 million, almost a $1.5 million near certain or highly likely or reasonably likely deals. So probably not all close or sign up this year, and some will fall out, and some will get added. But I said earlier, we're on track for, I think, too well. I want to raise that bar a little bit from the $1.7 million previously. I think the 2-0 was achievable unless the market really reverses itself. And if you can exceed your goals by 15% to 20%, I don't know how we could look at the leasing performance as light, I think it's quite strong. The fact that it was -- was it, $450,000 this quarter and may have been a little more like $550,000 last quarter, I wouldn't read anything into that. That's just the way the chips fell.

Steven Durels

Well, just to add onto it. Put into context that remembering that we started 2011 with roughly 880,000 square feet of leased roll, and we've already signed leases of $1.4 million with 600,000 feet of leases actively being negotiated and another 750,000 of pipeline, that's a lot of leasing relative to the amount of rollover on a well-occupied portfolio.

Michael Knott - Green Street Advisors, Inc.

Okay, thanks for that color. And then last question would be just going back to the structured finance versus equity investment kind of question. How much bigger could the structured finance book get? Do you still, Marc, think about that in terms of that 10% of assets number? And obviously, it would take a lot of origination to get kind of back up to that now. But is that something that we should think about?

Marc Holliday

Well, I think on the last quarter's call, we had mentioned that our prior balances of $900 million to $1 billion are at a reasonable level, that's well under 10%, or I guess that's 7% to thereabouts. I think what we've said is it's a kind of an internal goal of ours to keep it at or under 10%. I don't know that it's ever even really been at that level except maybe for the briefest of times. But over the 15 years of the program, it's generally been in the 5% to 8% range. That's not necessarily because we would be uncomfortable seeing 7% go to 8%, 9% or 10%. It's competitive. Of course, I don't want to make it sound like it's turning on and off a water faucet. You have to compete for these deals. They're structurally complicated deals. There's only so much transactions that are getting done in the city. We're doing more than our fair share with those. But it's something that you can't exactly regulate. So we're estimating that we'll have some real opportunities in the second half of the year to increase that balance. And I mentioned last quarter that I think not necessarily in the immediate term, but in the foreseeable future, getting back to the kinds of balances we had when the program was at its fullest, would be $900 million to $1 billion, albeit now that's out on bigger asset base. So it's a lower percentage because we're a bigger company now.

Operator

Our next question will come from the line of Michael Bilerman of Citi.

Michael Bilerman - Citigroup Inc

Josh Attie is on the phone with me as well. Maybe Marc or Andrew, just wanted to delve a little bit deeper into structured finance. I guess I was surprised because your comments would seem to indicate that, at least on the equity side, that asset values have risen substantially, Cap rates are down a lot. The mortgage market, in your words, there's been no letup, and I would say lenders are obviously with values going up. The loan -- the value seems okay, but there's still -- I'd say the underwriting certainly has gotten more aggressive over the last 18 months. So why hasn't there been a shift in structured finance market? Why hasn't -- why were you able in your words to find decent risk reward if you don't think there's a decent risk reward on the equity or the debt side? I'm surprised that piece of the market is still offering the right balance.

Marc Holliday

I think -- a couple that come to mind -- Andrew will chop in with his thoughts, but first of all, would say we've created a franchise over 15 years in a name for ourselves, and we're generally first call. And that certainly helps in an ability to get and compete and not necessarily charge a premium rate, but the least we can pick and choose amongst the opportunities we think are best. I mean, this is, I said earlier, it's a complicated business. It strictly involves knowing how to structure the dots, how to go through all the various kinds of rights remedies whether partial interests message, preferred equity interest, B notes, servicing agreements. It's just not commodity-like. And we have a very good book of borrowers. We do a lot of business. I think we have a reputation as being very fair in this market, and we get more than our fair share of opportunities. That's one. The second thing I said on the last call was that a lot of the banks who were competitive and subordinate that origination last cycle have been kind of legislated out of the business because of very large capital requirements. So this just -- the pool of capital for this business is just less. So, I mean, those are 2 reasons that have come to mind.

Andrew Mathias

There is less competition because the mortgage rates have so washed out, and they're not competitive anymore. And some other groups have not. And I think the underwriting standards of the seniors has toughened up, and it's just created a larger subordinate fees. Even as asset values have risen, you saw last week Goldman Sachs and Citi had to reduce subordination levels on their CMBS deal. And that's going to just reverberate through, and CMBS is going to be that much more vigilant in terms of their underwriting standards. And that creates a big need for subnets. So it's creating a lot of a supply out there of quality paper, and we're getting more than our fair share, as Marc said.

Michael Bilerman - Citigroup Inc

With respect to the line of credit, do you anticipate terming that out with fixed rate debt or rolling the balance into a new facility? Just help us model the interest expense and cash flow for next year.

James Mead

I think there's a couple of points to that. We have been terming out that as a strategy to extend our fixed rate interest exposure in the company. And I guess so we're looking at other term financing options. So part of the answer to that question about where the outstandings on the line of credit are at year-end will be affected by our decisions on our future financings. But I think that for right now you should assume that we'll just redo a facility -- a credit facility -- by the end of the year going into next year.

Operator

Our next question will come from the line of Suzanne Kim of Crédit Suisse.

Suzanne Kim - Crédit Suisse AG

Just a quick question regarding 3 Columbus Circle and 280 Park. What would sort of your gross FFO BFDs amounts are in the run rate?

Marc Holliday

Suzanne, it's like stabilized.

Suzanne Kim - Crédit Suisse AG

Yes, exactly. Stabilized.

James Mead

We haven't given any estimates to the street that would give you an adjusted FFO.

Matt DiLiberto

Suzanne, in our Investor Conference Presentation, we did put up a slide on 3 Columbus Circle, which is pretty much on top of the economics we're seeing right now, and put a stabilized NOI number out there as well. As to 280, I mean that we can...

Marc Holliday

We have been doing that for -- when discussed our -- we do the investor we'll have -- I would expect a full module on each of these properties because that's traditional with how we do it. And then for 2011 obviously, it's little to no contribution. As we give guidance for '12, we talk about the amount of contribution that will come from these assets, and we can talk about it both for '12 and for stabilization. I think that's fine, but I wouldn't want to gunsling an answer to that now before we have a chance to really internally sign off on those assets.

Suzanne Kim - Crédit Suisse AG

How much are your capping interest on these and other projects right now?

Marc Holliday

The primary area where we're capping interest is down at 180, 182 Broadway, our development property. So we have a little bit of cap interest there and a nominal amount at 3 Columbus and nothing on 280.

Suzanne Kim - Crédit Suisse AG

Okay. Nothing at 280. And then, you know, when do you sort of anticipate the cap interest of being sort of start picking up like next year or...

Marc Holliday

On which property, on 280?

Suzanne Kim - Crédit Suisse AG

Yes. It depends. I guess it depends on where you're going to be with that asset, I guess.

Marc Holliday

Absolutely right. I was just about to say it. As with any evaluation of capitalized interest or operating expenses, it depends on the status of the asset, the redevelopment plan and then what not, which we are still finalizing.

Suzanne Kim - Crédit Suisse AG

Okay. One last question. There's about a $34 million investment in your top 10 investments last quarter that sort of disappeared this quarter. I was just wondering where it went and what was it. I don't know how much of you would be able to disclose, but that would be really helpful.

Andrew Mathias

We got paid off on our final mortgage financing investment related to AFR, American Financials, so it was a payoff at par.

Suzanne Kim - Crédit Suisse AG

Okay. And does the 0%, the yielding on the third, I guess the third largest investment in the top 10, that's 0 yielding right now. I mean, what are the prospects of that sort of changing and sort of how do you sort of view that investment?

Andrew Mathias

Well, we evaluate that investment quarter to quarter, and it's on a Class A Manhattan office property, and we continue to evaluate it for the appropriate trade in this quarter.

Matt DiLiberto

Suzanne, that's a fully accruing position. So at the valuation of that we evaluate it every quarter. We feel that we don't -- it's not appropriate at this time to take the value up and therefore it's turned up the income stream.

Operator

Our next question will come from the line of Brendan Maiorana of Wells Fargo.

Brendan Maiorana - Wells Fargo Securities, LLC

Andrew, the flow of buyers and the $2 billion of properties that you cited in the prepared remarks that return expectations of 7% to 8%, what do you think those buyers are looking at in terms of market rent growth in their pro formas over the next few years and how does that compare to the 20%, I think, excess rent growth that you guys throughout for the last conference call for the market rent growth that SL Green is expecting?

Andrew Mathias

I would say they're looking at -- they're project a significantly higher rent growth. Certainly the brokers and their packages to the extent people subscribe to those projections are sort of compounding 10-10 and then 5% of the minimum if not further spike of 7% to 10%. So that on a compounded basis is probably almost 30% over the next couple of years. So I think people are generally underwriting more significant rent growth, the purchasers than we are.

Brendan Maiorana - Wells Fargo Securities, LLC

And you guys are still comfortable in kind of the 20 excess?

Marc Holliday

Yes.

Brendan Maiorana - Wells Fargo Securities, LLC

Okay. That's helpful. And then just quick one for Matt. The straight-line rent adjustment seemed like it was down a little bit more than I think what you guys were expecting. Should we expect that line item to move back up to around $30 million in the quarter, or is the $23 million or $24 million that was in Q2 a good run rate going forward?

Matt DiLiberto

Well, I think in the first quarter on the call, I guided to somewhere $25 million to $30 million towards the higher end of that. In that line item as you see in the supplemental, straight-line says 141. Those noncash kind of rent components are not the only items in there. There's a convert charge, there's noncash income on the debt investments, things like that. So if you strip all that out, we were on the straight-line free rent FAS 141 right inbound $27 million, so only slightly below where we thought it would be. So pretty consistent with where we thought.

Brendan Maiorana - Wells Fargo Securities, LLC

And that line item is probably likely to be roughly comparable to Q2 in the back half of the year?

Matt DiLiberto

Yes. Between $25 million and $30 million is a good run rate.

Operator

Our next question will come from the line of Anthony Paolone of JPMorgan.

Anthony Paolone - JP Morgan Chase & Co

You mentioned some signage income at 1515 that needs to make its way in to turning still, and I think also the full impact of D&G when they take up 717 Fifth. And I think Jimmy maybe even rattled off a couple of others that I missed. And so I was wondering if you could roll that up and give us a sense as to how much FFO is in the offing that just needs to come in still and maybe a little timeline on that?

Marc Holliday

Yes. Tony, we're not ready to put out a 2012 number yet. So why don't you give us a chance to do our internal budgeting and really give you a thoughtful response to that question when we get to the Investor Conference?

Anthony Paolone - JP Morgan Chase & Co

Okay. But are these like on 717 Fifth, it sounds like that's just done and just the timing issue and same thing with some of the signage. Is there even just a dollar amount as to how much still...

Andrew Mathias

The signage is not done. The signage is getting constructed now. So we really would not even know. In 717 we need to complete the move of Escada and have D&G take over possession of the space.

Operator

Our next question will come from the line of Jordan Sadler of KeyBanc Capital Markets.

Jordan Sadler - KeyBanc Capital Markets Inc.

I wanted to follow up on a question from earlier that downtown and the Hudson Yards, it sounds like from your commentary, Andrew, with tenants saying that their real options -- that seems like a little bit of a change in tone for you guys even about those markets, which may have previously been considered lesser or fringier. So that's to midtown. So what's your perspective from an investment standpoint on those markets these days?

Andrew Mathias

We're pretty bullish on downtown. We like what's going on there. We've had a lot of success with 100 Church Street and 388 Greenwich, and we're looking for additional opportunities downtown, which we indicated previously. The far West side is not really -- it's sort of a one-owner market. There's no opportunity to invest there, and I don't know that we would invest there. But downtown, we're actively looking for new opportunities.

Jordan Sadler - KeyBanc Capital Markets Inc.

Could 100 Church come off of the potential disposition list that you had previously slated it on?

Marc Holliday

Well, it could -- I mean, disposition to us is a sale over JV, I mean that item [ph] disposition. So whether we sell it or whether we bring somebody in there, I think we have our options open. One of those 2, I would say, is probably likely because once the asset's put to bed as mature and our modus operandi is to recycle capital on hold, but to the best of our ability. So I don't know that it's going to change our view. It just may change the execution.

Jordan Sadler - KeyBanc Capital Markets Inc.

Okay. That's helpful. And then on the structured finance book, are there any additional conversion opportunities that may be imminent? It sounds like there's a little bit of talk regarding the CMBS on 5 Times Square. Anything additional on that front?

Marc Holliday

We're always kind of talking to all of our borrowers and trying to explore opportunities. So we've had a great success rate this year so far with 280 Park and 110 East 42nd Street, and we continue to talk to guys, that definitely wouldn't rule that out.

Jordan Sadler - KeyBanc Capital Markets Inc.

Okay. And then last one, maybe for Matt. I'm just looking at the preferred equity, and I think investment income line -- the other income line -- and trying to reconcile that with the $600 million or so that was outstanding and the 6% yield. And I'm coming up with something more like a $9 million sort of current quarterly pay or accrual rate on that investment balance. What would be the difference? I know you -- besides sort of the servicing fee you mentioned, what would make up the gap there in those 2 line items?

Matt DiLiberto

The main difference is actually all in one item I mentioned in my commentary on the position, the bridge loan financing that we provided at 3 Columbus Circle. The number as presented in the financial statement is $5 million thereabouts in investment income, and there's an offsetting because we're 50% of the deal, the offsetting 50% of that is done in our JV income. So it shows up as a net $2.5 million number that I referenced. But it shows the investment income higher as a result of the treatment there.

Marc Holliday

We've got about enough time for important questions, and we'll have come to a hard stop at 3:30.

Operator

Our next question will come from the line of Steve Benyik of Jefferies.

Steven Benyik - Jefferies & Company, Inc.

I was hoping you guys could just provide a little more color. You mentioned a number of the repositioning opportunities you have between 110 East 42nd and 1552 Broadway, obviously 280 Park, 3 Columbus and a few others. Can you just tell us a little bit more about the projected incremental capital spend expected over sort of the next 12 months and what maybe a weighted average yield might be?

Andrew Mathias

It varies by building. I mean, 280 Park, Marc said it was going to be $150 million dollars or so of capital investment there. And we'd expect to stabilize cash on cost yields there to be in the 7% to 8% range.

Marc Holliday

3 CC, we had announced earlier that we expected total capitalization inclusive of redevelopment capital of about $530 million. So that hasn't changed.

Andrew Mathias

And we expect stabilized yields there to be in the 9% to 10% on levered range.

Steven Benyik - Jefferies & Company, Inc.

What was the other...

Matt DiLiberto

280.

Marc Holliday

280 [indiscernible].

Andrew Mathias

110 East 42nd Street, there, I think it's really just lease-up capital. There's no building redevelopment there. And just leasing that up from 73 to a stabilized occupancy should get us to around 7.5% or so yield on investment unlevered.

Steven Benyik - Jefferies & Company, Inc.

And now at 1552 or 125 Park?

James Mead

Tell you what, 1552, we're not -- we haven't even closed the deal yet, the development deal, and we've got to spend some time there working a plan and spending some time with the city and it's way too early to talk about capital we expected because we've got a number of different scenarios. But we've had to close the deal, get into it, we'll settle on one and then we'll have some numbers to put out there. But 125...

Andrew Mathias

125 is just lease-up capital, and there we bought the deal very attractively. And I think with reletting the merit of space, which was part of our initial underwriting, we should stabilize at around an 8% cash on cost on levered.

Steven Benyik - Jefferies & Company, Inc.

Okay. And then just finally, on accrual liquidity perspective, what are the incremental potential proceeds from revived 717 Fifth and Landmark Square? And then in addition to that, what level of dispositions you mentioned a few for the back of 11, what's currently embedded in guidance from a dollar-value in perspective?

Matt DiLiberto

Landmark Square is -- $80 million on Landmark Square -- it's Matt -- and on 717, so we have that's depending on maturity for the rest of 2011. We do have the extension options built into the existing financing. We're evaluating now whether to exercise those options or seek refinancing given the Dolce and Gabbana lease.

Marc Holliday

But if we do refinance, there will be....

James Mead

Material upsize. Absolutely.

Steven Benyik - Jefferies & Company, Inc.

I know. What about the 2?

Andrew Mathias

It's high as we want to take it, I mean.

James Mead

So we have tons of areas of liquidity that we evaluate every time we do a financing. we just try to optimize cost of funds.

Operator

Our final question will come from the line of Ross Nussbaum of UBS.

Ross Nussbaum - UBS Investment Bank

It's been well documented that there has some sizable demand for big box space throughout the year. And I'm just curious what the sliding occupancy rate at the Graybar buildings suggests for the complete other end of the curve for the smallest tenants in the city. Is that -- what's going on at Graybar that, that building hasn't been queued in pace with the market?

Steven Durels

Well, it actually is right on plan, to tell you the truth. A couple of points that I guess to understand. One is we're seeing very good demand on small tenants, so even though we didn't speak to it, don't draw any conclusion other than to the contrary. Spaces that are call it less than 10,000 square feet, which are less than 50,000 square feet, plenty of demand out there, particularly if it's 10,000 to 15,000 square-foot full floors, which is not Graybar's market, or partial floors of kind of that sweet spot of 3,000 to 5,000 square feet, in which case that is clearly the natural marketplace for Graybar, a building that has almost 300 tenants. We started the year -- we ended last year and rolled into 2011 with a couple of big years of lease rollover. We knew that we would be confronted with a growing vacancy factor. And then add on to that, we had 2 pretty big blowouts. One was a 25,000 square foot tenant. Unfortunately after the tenant being in the building over 25 years, the guy's business finally came to a crashing halt. So we're dealing with that. We have another big piece of space that we've chopped up in the base of the building. And I guess just to give a little granular color as to the level of leasing, we have at this point 12 -- no, 15 leases out at Graybar of varying sizes and are seeing a high demand on spaces that we're pre- building. We sat with a big block of space -- 25,000 feet on the ninth floor of the building for most of last year. We finally made the capital commitment at the beginning of this year because rents had increased, and enough to justify an expenditure and chop it into pre-builds. And now we're taking that 25,000 square feet into 5 -- into 7 separate units, and before we've even started construction, already have leases out on 5 of the 7 units. So I think that's pretty indicative of where the velocity is at Graybar. And although we're at a unusually high vacancy factor today, I think we're chipping away at it and we'll end up the year in a much healthier place in line with what we had budgeted despite the blowouts that we suffered.

Ross Nussbaum - UBS Investment Bank

Okay. And then, Steve, while I've got you. Leasing update at 3 CC to be signed, any leases this summer?

Steven Durels

No. We have 1 lease that's out for 35,000 square feet. We have 2 term sheets that are well baked at this point that we're hopeful will get converted into leases for another total of 70,000 square feet. You got to that building in perspective, in our minds, we really only launched the marketing program about 60 days ago. Since January, we had really been focused on reengineering the capital program and completing the major elements of the redevelopment of the property. There were a lot of -- there is a lot of work that needed to be attended to before we could really introduce the building back into the marketplace. And that work is being wrapped up. The building is a wildly better place today than it was at last year's Investor Conference. We're getting a lot of positive feedback from the brokerage community, and the space tours are pretty active at this point. But they're big sized deals. The smallest deal in the building would be kind of 35,000 feet up to a multi-floor deal. So those transactions need a good deal of ramp up time before we are going to get any real progress. But I think we're where we expected to be at this point in the game.

Marc Holliday

Okay. Well, thank you, everyone. We've reached the end of the call. To those that are still on, I don't know, have liked it out to the end. But we want to thank you for your questions and wanted just to reiterate how pleased we were with the quarter. We may little bit have overwhelmed by the market today, but we're confident in the second of the year and what it's going to bring. And we look forward to speaking with you again on the next quarter's call.

Operator

Thank you, sir, and thank you for your participation in today's conference. You may now disconnect. Have a great day.

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