SL Green Realty's CEO Hosts Annual 2011 Institutional Investor Conference Call - Event Transcript

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SL Green Realty Corporation (NYSE:SLG) Annual 2011 Institutional Investor Conference Call December 5, 2011 1:00 PM ET


Isaac Zion - Co-Chief Investment Officer

Steven M. Durels - Executive Vice President and Director of Leasing

Matt DiLiberto -

Andrew W. Mathias - President

Jeff Sutton -

David Schonbraun - Co-Chief Investment Officer

Edward V. Piccinich - Executive Vice President of Property Management & Construction

Unknown Executive -

Heidi Gillette - Director of Investor Relations

James Mead - Chief Financial Officer

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

Heidi Gillette

Good afternoon, everyone, and welcome to SL Green's Annual 2011 Institutional Investor Conference. We've got a new venue this year, very exciting. We've got an exciting tour planned for you this afternoon for those of you who registered. Jim O'Connor from the 9/11 Memorial will be joining us later and giving a presentation and overview of the Memorial Museum design and what have you. And we've got a really extensive presentation from management today.

And with that, I'm going to turn it over to Marc Holliday, our CEO.

Marc Holliday

Thank you. Thank you. Good afternoon and welcome. Welcome to all of our shareholders, investors, our analysts, members of the Board of Directors and many, many others listening in by webcast today. I want to thank you for your presence here today, as we know that your time is very valuable, and we will do our best to make this presentation as condensed but as valuable as possible.

We have record turnout, as you can see on this -- on a seasonably warm December day, and we're up here at 49th Floor of 7 World Trade, where you can enjoy these outstanding views of the rapidly redeveloping World Trade Center 9/11 Memorial Gardens. Today marks the 14th consecutive year that we've held this annual investor conference, and we've attempted to make each one bigger and better and more informative than in years prior. And this year is certainly no exception to the rule.

Today, a number of our key executives, you see up here on the dais, and a special guest will present to you on a wide range of subjects that you've indicated you most want to hear about. We are going to cover series of topics that we believe are most relevant at this time, and we hope -- convey to you the many reasons for our confidence in the New York City market and the excitement and belief that we have in the SL Green platform. An underlying theme will be the embedded growth in this Class A portfolio of assets, a portfolio that is unrivaled in New York City in terms of its scale and quality and market penetration.

The next series of maps demonstrates pictorially just how deep our reach is into the Manhattan market. On this slide, you can see the inset box, which demonstrates nearly all of our office holdings are located in the prime Midtown area, shown here is bounded by 59th (sic) [57th] Street and 34th street on the north and south; 2nd and 8th Avenues, east and west. The stand-alone retail portfolio tends to be less scattered and more concentrated in the primary trade markets, as Jeff -- and Jeff Sutton and Andrew will elaborate on later.

And now you can see graphically where the vast majority of our structured finance investments reside, with a common theme and representation in the prime Midtown submarkets.

The next slide shows the initial seeds of what could become a more substantial portfolio over time, with initial acquisitions made by us in the residential arena in the Upper East Side in a venture with Stonehenge Partners. The Manhattan apartment market is largely unconsolidated, which I think is very interesting. There's a lot of fractured ownership. There's a lot of opportunity for roll-up. There's very little public equity presence in Manhattan. In the apartment sector, there is less than a 1% vacancy. You have some unnatural limiters to rents that cause below market rents. Our acquisition was about $350 a foot. Rents were about 20% below market. So stay tuned. We'll see how this map evolves over time.

And now you can see it all dramatically depicted on this screen, all our various ownership interest, all concentrated in that box in Midtown Manhattan. But now with a focus on Downtown, on the next slide, that we'll talk quite extensively today. It's no coincidence this is our chosen venue for the day with our investments in 100 Church, 388-390 Greenwich and now 180 Maiden. We've got a lot to talk about.

Now looking at it numerically instead of graphically, you can really get a sense of just how vast these holdings are. With almost 27 million square feet owned and 51 properties, we also have another 17 positions in depth. That's another 12 million square feet, giving us a total footprint in this city of almost 39 million square feet and comprising 68 different positions. That's almost 15% of the Midtown Manhattan inventory.

Looking -- adding in the Suburban portfolio, our total real estate holdings were -- investments come to about 45 million square feet, with a total enterprise value of $14 billion or slightly in excess.

Now adherence to some basic investment disciplines -- next slide -- has allowed us to amass this sizable Class A portfolio of properties, one of the best commercial markets in the world. At market troughs, we buy vacancy aggressively like we did in '04 and '05. As the market recovers and heads back towards peak conditions, we shift our buying to longer-term credit lease properties and harvest our gains through asset sales like we did in '06 and '07. On the downturn, we experienced in '08 and '09, we went to the sidelines, as you all know. And then in 2010 and '11, we started all over again, and we acquired over $5 billion of product gross in the past 2 years, and that was all with a very strong conviction about a point in the market and a point in the cycle that's led us to this -- to the portfolio we have today.

The only difference we are observing this time around is that there's a somewhat lesser slope of recovery, as indicated by the green line, and we think it's shooting off to the right a bit, so it may take an extra year or 2 or 3 to achieve normally what would be a prior peak or surpass the prior peak, but we're certainly headed in the right direction, and we still think 2012 is going to be a year of growth. Next.

Here are some photos of that $5.3 billion portfolio that I mentioned to you. So obviously, it was at this conference 2 years ago when we stood in front of everybody and very publicly stated that we wanted to make a very big advancement in this market for what we thought was going to be a market trough and a recovery period ahead of us. In '09, it wasn't so obvious. '10, it was a little more so. '11, in hindsight, people forget it looks like -- I think it looks like it was easy. It really wasn't that easy to try and pick the moment to acquire and expand the portfolio with these notable assets. Likewise, however, we disposed of an enormous amount of assets also because that is true to who we are and what our philosophy is.

So you can see here there were 8 dispositions where we harvested gains. Several of these are under contract like 1 Court and 292 Madison and 141 Fifth. But this is a formula we've successfully employed over time to constantly upgrade asset quality and increase the embedded earnings by selling mature assets, non-core assets and buying those that have embedded growth, higher quality, greater certainty, and we do that over and over again to get to where we are today.

For those of you that may have seen this ad today, structured finance is something that is an integral component of our overall strategy, and we generally originate and acquire these positions throughout the entire investment cycle, as you may have seen on that prior graph. We modulate with spreads. So as spreads compress, we slow down. As they widen, we come back in. But we generally almost always finding opportunity for yield and for opportunity and sometimes for pipeline. This is an ad that shows $3 billion of investment activity in 2011 alone. $840 million of which are represented in these 6 investment debt and preferred equity originations, with high-quality borrowers, and I think that tells you something about the market today and the lack of available subordinate capital. You see up here Beacon and Blackstone and RXR and Paramount and many other high-quality borrowers borrowing under this program in this point in the cycle. More to come on this from David Schonbraun later this afternoon.

Next. So we wanted to take a shot at coming up with our own top 10 list of reasons to own SL Green stock. We often have meetings with investors when the stock is low, and they say, "The market's too uncertain. We don't want to invest." Then when it's high, they say, "Now we missed the run. We don't want to invest." So we're going to try and find that sweet spot right here, and if nothing else, let you guys walk away today with what we view as top 10 reasons to own SL Green stock.

First, strong asset profile. I think it goes without saying that we have among the strongest and most durable assets in the sector. All of the same-store portfolio has been redeveloped and is well leased, often ranging from 95% to anywhere of 99% occupancy. It's a predominantly Midtown Manhattan portfolio, which we showed you on those maps earlier. And importantly, it's not just us -- it's not just about us saying the buildings are great, and we made great investments. It's about a track record of success by harvesting assets. These are numbers dating back to 2005, assets we've sold -- bought, sold and IRRs that are reflected on an unlevered basis. I know they look like levered numbers, but they're not. They're unlevered numbers. And this is every deal bought and sold, bought prior to '05 and sold since '05, and these are numbers that I think any private equity shop would yearn for, 19% unlevered on $4.5 billion of invested capital including CapEx expended along the way, $1.6 billion of capital gains. You can lever those to whatever turns you -- returns you would want to lever them. That's not an apples-to-apples comparison, but the basic metric in a market you know is pricing assets today, December, between 6% and 8% unlevered to routinely be able to produce returns that are double and sometimes triple those returns is what we're about, what our philosophy is about and why it is. I think it's important when you look at our cash flow in FAD -- and often we read about how the cash flow is low relative to our peers. Well, there's a very simple reason why. We take the cash flow and we sell it, and we generate these extraordinary gains. We reinvest it, and we do it again. And as long as we can keep doing it and making these kind of returns, that's more than we could possibly make by sitting on cash or dividending it out. These are very heavy [ph] returns.

Next. Next, strong credit profile. All right. Do I have a laser? Okay. Thank you. This is a little bit of classes in session here. Let me see if I can -- perfect. Okay. Decreasing leverage. Now looking around, I get some quizzical looks out there when I talk about our decreasing leverage. I want to go through exactly how we arrive at the numbers we choose, the debt-to-EBITDA targets, the loan-to-value targets and talk about how we put it in the context of our strategy versus how we see it deployed elsewhere in the market.

Next. Okay, under the header, All NOI is Not Created Equal. And that's pretty fundamental to what I'm going to go through at the moment. If you have any property with $1,000 of NOI, a 5% cap rate is what we'd applied against that. The market today is much below that. It's about 4%, 4.5%, but 5% for illustrative purposes gives you a $20,000 value and at a 40% leverage ratio and $8,000 of leverage and an 8x debt to EBITDA. Straightforward, easy, that's all -- no way to simplify it beyond that. So if our target is a 40% loan to value, which I think in this market is exceptionally conservative, and this market's a 5% cap, which is actually lower, but for conservatism, we use the 5% because that's where it's historically been. That results in an 8x debt-to-EBITDA. It's not pulled out of the air. It's not just something that sounds good. It's the result into a 40% levered portfolio at a 5% cap rate. If you look at other high barrier markets, where they operate maybe 100 basis points wide of where New York City is, let's say a 6% cap, and you see at the same 40% leverage ratio, that debt to EBITDA is going to be lower. That's just mathematical. The leverages is not lower. The risk is no greater or the risk is not less, but the debt-to-EBITDA number is lower. It's math. If you look at the other markets, secondary markets, I would say benignly, the cap rates are 8%. It's benign. $12,500 of value, 40% leverage is a 5x debt to EBITDA. So I can't tell you how many meetings we go into and they say, "You're at 8%. Your peers are at 7%. You guys are over levered." Well, it's not how we see it. It's not how we calculate the math because all NOI is not created equal, and if you're going to look at this NOI stream and sort of say it's all the same and therefore, all the resulting debt to EBITDA should be the same, then you'll have what you get on the next chart.

We'll go past that. If everybody was at 7.5 with the varying in some cap rates, then we'd be at 37.5% gearing. Other high barriers would be at 45%, and other secondary markets would be at 60%. This is the way it is. If institutional investors, private money, foreign buyers, they respect this market, they respect the embedded growth of this market, they respect the fact that the rents go up net on average higher than these other markets and they understand that at a constant leverage ratio there's going to be somewhat less cash coverage, that doesn't mean it's riskier. I'd argue to the contrary. It's better. It's more liquid. It's more durable. You make your own assessments of that, but you can't talk about leverage without talking about value and only focusing on debt to EBITDA. The world is awash and littered with companies that have relatively good cash flow but their assets are below liabilities. Many of which file for bankruptcy over the past downturn. They were cash flowing. They just didn't have value. So I would caution against using debt to EBITDA as the only delimiter of leverage. We look at roughly a 40% leverage ratio as our target. That's in line with our -- that's in line with the peers generally. If you look here, these are -- Good Things Come to Those Who Wait is the title of this next slide, and what this basically says is that if you look at all these assets on the left-hand side that we just purchased in 2010, 2011, we're going to lease those assets up from 40%, 70%, 80%, 90%, close to 100%. How do I know we're going to do it? I'm going to show you how later. We're going to do it because we always do in Manhattan. And those stabilized years are 2 or 3 years out. If you take our current run rate EBITDA of $889 million for 2012 -- not run rate -- for 2012 projected and you add in the incremental NOI from these properties, you get the pro forma NOI of $976 million. I would tell you we are going to achieve that. Maybe we'll exceed it. Add in the incremental debt over time it'll take us to get there, and you have a stabilized EBITDA today of about 7.9, sub 8% and that compares to 7.8 for the peers. There's a little footnote on the bottom that lists out the peers that comprise that 7.8% debt to EBITDA. So we feel that we're prudently levered, and I hope that explains partially our strategy as it relates to the leverage.

We've got substantial capacity and liquidity and very modest maturities, very modest floating rate exposure, all things that Matt's going to talk about shortly. We've also got extraordinary liquidity in this market. And by having that -- go to the next page. You see the transaction volume this year is almost $20 billion year-to-date and -- but for '06 and '07, if you add in that's -- what's under contract and ready to close, that's another $4 billion for this year, so that is $23 billion projected for 2011. That makes this year the highest other than the peak years of '06 and '07 since 1997. So everybody wrote the market off, say, financial services not coming back. We're back to a peak transactional volume, but for '06, '07, which were clearly outsized years and maybe not replicable for many, many years, but that doesn't matter. We're still better off than almost the prior 14 other than that.

When you look at the investor profile, nobody has this kind of diversity that I'm aware of, where year-after-year, as you saw the pie gets bigger from '09 to '11, there's just buyers who come in and out of this market constantly, and they do it because they want all the things we're talking about. And you saw last year -- no, go back one, please. Last year, there was an abundance of private capital that was early on the market, 35% with REITs at 21%. We made up the lion share of that. Now private equity, as the markets advance, has gotten smaller, 27% in 2011, and the pension funds and institutions who generally follow the market took a bigger slice at 36% this year of that $20 billion that's closed. 25% again for REITs, with Green again comprising the bulk of that activity.

And this is an example of this most recent activity. We hear -- we heard a lot at nay REIT [ph]. Well, the market really fell off the cliff after the summer. Not in Manhattan. These are 5 deals that were contracted for after the summer, after August, and you can see that this comprises almost $3 billion of real estate, over $3 billion of transactions, cap rates between 3.5% and 5%. Generally, underwriting stabilized, near-term returns of 5%, a mixture of properties. Institutional and noninstitutional owners all want product in this market. And as we sit today, I can tell you in December, the market is as aggressive as it was September, October, November, and you're going to see a lot more deals rolled out over the next few months.

Next. Resilient economy, heard a lot about corporate profits and job growth. I can tell you that when you look at the job growth in the city, since the trough -- in the trough, this city lost 140,000 private sector jobs. Already, 70,000 net jobs have been added back. 83 of which are private sectors, so private sectors leading government is shedding. But overall, we're halfway back. 24,000 private sector jobs added just in this year alone, and the projection is for positive job growth next year. So there's a lot of talk about layoffs in the financial sector. Wall Street profits this year are going to hit $20 billion, between $20 billion and $21 billion estimated for 2011. That would make it the second-best year in the past 15, other than 2009, which was an aberration where they had onetime trading profits of 60. But take the 60 out, second-best year in the best 15, this year. Not forecasting that for next year, but it's certainly a profitable, lucrative engine of business that does generate a lot of jobs in this market.

So talking more about our tenant base, you can see we've got creditworthy tenants, limited near-term expirations. We're going to go through those slides real quick just to show you what that looks like.

Our top 5 through the One Court sales, Citigroup, which used to be 10% of our revenues, is now 6.4% of our revenues. No one is more than 7% of our revenues in our top 5. AIG was a late entrant to this slide. They probably will come out at fourth or fifth, so they'll be on next year. But again, anywhere between 2% to 7% representing our top 5 tenants. We have enormous diversity, and it's filled with Fortune 500 headquarter companies.

We also have limited near-term role. There's, on average, 1.4 million square feet a year rolling over the next 5 years. We have leased on average 2 million square feet a year over the past 5 years, so I feel very comfortable we're going to get -- we're going to meet or exceed those targets, those averages going forward like we've done in the past. This year alone, 2.5 million square feet of leases signed against an original target of 1.7 million square feet. It was an absolutely terrific year, and we keep pushing out the expirations by doing these earlier renewals, on average a 0.5 million square feet or more is leased than contractually expires in any given year for SL Green.

Tenant diversity, you can see here we've got financial services right at about the industry average of 38% percent. Financial is roughly 40% in New York City, but there's this whole majority of other tenants led by media, advertising, professional services, government, healthcare, education that are leading the way on expansions and renewals and has caused that growth on this slide that I showed you earlier. Those are the sectors that are most contributory. In the financial sector, it's a lot of the hedge funds, 5,000 to 15,000 to 25,000 square feet. Private equity firms that are all splintering off from the big banks, that is also creating a fair amount of demand in our portfolio. So the more diversified it gets, the better we feel, and I can tell you there's -- out of every 10, 5 are expanding, 3 are renewing and only 1 or 2 are contracting.

Embedded revenue growth, this is critical to where do we get the growth over the next 3 to 4 years? A couple of places, vacancy, lease-up, I showed you that earlier. 87 million to stabilize the bought properties. We also have embedded mark to market. Here, if you take our properties, 10-year projected cash flows for every Manhattan asset, NOI is expected to go up over the next 12 or 13 years by 50%. Let's go back one. By 50%. That's an average compounded annual growth rate in NOI of 5.2% projected, and I don't think those projections are aggressive. Part of that is lease-up. Most of it is embedded growth. The rents, which fell 40% peak to trough, have only recovered about 15%. You're going to see a lot of that recovery as we follow that green arrow that I showed you earlier, and we will get back to levels that are much closer to justifying construction costs in this market I believe. And this is the representation of what I believe our growth looks like internally. Anything that falls below the mean line, we generally look to sell. Anything that's above, we keep. And that's how we recycle and keep this trend line. That trend line was about 6% 10 years ago when I first used that slide at one of these investor conferences.

Next. Historical occupancy increases. I said earlier we will lease it up. Well, how can I be so confident to say we will lease it up? Well, that's because when you look at our average occupancy at acquisition -- no, go back one. At acquisition, you have occupancies that range anywhere in the 80s, 20s, 67%. This is every acquisition in those years, initial acquisition occupancy today, all in the 90s except for this one. That's 317 Madison, a building we're intentionally slow leasing. We'll get to more of that later. And the most recent ones, 66% on the ones we just bought. Obvious. Everything else, leased up. Even including those 93.8%, excluding those well over 95%, it's just a business to us.

There's also a limited new supply of buildings. That certainly has to factor into the top 10 list, new supply. When you look at why is this such a high barrier to entry market -- next slide -- it's because you see that the construction costs are just so painfully high, higher than 25% in more than across the river and 30% plus more than in other parts of the country. This is conservative estimates of what cost to build are in this city. $1,150 a foot, that's assuming $350 a foot of land cost, which for a prime site that's low and these other costs, which are reasonable but certainly not excessive in their estimate.

Next. So when you look, in our opinion, do you get enough bang for the buck to develop in this market? That's in the eye of the beholder. Depends on what kind of target -- no, go back one. That depends on what kind of target yield you're looking for, 7% -- a 7% yield is going to yield you a 7% IRR, and that is a $118 net effective -- a net rent -- I'm sorry, $118 gross rent. All right. Just let it go to the next slide. $118 gross rent. It's a $128 rent. Going to pause the presentation for a second. Well, let me finish my breakeven while we're waiting. The point is it's about $118 to $128 gross to make yields of 7% to 8%, I think minimally acceptable for taking on the risk of a new development. Those rents are only there in the most desirous and prime of locations in Manhattan. Most of those locations don't exist because they're built out. If they do exist, the land cost is more than $350 a foot, so it's iterative, and okay, it's very hard to get there because you just don't have the sites available or available at that cost. Hence, all the development that's taking place in town right now is located on what we consider to be the fringe areas of Midtown, but we'll go through that in some level of detail in a bit.

The other benchmark I wanted to put up there was improving operating margins. Matt's going to do a piece about how our margins have been held steady or decreasing over time as we've made improvements on our cost side through bulk purchases and through negotiations for better contracts in these soft periods of time. Real estate taxes, we can't do as much about, so we try to contain the cost there. But year-to-year, we've kept our expense increases very modest. We're going to talk today about what those expense increases look like. There's one in particular I wanted to flash up, which is G&A ratios. We have a chart, I assume we'll get to momentarily, about our G&A ratios as they compare to the office peer group. If you can just keep it up there even as an individual slide, that'll work for now. There it is.

So we looked at it 3 different ways: G&A divided by revenues, G&A divided by assets, G&A divided by enterprise value. Take your pick. The industry average for this peer group is we are within 14 to 37 basis points of the average, certainly not the high. And as we've grown bigger and the team has grown, we've certainly made great strides in that area as in other areas to get to where we think is appropriate for a company of this size and of this complexity, understanding that we are dealing in one of the highest compensation markets of all REITs, so certainly not easy to get to an industry average when you're already starting up from the kind of the top of the sector in terms of cost of doing business.

Next. Dividend increases, I'm going to shuffle through quickly so we stay on track. Now let's just focus on return to shareholders. This year, we're about minus 2%, but we're #3 overall in total return to shareholder value. It's in your hands between now and the end of December to increase us to our rightful position, more towards 1 or 2, but that's in your hands, not mine. Our 3-year return, we are at the top of our peer group list, and when you look at the 10-year total -- this is as of Friday -- we're within 1% of the second place finish. I don't know if you can correct that for today's trading activity.

Unknown Executive


Marc Holliday

Okay, all right, well, as of 12:21 this afternoon, we were -- we had advanced to second. On that 10-year list and in all seriousness, looking -- maybe that's what screwed up this presentation was my insistence that we get in there the flip flopping of 2 and 3. I probably blew it. But that is in fact the case over 205% generated total return to shareholders over the past 10 years. So yes, we don't pay out a lot of dividend. I've gone through some reasons why we don't pay out a lot of dividend. We did increase it pretty substantially today, but that doesn't mean we're not making a ton of money for shareholders, and that also doesn't mean that, that value creation is not being reflected in that 205% increase in stock price and dividends but mostly stock price.

Lastly, I would just like to give credit for the 10th, maybe the most important reason to buy SL Green stock today is the best real estate team, best group of employees, committed, talented -- I was telling to somebody earlier today, Friday night, we were closing 51 East, closing Young & Rubicam, preparing this presentation for you, and there must have been 200 people at about midnight located throughout our offices and conference rooms on Friday. We're recognized as leaders in this market, fully transparent on our conference calls and through presentations like today. We pride ourselves in that, and we focus on growth and value, not just on the formulas because we think that's where you make your money. So I thank you for letting me kick off things today, and I appreciate your patience while we get the kink worked out of the presentation. And now we have a lot to go through, which will support a lot of what we've just said and more some. Thank you.

Andrew W. Mathias

Thanks, Marc. Another year, another opportunity to take a deep dive and look at how we performed relative to the goals we set out for ourselves last December. Here's the slide we flashed back. There was this slide we flashed back one year ago with aggressive objectives in each area of our business. Let's take a look at how we performed. First up is leasing, and the first goal was greater than 1.7 million square feet of leasing, roughly 500,000 more square feet than we had expiring this year. We'll start out with a big thumbs up here as the slide is just the big deals, the leader of this morning's big news, the Y&R transaction at 3 Columbus Circle, but that's the icing on the cake of a year with over 2.5 million square feet of signed deals, over 218 transactions year-to-date. We'll spend some more time on the Y&R presentation -- on the Y&R transaction later in the presentation.

Next up is mark-to-market, where we were able to exceed our range and project positive mark-to-market of greater than 6% on New York City leases.

Occupancy as well is on track to exceed the 95.3% goal we set for ourselves. As the vacancy rate in New York is compressed, we've been able to make meaningful gains on occupancy in several key buildings. However, 2 of the buildings, which we had identified early on, were going to be a struggle for us, 521 Fifth Avenue and the Graybar building. We had some unexpected challenges this year. We lost a large tenant to a bankruptcy at Graybar, and we had a lower-than-expected renewal rate of 521. So we're at about 90% today at 521 Fifth, 88% today at Graybar, so we have to give ourselves the thumbs down on this one. I would say rest assured, historically, the stigma of the red thumb has been a powerful motivator, and I'd expect these buildings to outperform significantly next year. Isn't that right, Steve? Next up is 100 Church, where I'm going to give us the sideways thumb. Leasing here is blown through underwriting in terms of velocity and in terms of rents, and we have great activity on the 18% or so of the building that remains. But the goal here says complete, which was a little aggressive in retrospect, and we're not done yet. We're at about 82% today. More from David Schonbraun later in the presentation on this success story.

Next up is investments. We're given a great 2010. We had targeted $400 million of new investments, but with dry powder on the balance sheet and a franchise that was really firing in all cylinders this year, we shattered our goal and found some unbelievable opportunities to deploy our capital. $4.4 billion of acquisitions closed and under contract to date, as you can see here on this slide.

Next up with sales. We are considering performance on new investment, and given our capital recycling philosophy that Mark just elaborated, it's predictable that we well exceeded our goal here as well. One Court scored the dual goal of reducing our Citibank concentration and shedding a non-Manhattan asset. 44th Street was a side street repositioning which we completed and was a natural sale. 292 was a nonstrategic part of our package deal for the fee interest where our real goals were the fees under 2 Herald and Lipstick, which we still retain 100% of, and 141 Fifth was the last piece of the retail project where Jeff had done a great job leasing the building up, and we fully stabilized the asset, so it's time to take our profit.

Next up is 3 Columbus where we targeted closing the deal and placing financing on the building.

Next. Recall, this was that December in the heat of our litigation with the lenders there and just after we delivered the county clerk a cashier’s check for about $270 million to try to force a resolution there with the lender. Our strategy was successful. We closed the deal in January and then in March, closed a $300 million loan led by Bank of China in record time and this morning, surprised even ourselves with the ability to get our anchor lease done. Steve Durels and Neil Kessner have been locked in a conference room negotiating this deal for the last 4 weeks or so, but I figured we'd get them up here to take you through an overview of the deal. Steve?

Steven M. Durels

I'm delighted I get credit for one leasing success this year. This transaction goes down in the record books for its complexity, speed to close and the numerous and unique challenges which were overcome. Remember that we took control of leasing only late in January after building development had been stalled for a significant period of time and the space had been available for lease for over 3 years. The entire project was under a cloud of rejection by the marketplace. In fact, many people, including some of you in this room -- I'm looking at a couple of them as they look back at me -- believe the building to be unleasable. In short order, we engineered - reengineered the project, reengaged the construction crews and implemented a marketing strategy, which included holding the building off the market for which I personally took a lot of heat from some critics until it was ready for reintroduction in May. The Young & Rubicam deal came about because I personally called the broker after learning that Y&R was in the -- was part of the stocking horse bid for 1107 Broadway, which is a building that we too had bid to acquire. Our first challenges the broker's initial response that Y&R had previously considered and rejected the building because of physical deficiencies and the building's reputation resulting from past struggles. In fact, the broker had once shown the building and gotten trapped in an elevator, so you can only imagine what it took to convince her to take a fresh look.

Long story short, we met the next day. She was blown away by the night-to-day transformation of the property. Physical deficiencies had been redesigned. Work was progressing on a fast-track basis. Space was cleaned and prepared in such a way as to highlight its inherent attributes, and the building was a buzz of activity. Within 2 weeks, we had convinced Y&R's senior management that after 5 years of searching for the right building, with the right owner capable of accommodating the unique deal structure, 3CC was the right choice for them. And the term sheet was signed during what proved to be the first of many midnight meetings to follow.

The transaction covers 340,000 square feet. It is the sixth largest lease signed in Midtown during 2011. Technically, it's a combination of the sale of a 240000-square-foot condominium interest covering the bottom 7 floors of the building for approximately $144 million, together with a 20-year lease covering 126,000 square feet for an additional 4 floors. The deal was actually 3 separate transactions into 1, including the creation the condominium, a contract of sale with repurchase options and a complicated headquarters lease. And know by the way, we also secured an option to purchase Y&R's existing 500000-square-foot headquarters building on Madison Avenue.

Any one of these 3 separate deal components would ordinarily take 6 to 8 months to close. We closed the entire transaction within 6 weeks of issuing the first draft of lease after working around the clock, weekends and through the Thanksgiving holiday. The net result is that we've landed a world-class anchor tenant who will occupy more than 50% of the buildings office space.

We now have ongoing negotiations with additional tenants for more than 55,000 square feet and the buildings is on the radar of every broker working with tenants looking for high-end space. We're on track to have over 60% of the building's office leased within the next 45 days, and that still leaves us with a lease-up opportunity covering over 40,000 square feet of the best big block retail space at Columbus Circle together with the CNN sign located atop the building roof.

It's worth noting that in order to make the Y&R deal, we had to discontinue ongoing term-sheet negotiations with a separate 280000-square-foot tenant with whom we were moments away from going to lease. It's obvious from the demand we've seen from big quality tenants that our original vision, strategy and execution for the building's repositioning is a success. This success would not have come about without a tremendous contribution from the entire team. Our General Counsel, Neil Kessner, was a master at orchestrating the participation of 6 different law firms at the same time and solving complex legal questions raised by the Y&R legal team. Andy Levine, our Chief Legal Officer, worked to customize the PSA and option agreements. Anthony Malandro and Roger Merriman of our management and construction departments worked together with Gabriel Dagan, our partner's Director of Operations, to answer non-stop questions from the Y&R due diligence consultants; and our finance team, including David Schonbraun, Rob Schiffer and Spencer Pariser, were there with reams of analysis and critical interface with the building lender. I can honestly say that I do not believe there's another owner in Manhattan who could have pulled off this deal in the same amount of time given its complex structure and unique market challenges.

Andrew W. Mathias

Thanks, Steve. So the lease was better, faster and pretty much richer in all the respects. The effect on the underwriting in this to-be $1 billion deal is material, reducing our basis by a condo sale and reducing our capital investment significantly in the space that we sold increasing our projected cash on cost by over 100 basis points and materially increasing the deal's IRRs. I got to give credit to our partner, Joe Moinian, who is in the audience here, for his resolute insistence that this was a $1 billion building, even as everybody in the market, the press and everybody else doubted him and heaped a lot of doubt on even his ability to hold onto the building, let alone, develop it into what it has become today. So it was tremendous foresight in conceiving the redevelopments but also executing and what we are able to show, which was getting a world-class tenant to embrace this building, this location and the redevelopment that was done there as its world headquarters. It was an unbelievable result, and hopefully, Joe, when we're done, we will have that $1 billion asset you kept telling us we were buying into it cheap. So big thing thumbs up here.

Next up was a signage initiative we had just undertaken at 1515 Broadway. If you were in Times Square yesterday, hopefully, you saw the result of that initiative.

We now have the 2 best LED signs in Times Square. This one, the south facing sign and our other sign on the other side of the building, the north-facing one, over the Aéropostale store, which we installed last year. When you see the NBC, CNBC, MSNBC and Good Morning America shots of Times Square, the brightest signs in the background are literally these signs. So with this visibility, we've already signed up national retailers like Lexus, Nivea, Viacom, all of whom you'll see on new year's eve on these signs. And of course, 50 Cent to be one of the first advertisers on the signs. Early returns look like a sub-2-year payback on this investment. This is a major value-added initiative for 1515.

Next up is retail, with our goal of adding one asset this year. After a slow start, we really picked it up in the second half, adding our Times Square jewel, 1552, 1560, which Jeff and I are going to talk further about in a moment. A quality corner on Madison Avenue, in 747 Madison and the prime retail assets on Fifth and Madison that came with the DFR portfolio. So big thumbs up here.

Next up was the completion of the redevelopment at Tower 45 -- scroll -- where we transformed this building's nondescript curb appeal and entrants via a great leasing deal with Bobby Van's for a new restaurant, which you see here on the right and a major renovation featuring a new lobby, which you see on the left, elevator renovation and plaza renovation and a pre-built suite program upstairs that was very effective in absorbing a lot of the vacancy that we had, given DE Shaw's downsizing in the building.

Next up on our goals was 180 Broadway where last December, we had signed a lease with Pace, and we're about to commence construction at this infill site. The project's up to street level today, as you can see in this picture from last week. The highly complicated demolition and foundation work are behind us, which you can’t see in this picture is over 50k some [ph] sunk into bedrock, forming the foundation, which is around subway tunnels, and there was a major maze of cranes and drilling equipments that were required to get there. Bob DeWitt, our head of construction, assures me that vertical is the easiest part of this deal, and we're on schedule to deliver to Pace in 2013.

Next slide. On the financing front, as is to be expected with all the deal activity, we were more active in the financing market than we projected as well. Our ability to access different providers of capital was one of our key competitive advantages this year, evidenced by over $1.5 billion of activity in secured financings.

Next up were the corporate finance goals led by our sincere desire to achieve investment-grade rating for our pristine subsidiary, Reckson Operating Partnership. In April, we were delighted that after a concentrated deleveraging effort over the last 2 years and meeting a set of guidelines that S&P had clearly elaborated for us, we were upgraded to investment grade. Mission accomplished there, a big kudos to Jim Mead and Matt DiLiberto in getting that done.

As always, peer group performance is a key part of our goals and objectives every year, and as Marc mentioned, we're currently sitting in #3 in the peer group, so we definitely achieved our goal of top 20%. Hopefully, REITs can turn in a better showing next year, overall, than minus 14%, which is pretty uninspiring. But we're looking forward as a peer group, I think, to a better 2012.

Next up, same-store NOI. We were on track to deliver a sector-leading 41% same-store cash NOI. So green thumb there, we're on track. Positive same-store NOI, cash NOI of greater than 4%, which is sector-leading for sure. We're also on track to deliver.

And last up is CAD, where I had a lot of debates with Matt about this one, but I'm going to give us the sideways thumb. We went on this unencumbering program really at the -- with the goal of winding up with the rating where I showed you we had some success but in the process, paid off some loans that had reserves, so we wound up using cash to cover capital at assets like 100 Church as opposed to drawing it down from loan assets. So we missed the target by a bit, although, we were on track to achieve it handily, but we feel good about the deleveraging efforts that we took on. So we're going to give ourselves a sideways thumb there.

Onto the rest of the performance. Like to take a deeper dive into the retail portfolio after recapping a monster year. One of which every employee of SL Green is exceedingly proud of.

So as it was a source of a lot of our activity this year, we'll turn our focus now to retail. We've invited a special guest speaker. We've been partners with Jeff for close to 10 years now, and have built an amazing resume of success together. Jeff's retail experience dates back more than 20 years, starting in the boroughs before storming into the Manhattan spotlight with his deal at 609 Fifth Avenue. The Post calls him the retail maestro. The Observer calls him the press-shy, reclusive king of retail, but here he is. We deliver him to the podium today, Jeff Sutton.

Jeff Sutton

I thought I was a lot more important before I came today after seeing retail going 3% of SLG revenue, but we make a lot of profit on the revenue. Anyway, I'm not a public speaker, so I'm just going to try my best to talk about retail. I like to take some time to give some background and insights and some strategic reasons, as well as the key ingredients that we have -- that go into the retail portfolio that we've put together in the last 10 years, as Andrew said.

The first question is where is this retail portfolio. Well, basically, over the last many years, we focused almost all of our attention and concentration on just 4 major streets. Those 4 streets are the Gold Coast or Fifth Avenue, I call it the Gold Coast, which is 50th to 57th Street; the bow tie of Times Square, which is 43rd to 46th; 34th Street, just one block, 56th Avenue on the north side of the street, and Soho on Broadway between Houston and Spring. Anything that we've done outside of those 4 streets -- so we've done a few things on special situations, which we'll talk about a little later. But there's a reason for this concentration, and I want to spend some time on that reason to understand what we're doing and why we've been successful. I call these 4 properties, the 4 streets, the big 4, and it's very simple, Economics 101. I tell kids in college all the time, focus on your first year of freshman classes. They're much more important than you think. It's the foundation of my entire retail. Thoughts about that will be down for the last 10 years. I was in the Economics 101, supply and demand, good old supply and demand, but that's heavily skewed in favor of the landlord.

Let me explain what that means. Let me go into supply and demand of the different streets and what makes those streets so valuable. Fifth Avenue, they have very, very limited supply. What causes limited supply sometimes is natural boundaries. I would say the Gold Coast boundaries are Bergdorf Goodman to Saks Fifth Avenue. People want to go to both those spots, and that creates the supply to be very limited. I always joke that 7 blocks, each block is 200 feet long. 7 times 200 is 1,400, times 2 sides of the street is 2,800, linear front feet. Minus 3 churches, they have about 2,400 linear feet. There's millions and billions of residential square feet and office feet, which is all great. When you talk about only having 2,400 linear front feet, it's just staggering how limited that is. Other limiting factors are the fact that there's very few vacancies, but why? What's the reason for that? Well, on a street like Fifth Avenue, you have very, very expensive rents, so landlords naturally will pick AAA tenants or national, international tenants only, not mom and pop's. So when times get bad, those guys -- the AAA tenants can't run. They have their leases signed with the guarantees. They're committed to the long term of the business. So you don't have -- what happens to a lot of other streets where when things get bad, a lot of smaller tenants leave the street and create vacancies. Another reason is most of what's basically become available in Fifth Avenue are created availabilities, not just natural -- again like I said, people leaving or just not making it. It's buyouts that are done by tenants. It's very controlled. Usually people buy out tenants when they're underpriced rents or they have other retailers that want to go own their place. So the supply of Fifth Avenue is very, very limited. Again, it's only 2,400 feet of retail frontage, and all these natural things I've discussed -- but Steve has also broken it up into sort of like 2 parts: the east side of the street today and the west side of the street. The east side is the classical luxury side of Fifth Avenue. We have Bergdorf Goodman, your Louis Vuitton, Tiffany, Gucci, Armani, Dolce & Gabbana. It's coming, which we're going to discuss. Bergay [ph] , DeBeers, Pucci, Bottega Veneta, Fendi, Ferragamo, Cartier, all on one side of the street. And other side of the street, you have a beginning of some luxury with Bulgari and Piaget and Prada, and then you have Abercrombie & Fitch. You have Harry Winston and Bendel. You got all of the Gaps and the Uniqlos, the Zaras, Hollister, H&M, and Juicy Couture.

So the supply of Fifth Avenue is very, very, very limited. Again, it's only 2,400 feet of retail frontage and all these natural things I've discussed. That Fifth Avenue is also broken up into sort of like 2 parts: The east side of the street today and the west side of the street. The east side is the classical luxury side of Fifth Avenue, where you have your Bergdorf Goodman, your Louis Vuitton, Tiffany, Gucci, Armani. Dolce & Gabbana is coming, which we're going to discuss. Breguet, De Beers, Pucci, Bottega Veneta, Fendi, Ferragamo, Cartier, all on one side of the street.

On the other side of the street, the beginning of some luxury with Burberry and Piaget and Prada. And then you have Abercrombie & Fitch, you have Harry Winston and Bendel. I mean you got all of the Gaps, the Uniqlos, the Zaras, Hollister, H&M and Juicy Couture.

So it's aided a lot to the street in that we have one side, this is luxury, on one side, it's mass appeal. So it creates a tremendous amount of people that are gravitating to Fifth Avenue. That's somewhat the of demand of Fifth Avenue.

We have -- the natural original demand of Fifth Avenue was created by the fact that these luxury hotels that people literally wake up on Fifth Avenue. You have The Peninsula, the Saint Ridges, The Plaza, The Pierre, The Sherry-Netherland, Park Lane. Four Seasons is a block away. The Palace Hotel a block away on 50th and Madison. That's tremendous. I mean, people wake up in the morning, they walk out their door, they're on Fifth Avenue. They just can't help it. So you have that tremendous demand. You have certain must-see things. Must sees are St. Patrick's Cathedral. You have again certain stores that people want to see, Cartier in the holiday time. You have the Trump Tower. Everyone watches on TV all of this Apprentice things, all the other stuff all over the world, and nobody promotes Trump like Trump. You have Olympic Tower. You have Central Park. You have all these famous hotels that people like to go visit. It's another thing you have. Naturally, all those things create huge tourism. And of course, once stores are established in these streets, these famous stores, people just want to come there and walk them. And Fifth Avenue is a very famous street for its parades and some other things.

So there you have pretty much the supply and demand skews very much to the landlord and that there's very little supply and a lot of demand. That's a very good formula for a landlord to make a lot of money. Once you have some supply, you have a chance to really control price. So we've been very aggressive on Fifth Avenue. Not a lot of things become available. We try our best to buy as much as we can on that street. We have been successful. We own 2 main corners of 56th and Fifth, the Abercrombie, 720 Fifth Avenue corner; 717 Fifth Avenue, which we're going to talk about a little after the introduction on the retail. And of course, there's now the product purchase. Also there's American Girl. We can't forget our American Girl on the corner of 49th. We call the Gold Coast, 50th to 57th Street, I'm going to have to say that I made that like 49th Street was still part of it with the corner. It was facing the side entrance of Saks and there's a lot of very happy little girls today because of this.

Moving into Times Square. People have called Times Square many things. We have people call 11 Times Square on 42nd and 8th as part of Times Square. They call it 4 Times Square -- some guy bought an office building on 40th Street and calls that Times Square. To me it’s like Kansas, all those places. There's natural boundaries. I think 42nd Street is one natural boundary, going past 7th Avenue. It's all good, but it's not the bowtie of Times Square. The bowtie of Times Square is a different category. Bowtie is that bowtie shaped area in Times Square between 43rd and 46th Street. A great thing happened a few years back. There's been a big change in the geography of Times Square. It's shifted from typically -- 1 Times Square where it’s 42nd, 43rd. It's moved now to 46th to 47th Street. They've built this new Spanish steps. I guess they think it's like Rome. They built this Spanish steps stadium seating in the middle of Times Square. It's a great thing, because before that, there's no way to go and hang out in Times Square. To go and sit down and take pictures, view everything that's going on, eat, meet people and that's what happens right now. So it's changed the whole geography. Right in front of those Spanish steps is a big, big plaza right in front of it. And lo and behold, by no coincidence, we bought 2 properties right in front of that new Spanish steps area; 1551 Broadway, which Andrew mentioned that SL Green and I used to own. I still own it, but SL Green sold their shares of it. And 15th -- Sorry. And 1552 Broadway which is our new project that we are doing right now, which we’ll, also going to talk about in a little bit.

What makes Times Square bowtie so powerful? Well, it's a lot of things. First of all, a staggering 40 million tourists come to Times Square. There's 15,000 hotel rooms. People have to come to go to the theater. 12 million people go to the theater in Times Square. There's 300,000 office workers and 30 million square feet in Times Square. We have New Year's Eve when 1 million people pack it in. We have 1 billion people watch it worldwide. And every tourist, I know when I go to a different city in Europe, I was just travel agent, we're making our plans. Let's open the latest so we can get the most out of our day. And you'd be surprised that at 1 in the morning, 2 in the morning, Times Square is jammed by people just hanging around and watching. And what's important about that? We've made that in a lot of our presentations is for our retailers like having 2 stores, not just one. Because normal hours on Fifth Avenue and most streets like 34th Street are closed by 7:00 p.m. And Times Square closes between 1 and 2 in the morning, which is an extra 6 or 7 hours of prime retailing when, again, 12 million people are coming out of -- going in and coming out of theaters and want service to coming back from their day to their 15,000 hotel rooms, et cetera, et cetera. So having 2 stores also impacts in a great way the retail value of retail rents.

Of course, we can't forget signage. Andrew touched on signage. Very, very powerful signage now with all the new LEDs. On 1551, we’ve learned a lot about the power of contiguous signage where we have over there 14,000 square feet of signage moving together. And we'll talk a little bit about how we've been selling 1552 Broadway as a chance for our retail to come and do huge sales and have free rent.

34th street. I spoke earlier about being one block, 34th street, Fifth and Sixth. Again, natural boundaries: Macy's and Empire State Building. Tourists come. All the infrastructure of the trains and buses all stop in Herald Square. So we have all these fundamental things. We don't like to have things we have to create. We want to know there's a certain need to be certain places, and 34th street definitely has that. It's also part of the garment district. People want to showcase their stuff sometimes. That's another demand created for the stores. Again, one block is very limited supply. We're talking about the last few years, the following tenants came to 34th Street. We got Levi's, Foot Locker did a joint venture with Nike, House of Hoops. And there's a building we own as well. Uniqlo came in, took over the old Anne Taylor space. Aeropostale, 15 West 34th Street. Mango, Aldo, GOx, Esprit -- all in the list, 2, 3 years tenants have come to one block, which shows a tremendous demand. There's many other tenants online that are waiting to get to the streets. All the supply of those spots were created by buyouts. Most of them done by us. And I would say that the real reward for this supply and demand in favor of the landlord is the fact that SL Green and I, when we went on our 34th Street binge, controlling the supply, we're able to take rents from $200 a foot to as high as $800 a foot. And that's a lot of profit you'd make when you can do something like that because you're buying it obviously at $200-foot cost what the market understood it to be.

We also have SoHo, the main 2 blocks on Broadway. There's a lot of blocks in SoHo. People are very Green Street and Mercer Street and West Broadway. But to me, the real powerful demand and the concepts I've been talking about exist on Broadway between Houston and Spring. We also have extended ourselves to a fifth block because of what we went through in the marketing of 717 Fifth retail. We've made a lot of retailers who were very interested in the luxury, being on Fifth Avenue but just couldn't afford the over $2,000 for rents, and we said to ourselves, you know, all these people that we've met and have spoken to, and I've come to understand that buying some iconic corners on Madison Avenue, we bought 65th Street, which is the exact midpoint of the trade area between 59th and 72nd and 2 corners, we'll be very well positioned to take advantage of all the people that we've met and all the people that we had spoken to about Fifth Avenue. I spoke earlier about special situations. Andrew mentioned 141 Fifth Avenue. That's not on the 4 streets, but it's so hard to turn down the opportunity to buy a spectacular building for $16 million, selling off this portion 4 streets through 12 for $15 million and own a beautiful retail for $10 million, which we're selling now for $46 million. So I think that formula works and we can parse it up when it came to us, especially since we had the sale of the office space in hand when we went to buy it. Some other ones are 180 Broadway. Again, it's hard to turn down an iconic locations. Iconic means 180 Broadway is right next door to the New World Transportation Center that's being built right next to everyone comes out of that. Has to walk past outside of 180 Broadway. Three of the 4 entrances literally face our space. We have about 75 feet on Broadway, 135 feet on John Street, just a spectacular location. Again, iconic locations bring iconic results. Again, we'll speak more about some specifics about how that happens as well.

At this point, I wanted to talk about some of the mix that exist about some of these main streets with these higher rents. One of the mix is that retailers don't make money in these streets, that they do it only for branding and only for advertising [ph] and then get cream. It's totally untrue. Of course, we landlords, we love when CEOs will say, will describe some value to branding and to advertising. We love that. We love the fact that some CEOs don't even ask about -- the joke I always make is that in an iconic location on a main streets, sometimes the 80th question is the rental. Maybe they don't even ask about it because some CEO has this vision about what he's going to do with his whole brand? How is -- use Fifth Avenue at Times Square with 34th street to launch his brand to Europe and to Asia. We see some vision of creating some kind of club like Abercrombie did on Fifth Avenue, 56th Street. So for sure, there is that value which helps people get to their rent, but the opportunity to make money is huge. Just look at Abercrombie & Fitch. My wife flew out to Columbus, Ohio, to meet the Chairman of the Board of Abercrombie. He was worried because he didn't think he would do more than $25 million in sales, and I had to take his concerns seriously. I couldn't shrug them off and laugh at that. And so I made -- I flew to Ohio and I made a video of his own store in the South Street Seaport, which is doing about $19 million to $20 million, and I videoed that side-by-side with 720 Fifth Avenue. I flew to Ohio, went to meet him. I told him I want him to watch a video. He said, "Of what?" I said, "Of Fifth avenue and South Street Seaport." He said, "Fifth Avenue, I have an apartment there. I know Fifth Avenue. I don't need you to show me a video." I go, "Look, I'm really sorry. I flew out here 6 hours. If you can spend 4 minutes to watch it, I'd appreciate it." He said, "Alright, sure." And when he saw it, seeing things I learn a lot about, this business about seeing things. You can tell a person anything you want. When they see things, we videoed -- we had marketing 1551 Broadway was a hole in the ground. We managed to turn a $300 million lease with a hole in the ground by making a video of what it looked like. So the CEO of Abercrombie sees the video. I think he's like blown away, and says, "All right, we'll take it." And he was wrong. He didn't think he could do more than $25 million. And I think '08, '09, he did $135 million of sales, making $70 million profit in one store with a huge 75% gross margin that he has in that store, probably higher.

So that's the power of Fifth Avenue. Apple does over $600 million in a 23,000 square-foot basement. So when you hit it on Fifth Avenue, there's no limit to what you could do. The Pradas -- we just bought with a small store, do $50 million, $60 million. Gucci, Tiffany, all of -- felicitous stores, they make a lot of money.

So that myth, I wanted to make sure everyone understood that this is -- we're not here sitting and convincing people. We love win-win deals. Win-win deals create the opportunity to build relationships and do repeat business.

Another case of making money is our American Eagle deal in Times Square. I first met the CEO of American Eagle, Jim O'Donnell. I prepared a presentation to him for, again, what was a hole on the ground at the time. And we showed him this building with this spectacular signage. And to his credit, we showed him all the signs in Times Square. We did a whole shot of all the comps, of all the retail values of Times Square, and of the surface rent per foot of signs and he understood it clearly and he called me up about 3 months ago to say that in '10, he brought in $10 million in extra signage income from outside people using only 10 minutes of the 16 minutes of each hour that he had on his screens. And this year, he was in a rate of 6 more minutes that would be rent-free on a $45 million sales store. That's making a lot of money and that's what we hope to achieve.

So in summary, the big 4, the one thing I always tell people which is more important than anything is that in '08, '09, when it seemed like the world came to an end, believe it or not, rents on those 4 streets went up, which is tremendous. They were taking less risk than everywhere else for the chance to make a lot of money, and I don't think there's more to say than that. Again, in those times, a luxury street like Fifth Avenue, even though the economy is bad, there's still a weak dollar, there's still tourists coming in and getting opportunity to spent a good experience at Fifth Avenue. And again, people have recognized that New York is not only the financial capital of the world, but a place they feel comfortable investing their money with everything that's going around and all the turmoil in lots of other parts of the world.

That was the where. Why we focus on those streets is a little bit at the high -- I mean, the how. Sorry, how we do it. We're not interested in buying buildings and saying, let's see what happens. We're very, very motivated to bring all things to today, because today is the only facts that we know. So we spent a lot of time creating value immediately. Creating value is one of the few ways one is buying out tenants. Everyone thinks you go to a tenant and you just keep offering more and more money. It's not the case. Some tenants totally reject being bought out. It's not a matter of money, it's about being in the business somewhere. So then it becomes a relocation issue. Very important to listen and understand our tenants, to understand fully what they're about, what they need. That's one. 2 is reconfiguring or connecting or converting space, such as converting office space to retail. That's a big, big value creation. Office space, $60, $70, $80 a foot value. Retail, $300, $400 a foot. Adding space to space that we have, which we're going to talk about in 1552, which is the brainchild of what we think is going to be another big, big score of value. And also, finding the right tenant who could pay the rent that you really dream of and what you want. It's not just putting out brokers' flyers and hanging up signs. We don't do that, and we'll talk a little bit about that more in our 2 slides presentation. Also more important than anything else, having something that no one has. That could be a store available on Fifth Avenue. It could be a very big space that somebody needs that no one else has, which we have at American Girl. It could be a very small store in Fifth Avenue, which is very rare, or it can just be a spaceless street that no one can get.

So anyway, we're going to do some slides now. Andrew and I have 2 properties, 717 Fifth Avenue and 1552. Some of the words I want to throw out we're going to talk about in the slides may seem a little corny, but things that are the critical parts of succeeding in the retail than anything, I guess, is that relationships are credibility, delivering, understanding our tenants, showing the things that they can't see with words, being directly involved, meeting with the CEOs of these companies. No way a real estate guy is making a deal for $16 million to $20 million a year in rent, and teamwork, which we do now.

Andrew W. Mathias

Right. So we'll do a quick dive into 717 Fifth Avenue, where this is one of our greatest success stories with Jeff. We bought the building in 2006. You can see from the graphical depiction here, it was Hugo Boss and Escada on Fifth. The side street was a loading dock, basically, and a little chocolate store. And at the time we bought it, we took an option to buy 3 floors of office space, second, third and fourth floor, because Jeff had the unbelievable foresight to say, guys want to sell on the ground floor. They don't want to stock. They don't want to waste ground floor space, so we've done other deals where back-up space being a law for more space was the key to the deal. A lot of people would have bought this building and said, "Hey, the first tenant expiration when we bought it in 2006 was 2015. Sounds like a good coupon clipper, 4.8% return, let's buy it, let's see what happens and just wait. That's sort of the opposite of this sudden philosophy, and I'll let Jeff tell you what actually happened here from that setup.

Jeff Sutton

So as Andrew said, we had an option to buy a second and third floor, which is critical. I think the cost of that space was $60 a foot or $50 -- in the $50s at the time. And of course, converting that was a very big upside that we had started with, with some the Hugo Boss buyout. My first meeting with Hugo Boss, I walked over to the COO, told him I wanted to buy him out and he laughed in my face. He said, "No amount of money you can buy us out. This is our world flagship of the German company, Hugo Boss." So I said, "Okay." We kept meeting and over time, I got to understand what really was one of their goals, and that was the way to buy them out. They wanted to relocate SoHo to meatpacking, and we created a buyout that was not only giving them $25 million, but also put them in SoHo. We bought out Anne Taylor on the first 2 blocks of SoHo, which I mentioned earlier, and put in Hugo Boss. And we made back half of the buyout doing that. We also put in the meatpacking 2 doors away from Apple, and we had a deal. And what makes me most proud of that deal was not only buying out Hugo Boss, but then when we set our sights to buy out Escada, it wasn't going so smooth. I got a call from the COO of Hugo Boss saying, believe it or not, and I should have mentioned it earlier, one of the attributes of succeeding is divine intervention. And I would say that some people call divine intervention -- or if you don't believe in that stuff, it's diligence is the mother of good luck. But I got a call from the Hugo Boss COO saying that the entire Hugo Boss team just moved to Escada. And the first thing the Chairman of the Board of the new Escada said, "I was called. Jeff Sutton, how so agree [ph], and tell me I want to do the same exact deal that we did next door." So we did that. Going back, after we bought out Hugo Boss, we put in Armani. And sure enough, we gave our money not only to Hugo Boss' face, which was the corner store, base and first and second floor and part of the third, we gave them all this office space that we had taken an option on, and we gave it some of that retail value. So again, we converted a $60 office space into $200, $300 retail space.

Just as an example, Dolce & Gabbana deal, we charged about $380 a foot for the second floor retail versus whatever you office experts say that their office space is worth. So we have bought out Hugo Boss, put in Armani. The Hugo Boss rent, they were paying was $5 million. Armani's rent was $12 million. I guess that works if you pay $25 million to buy them out and get back half the money for putting them SoHo. And then we turned our sights to Escada. Escada was also very interesting. The size were -- just getting that call from the COO of Hugo Boss, saying they were ready to do another deal, and my conversations, many conversations with Escada, I came to learn that 70% of Escada sales came from appointments. So that was the idea then to not only buy out Escada, not only put them in SoHo, but to also put them on the side street. We did a little research and showed then that Keyton was on the side street, Brioni was on the side street, Manolo Blahnik's on the side street. That was a concept that could work. And with 70% of their sales coming from appointments, it was a natural. So we've got a very, very nice rent on the side street. Also structured our buyout to be such that we just didn't give them $25 million Day one, we gave them $10 million, had them stay in the store -- that's a very, very important thing I want to take a few seconds to talk about. You don't want stores to be vacant. When stores are vacant, A, it's very hard to show them. You can have appointments, open gates, plus a more important, psychologically, people smell blood when something's vacant. So Escada was in there keeping it warm, and we're very patient to pick the exact tenant that we wanted for this space. Then came, finally, during the Dolce & Gabbana deal. I think Dolce & Gabbana is very important to talk about. This is the real way we operate in terms of renting retail space. We don't hang our big signs in the building, and we don't make flyers and mail them out. We try to create an exclusive feeling to retailers to do. I have guys in my office that call the CEOs or write emails to the CEOs about the deal we've made in the past. And we have, I think got a lot of credibility to be able to get CEOs to come meet into our kind of direct basis. It's not as much about cutting out brokers, even though Dolce & Gabbana, we saved $6 million, $7 million in commission, it's more about them feeling this exclusive feeling and specifically said by the designers of Dolce & Gabbana themselves, who I met with and who are the owners of the brand and that they felt very comfortable that we had start to meet each other on a direct basis.

Then the more important thing we spoke about earlier is finding a tenant and creating the value through finding a tenant. This is the most important thing of all. I think we spent more time on Dolce & Gabbana on the [indiscernible] than Dolce & Gabbana says about themselves, probably. Flew to Milan, sold their stores, spent a lot of time analyzing the store in Madison Avenue and 69th, where they were before we met them, and we came with a whole presentation to them. If they had to leave 69th and Madison and come to Fifth Avenue because 69th and Madison was not serving a lot of the different brands they had in their big superstores in different parts of the world. They have their sport collection, boxing collection, casual collection, which wasn't really being served at Madison. We made videos of day-to-day foot traffic and the people that are walking by Madison and Fifth Avenue, and literally, you go there hoping that it will work, but that exactly happened. Dolce & Gabbana watched these videos, and there was neither negotiation made at that point. When someone sees something in that level and the designer see it, the designer saw clearly the benefit of being there. And that's what we've done time and time again. American Girl plays with the same flying out to California, meeting the CFO of Mattel and showing him why our site was better than the ice-skating rink site that he had. Same thing happened at American Eagles. I mentioned earlier showing him Times Square, actually showing him what he would be getting and what the signs would look like and I also worked with Abercrombie & Fitch flying active. So it's very, very important to go and spend as much time as possible understanding the tenant and hitting the exact points. I always tell people that the more we kid about others, the more money we make. So in a day, that's our style of renting out space.

Andrew W. Mathias

So the upshot of that deal is unbelievable result. Staggering profit on IRR numbers. I've a 42% percent IRR on the investment, a deal profit. We've had offers, indications of value on the building that are around $700 million. That's a $350 million profit. Any incremental NOI creation in a little over $21 million. That's really attribute to Jeff's vision, our team working with him to make these deals. And it was a lot of hard work and it was all on a building where we're 4 years before the first lease was supposed to roll on the acquisition. So pretty unbelievable result there.

I would say we're looking for a lot of the same result on 1552, 1560, where we bought the long-term lease hold. We were able to see beyond just the product offering, what sort of the brokers were marketing, which was the corner building. We came up with a great vision for expanding the footprint and really taking some space that was on the side street. If you go forward to central location in the bowtie of Times Square.

Next slide. Central location, right on the bowtie, right outside the Spanish steps.

And then next slide. Taking a look at the side street and what existed in that existing 1560 retail box there. We've got some pictures on the next slide to show -- HA! Comedy Club, some café and nail salon, completely fringe borderline retail. No offense to HA! Comedy Club. And we were able to take -- essentially extend Broadway down 46th Street. So we're, if you look at the next plan, what we're offering to tenants is a repositioned lobby, and the green box represents all Broadway fronting space which a retailer can take. So the new floor plan will extend down 46th Street, seamlessly combine the buildings and it's a great result, a very unique offering in Times Square. We're going to be able to hopefully be asking rents that we're talking about, offering a unique package of signage. Signage, the biggest space in Times Square, getting to unbelievable returns again for our venture. Another great retail results, and a tribute to a lot of ingenuity in terms of combining those spaces and what's going to be a lot of hard work and pitching. I know Jeff's out there dealing with the major retailers, getting it done now.

So with that, I'd like to turn it over to Isaac. Thanks, Jeff, for coming. Thank you, Jeff. Turn it over to Isaac, the big man, to take us through major Midtown development sites.

Isaac Zion

Thanks, Andrew. We were sitting over there earlier. I actually had bet Matt that we would be low in terms of our timing here. I'm looking at this clock, we're at 81 minutes. I tried to buy out of my bet. And as a good CAO, he said no. He wouldn't let me do it. Thanks, Matt, I appreciate it. So let me get started. How do you -- can go to the first slide?

Okay. Sights in this city, they're big, they're sexy, they're lots of fun. However, they're also complex, they're expensive, they take a lot of time. It's tough to find land. Land is very expensive. It's tough to finance. The public review process is brutal. Zoning really limits what you can do at the end of the day. And last but certainly not least, you need massive rents to justify building a building in this city. And even then, you need a great location. And as you can see here, each of those purple dots, they're not great locations. It's pretty obvious. And that's very, very clear. When I first started in this business in 1996, my first assignment was to look at development sites. So a young, eager kid, went, did a lot of research, looked at everything, every piece, every scrap, was working with the broker, and pulled something out of his desk, brushed the dust off of it, it was the exact same thing. It's pretty much the exact same thing you see here.

Okay. There are couple of sites that are actually ongoing now. The first one is the Gem Tower. At the end of the day, this site is only going to be 315,000 square feet of office space. The asking rents are $120 a square foot. It's rather small. The lease that Steve just did is bigger than the entirety of the space that's going to be available for lease in this building.

The next site is Boston property site. This site's up to I think Floor 6 in terms of steel. This site was stopped in 2009 when a couple of large deals fell apart. They signed a lease for 180,000 square feet and they're moving forward with this side. Asking rents are approximately $80 in the base to over $100 a square foot in the Tower.

The next site is the Hines site. This was an old 8-story building that was torn down. It's now just dirt. But until they get about 50% of this building pre-leased, they're not going to move forward. And this is actually one of the better sites between 39th and 40th Streets.

Okay. Now we get to the sites that are somewhat more uncertain. This is a sprawling site over 12 million square feet of office, retail, hotel, schools, everything you can think of. The total office size is going to be about 5 million square feet, but they've got to build a platform. That's going to cost them over $1 billion over active train tracks, not an easy task. There's one portion of the site that's actually on dirt, and they sold about 700,000 square feet in that building to Coach, but it's still uncertain as to whether that building gets built or not, if they don't find another tenant for the rest of that space.

Here's another site on the far west side. It's got to be over a platform again. This platform I believe is $500 million to $600 million and is 132,000 square feet, also over active tracks. And this -- here they're going to have 2 large buildings totaling about 5.2 million square feet, they're targeting the largest users in the marketplace. This has been a site for a very, very long time.

Here's another site. This building is supposed to be one of the tallest buildings in the city at the end of the day. I don't know when the end of that day is. But first off, you'd also have to demolish one of the largest hotels in the city before you did anything here.

One more site, over an active bus terminal. This site is currently on hold.

And last but not least, there's 3 Hudson Boulevard. Of all the sites on the far west side, this is actually the only site that's actually on solid grounds, and you could actually access directly from the new 7-line extension. So of all those sites, this is probably one of the better ones in terms of access. Joe, did I miss anything there? Is that good? Okay, thanks.

Even if all those sites got built, which could take anywhere from 5 to 10 to 15 years, it would only add 16 million square feet to the entire market. That's 4%. That is a huge if first off. And then as you can easily see, over the last 20 years, the amount of supplies remained relatively flat. And during that time, 30 million square feet of new product has hit the market.

A think you've heard us say it over the years, time and time again, we redevelop and reposition assets. Our track record on that speaks for itself. There's no question about that. Take a moment, look at these bullets. These are the reasons why we do what we do. There's no question about that. However, when you have the single best potential development site in the city, if not the world, the possibilities are truly astounding. Ed?

Edward V. Piccinich

Thanks, Isaac.


Judging from the reaction in the audience, I guess there's a lot of Zeppelin fans out there. Led Zeppelin commemorated their 10-year anniversary as a group with 10 Years Gone, and we're playing it now to commemorate our anniversary with the site. As Isaac mentioned, we now have what some consider the most valuable real estate assemblage in Manhattan, a contiguous city block just steps away from Grand Central. However, it didn't happen overnight. And the creation of our long-term vision for the Madison assemblage, when we first acquired 317 Madison Avenue back in 2001. Subsequently, we acquired 331 Madison and 48 East 43rd street in April 2007, further positioning ourselves to execute on our vision. Later that same year, we engineered a transaction in which we strategically sold 110 East 42nd Street but retained air rights, with the ability to transfer them over to the Madison block. As previously mentioned, after a decade, closing on 51 East 42nd Street was the key to making this parcel of land for this assemblage.

The site is comprised of 4 distinct building lots on a single block with the Grand Central terminal being our direct neighbor to the east. In order to move forward with our concept of creating a signature tower, we performed a zoning lot merger on the block. The total area following demolition will yield an acre of land to create our footprint to place our state-of-the-art structure in Manhattan.

As Isaac touched on earlier, the block's unique. We've been able to capitalize in a significant amount of revenue by the phased assemblage of the block. Unlike a typical development site, instead of sitting on an empty lot, paying taxes and not generating revenue, we instead have maintained the building's occupancy and collected rent. This approach has allowed us to evaluate our options while various new development scenarios are considered.

The decade-long process, however, wasn't simple. As acquiring the property is necessary to create the footprint of the site took some time. As part of the transfer of the air rights from the landmark 110 East 42nd Street. We already negotiated with Landmarks Preservation Commission and spent some $6 million worth of restoration work in order to be able to have the rights formally assigned to 110 on the assemblage site as you see here on this slide.

In aggregate, the assemblage will have an as-of-right zoning capacity, which will be supplemented by development rights from 110 East 42nd Street for an estimated total of 1.2 million rentable square feet. The result will enable us to build a spectacular trophy asset with design inspiration from around the world. Given the development could span an entire city block, a project of this magnitude will have many phases. We've done this before: predevelopment, design, public approvals, the vacate process, demolition of existing structures, core and shell, all of which I consider our sweet spot with Bob DeWitt leading the charge in our construction group.

In this slide, you'll see a section of Grand Central on you right and our proposed building on the left. To assist you with the lay of the land, we have indicated where the Park Avenue bypass is located, as well as Vanderbilt Avenue. As part of the transfer, New York City will require us to perform improvements to MTA's pedestrian circulation. We are giving serious consideration to leveraging this requirement by creating a direct connection to Grand Central terminal. One huge advantage of our location is the proximity to one of the most significant transportation hubs in New York City, providing direct access to Metro-North and subways including the Times Square shuttle, the 4, 5, 6 and 7 trains. We also expect to potentially tie in 2 other ongoing projects; the 2nd Avenue subway, where transfer options are under evaluation, and the east side access, which will link the Long Island Railroad and New Jersey transit to Grand Central. This increase to the site will exponentially enhance the intrinsic value of this particular location. The connection we are considering would be an amenity that would allow someone coming into Grand Central to walk through an underground tunnel beneath Vanderbilt Avenue and arrive at our proposed building without ever having to step a foot outside.

So what's next? Some of the prestigious properties are considered as inspiration prior to us engaging a world-class architect, including the Burj in Dubai, Mori Tower in Tokyo, the ICC Tower in Hong Kong, the World Financial Center in Shanghai and the Petronas Towers.

I began building my itinerary and scheduling appointments to visit the buildings in order to perform full inspections of each of these properties. With each being revered for its own brand of uniqueness in terms of infrastructure, technology, environmental, sustainability, I felt I would be missing out if I didn't lay my eyes on all these modern marvels of wonder. So to fully appreciate the pioneering design and engineering features, I went to the Burj in Dubai where I had the opportunity to personally visit the spectacular gem. Upon my return from Dubai, my creative juices started flowing. I could begin even picturing each of my inspirations clearly. Although each have their own aesthetic, I imagine how the lines and the curves of these designs would make a huge impact on the city's skyline. I've thought about how great it would be to construct one of these behemoths, The Tower over Grand Central Terminal. So I reboarded back to [ph] my recent trip, and my upcoming itinerary to complete my tour of the remaining 4 buildings, which would take me out back to the Middle East and Asia.

Marc and I had a long conversation and reality set in.

Look, all kidding aside, the final product will, of course, have to take into consideration such things as zoning, landmarks and community considerations. We expect our new tower will be more of a balance between these dynamic designs and something more traditional in keeping with the surrounding area, nothing Amanda Burton, City Planning or others would find objectionable. The ultimate end product will determine our analysis of market demand and our decision of what would be most ideal for the area, whether it be office, hotel, residential or mixed use. Evaluating our options at this point will allow us to construct a building that's best suited to leverage this prime location.

There is no denying the incredible amount of potential contained within this block, and SL Green's determined to achieve its maximum value by continuing to carefully consider options available to us. We've reached a pivotal moment for the assemblage of this site by acquiring 51 East 42nd Street and we're very excited to move forward with our next steps in advancing our concept for this city's next new great addition to the skyline.

Now I'll turn it over to David Schonbraun, who'll be speaking our debt and preferred equity.

David Schonbraun

That's going to be a tough one to follow, but at least I'm going to give you the short version this year. I think we covered this in detail last year. So to hit the high points, this platform is very important to us. It's a very profitable business. It gives us great risk adjusted returns, but as importantly, it gives us off-market access to a pipeline of deals that really differentiates ourselves from any of our peers. Since its inception, we've originated about $4 billion of product. And on these deals, we generated net profits of about $480 million. This year alone, we've made about $130 million on this platform. I think it's important to note that this $0.5 billion we've made has been on a finite and known capital base. Meaning once we make our initial investment, there's now future money that has to go in. It's a little different than the operating real estate where we continue to have to put money into the deals.

Unique to SL Green, this platform gives us a proprietary pipeline that is unrivaled. It's a proven generator of off-market fee acquisitions. As I said up here last year, we expect to be able to convert at least one deal to fee in 2011. While I was right, I actually think it was a little bit too conservative. In 2011, this platform led to more than 3 million square feet of acquisitions, with a total value of approximately $2.5 billion. These acquisitions include the 3 Class A properties, 280 Park, 180 Maiden and 3 Columbus. Terrific properties that are going to add value to this company for years to come.

Now we exhaustively went through the returns last year to go through each segment of the company for the lending business, and show how the New York originations stacked up against our other assets. I just wanted to quickly touch on a couple of highlights from that.

The vast majority of this business is run in New York and it's been a highly profitable business. We showed last year that I think we had about an 18% IRR on deals, both realized and projected through the end of last year. Scrolling forward, what was an incredible 2011, that's now a 20% IRR. Now we have to put that into perspective. In the market right now, people are looking for levered equity returns, buying the equity, not debt, of 10% to 12%. We've over -- run this less risky business until the return is twice that. A lot of that comes from the management team's expertise in this and ability to source deals. Now while we really target returns in the 9% to 11% range, the reason returns have been a little higher is some deals that we do include the purchase of distressed debt and other deals have equity kickers tied to them.

The entire portfolio itself has been just as profitable though. Every deal over every asset class in every market, we expect a return of about 12.5% unlevered IRR. That's returned to be able to stack up against any debt or equity player in the market.

2011 was actually a banner year for the program. We originated approximately $1 billion of investments. These investments will probably have a average IRR of about 15% that are made to some of the best sponsors in the market including Blackstone, RXR, Paramount and Beacon. We figure our returns on these deals will probably be in excess of 15%, which we think is incredible business, especially given the clientele we're dealing with.

Our existing portfolio currently stands at $989 million, and has never been in better shape. 87% of it is secured by New York assets, where we think our LTV is only 71%. Likewise, the rest of the portfolio is in just as good shape. The only investment we continue to closely monitor from a exposure standpoint is mezzin prep [ph] that we have on our portfolio in Southern California that we’ve previously discussed. This is an investment we have a reserve against and we've actively managed over the last few years, having worked on 2 prior restructurings. We'll likely look to achieve a longer-term solution for this deal in 2012 in order to give the investment the requisite time to recover fully in value.

I think I am now turning it over to -- I think, given where we are, our recent new partnership with the Moinian Group on 180, in this great setting, we were going to go and run through the Downtown market and its evolution. So Ed's going to come up here and do that.

Edward V. Piccinich

Thanks, David. A decade ago, a neighborhood that had been enjoying the Renaissance with an influx of diverse new business and growing residential population was suddenly altered. Today, the rebirth of Downtown is evidenced by the activity of the bustling World Trade Center site. The proof is the success of the rising steel towers which have already reshaped and filled the void in the Manhattan skylines. When those -- when these architectural icons open within the next 3 years, lower Manhattan will once again become a symbol and beacon of capitalism in the free world. It was almost 50 years ago that the Port Authority established Lower Manhattan as the current site of the World Trade Center, with a $525 million investment to create this mixed-use development. This was a monumental project that followed in the footsteps of Robert Moses, pictured here, with his vision of the proposed Brooklyn Battery Bridge traversing the tip of Manhattan at Battery Park that would thankfully become the Brooklyn Battery Tunnel instead. He led an era of urban planning and renewal that transformed Downtown Manhattan, New York City and the region as a world-leading commerce and economic powerhouse.

Where we are sitting today on the 49th floor, as Marc mentioned earlier, was the edge of Manhattan in the 1970s, until it was expanded westward using the original World Trade Center excavation material, thereby creating Battery Park City. As you can see, it's a 92-acre urban planning success story, a mixed-use neighborhood with marinas, open space and an esplanade with breathtaking views along the Hudson. By reinforcing our Downtown presence in 2007 with the acquisitions of 388-390 Greenwich, the 3 properties which make up the 180 Broadway site, and more recently, with 100 Church and 180 Maiden Lane, we're now poised to take full advantage of the infusion of capital into this submarket.

As you will see during this presentation, Downtown Manhattan possesses a storied history, core industry sectors, educational institutions, thriving tourism and a growing residential population. With the updated infrastructure and newly-expanded transportation systems coming online, we intend to leverage the positive economic groundswell that has occurred over the past several years.

Historically, the Downtown area has served as the epicenter of global financial affairs, and the neighborhood is quickly morphing into a prime tourist destination containing some of Manhattan's oldest and newest attractions. This area boasts home to the most iconic symbols of New York, from the Brooklyn Bridge to the Statue of Liberty, South Street Seaport, New York Stock Exchange, the 9/11 Memorial, and now the world-famous Zuccotti Park. That's one less residential property now that the part has been cleared and hosed down.

Downtown Manhattan's attractions have remained go-to destinations for tourists, and its popularity is only increasing. The 9 million annual visitors that have come to the district in 2011 can now stay in one of the 18 hotels in the area. That's triple the number that existed just 2 decades ago. Downtown also serves as one of the world's hottest residential neighborhoods, where nearly 60,000 residents are also high-wage earners with median annual incomes of $143,000 and nearly 90% with college degrees. Residents also have access to top-level schools, such as Millennium High, Claremont Prep and the jewel of New York City's school systems, Stuyvesant High.

So who's here? The foot traffic from workers, residents and visitors generates an economic zone encompassing businesses, educational and cultural institutions, hospitality, government and retail sectors as shown here on the slide. These are all driven by a powerful market fundamentals and almost $5 billion in annual spending power. This is why the area south of Chambers Street has attracted a new class of high-end retailers, including Tiffany and Company, Hermés, BMW, Hickey Freeman, Wholefoods, Canali, Sephora and the list goes on and on, as Jeff went through it earlier.

The area is quickly becoming a premier shopping and dining center, with over 1,000 stores and restaurants. Downtown Manhattan has also 38 Zagat-rated restaurants and a diversity of high-end establishments such as Delmonico's, the city's oldest steakhouse, The Palm, the Capital Grille, as well as renowned chef eateries with Anthony Bourdain's Les Halles, and also Danny Meyer's Shake Shack and Blue Smoke.

As you can see, this rendering represents all of the redevelopment and new constructions since 9/11. Some buildings are shown realistically, with the remainder scaled to present the amount of space in each category. At the heart of it all, the World Trade Center site, which has been a mass -- which has seen a massive amount of capital infusion in the area, totaling over $30 billion of public and private investments south of Chambers Street. There have been over 20 million square feet of new construction, residential conversions, hotels and commercial office space development. Some of the most notable projects include starchitect Frank Gehry's, 76-story masterpiece, H. Spruce Street to The East, which is the city's tallest residential property. There is also one in 4 World Trade Center, and over 17 acres of new park space created at the 9/11 Memorial and the east side Esplanade, which is just getting started.

10 years since 9/11, the progress at the World Trade Center site has been profound. Looking southwest out these windows, at least on a clear day -- it's cleared up now, you can see 1 World Trade Center going up, and it's surpassed the 90th floor to become the tallest building in Lower Manhattan, while construction at 4 World Trade Center has surpassed the 50th floor. Work continues at the site, with 3,000 daily construction workers. The centerpiece of the project, the Transportation Hub, designed by the world-renowned architect, Santiago Calatrava, making this new transit center twice the size of Grand Central Station, trumpeting its presence with the white-winged superstructure which looks like a gigantic butterfly.

Downtown Manhattan is a focal point of new development in the city, boasted by the World Trade Center site and Transportation Hub, along with the Fulton Street transit center, linked to a network of subway, path, bus and ferry lines that fan out like spokes on a wheel to connect the rest of the boroughs in the region. As you can see from this dated photo, East River Water is in desperate need of repair and revitalization. That was a gametime [ph] by our president Andrew Mathias. We argued whether this is a scene out of Goodfellas or Sopranos. We saw it and figured it out. The point is, is that this Esplanade, the $200 million upgrade that are being planned are going to run 2 miles along the river. It's programmed to be half the size of Grand Central Park. When completed in 2013, it will transform the South Street Seaport area and rival some of the country's leading waterfront developments, but more importantly, directly benefit 180 Maiden Lane.

Based on our interpretation of key market indicators, we have capitalized on opportunistic growth and unlocked embedded value in the diverse group of properties in our portfolio that will benefit from these sites. Our strategy to reinforce our presence was triggered almost 5 years ago. In 2007, we purchased 3 buildings, as Jeff mentioned, on the corner of Broadway and John Street, steps away from the $1.4 billion Fulton Street Transit Center. Looking out these windows, just to the southeast is 180 Broadway. Andrew covered it earlier. Currently being developed as a dormitory for the growing Pace University student population, which will also include a spectacular double-high glass retail storefront that will establish Downtown area as a shopping mecca.

In the near-term, however, there is potential to nurture development in New York City and Lower Manhattan by working with government officials to relax the city's current zoning regulations, so that developers can buy air rights from properties in the same respective zoning district. This unconventional approach was used to rezone the high line district on the west side of Manhattan, which capitalized on the private development in the area, and over $2 billion of public investment in the 7-line to extend the train route from Times Square to a new station at Hudson Yard's development site located on 34th Street.

If you want to take a future -- a futuristic look at the Downtown areas and what it has to offer, some of you may have seen a couple of weeks ago in the New York Times a story featuring the Center for Urban Real Estate, a new research group at Columbia University, which has unveiled proposals for creating a new neighborhood called Lolo, which would essentially connect lower Manhattan to Governor's Island in New York Harbor by a bridge constructed with landfill from harbor dredging in order to deepen shipping channels. As ambitious as this may seem, it is the same method when Governor's Island was expanded to be twice its size, as illustrated with the red dotted lines here, whereby they utilized landfill created from the construction of the Lexington Avenue subway. In the same vein, the World Financial Center at Battery Park City highlighted in green, was born from the landfill created by the original World Trade Center construction. The forward thinking by Columbia and other entities with these visionary ideas to shape the future of New York have garnered support from the Bloomberg administration.

Seeing the Downtown evolution from the 1920s to today and beyond, Downtown Manhattan is thriving as never before. As we sort through investment options going forward with our core platforms, we have positioned ourselves as strategic buyer, redeveloper and seller of Downtown properties over the past several years in order to take advantage of improving demand for space here. The Downtown revitalization has been a momentous undertaking, spanning several decades, and we will continue to position ourselves to exercise market fundamentals to maximize our upside.

I'll now turn it over to Isaac, who will be speaking about our returns Downtown.

Isaac Zion

Thanks, Ed. I'm not sure how you follow up on Lolo, by the way, but I know our first contribution to it is going to be the grass that you see right in front of you. We're going to put it over there, so hopefully the bridge will get built the next 20 to 90 years.

So when you think of SL Green, you think of the most active landlord in the city. But mostly, you think of Midtown, Midtown. That's all you think of. It's all those buildings right there. And for the most part, they'd be right. But we have lots of experience Downtown. As a matter fact, our first investment Downtown was in 1997.

This chart clearly illustrates that experience. We've made 7 investments on 6.6 million square feet totaling $2.5 billion downtown. The approach was an opportunistic trading approach. We buy right. We invest the right amount of capital and then we'd sell and we'd monetize the value we created very quickly. All within the same cycle. That was the key. You had to be paid to take the risk to invest downtown. We think that, that risk has gotten lesser and lesser going forward. Currently, we believe the stabilized yields between midtown Manhattan and downtown, that gap is about 100 to about 150 bps. And as Ed noted earlier, the city, the state, the federal government is spending billions of dollars. The fundamentals of downtown have changed. Kondenast [ph] is moving 1 million square feet downtown from Times Square, a true testament to what downtown is and will become going forward. Our focus will always be on the buildings you see back there in the distance for many, many reasons. But when we see the chance to pounce on an opportunity downtown, if the risk-adjusted returns are there, we're definitely going to do it.

Next slide please. I talked about our experience. Now I want to talk about our success. As you can see on the left side of the chart, those are deals where we've had a weighted average return of over 28%, true outperformance. And on the right side, as you can clearly see, our stabilized yield there is about 7.5%. That's probably 150 basis points over what you'd expect to find in Class A buildings just a bit uptown.

Next slide, please. Our experience downtown is not just on the equity side, it's also on the debt side. We've done 8 deals on 6.2 million square feet and we've invested almost $200 million downtown. And as a matter of fact, 17 Battery and 180 Maiden Lane led to equity positions.

Once again, our -- it's not just the experience downtown. We've had major success. The weighted average return here is over 16%. On the last, our exposure only $181 a square foot. Those are truly compelling numbers. We understand the downtown market well. We've been highly successful. We think the fundamentals are definitely getting better and we'll look to source more investments going forward.

David will now discuss 100 Church and 180 Maiden Lane.

David Schonbraun

Thanks, Isaac. 2 years ago, we went through the 100 Church investment or pending investment. And at that time, we faced a lot of questions about our ability to invest downtown, which hopefully, we've now covered. As importantly, we’ve faced a lot of questions about whether or not we could turn around this property, which have languished in the market for years. When we took over the property, it was only about 40% occupied. It was suffering from a stalled redevelopment and had a really esthetically unpleasing lobby, financially troubled sponsor. I mean, as you can see from these pictures, there was a ton of work to do. We were confident, though, that once we executed our business plan, including a lobby redesign, upgraded entrance, bathroom renovation and completion of the redevelopment work, we'd be able to reintroduce the property to the market and successfully lease it up.

We took a little liberty with this slide. Maybe it should have been characterized 14-karat gold, but I won't digress. Fast forwarding 2 years. We've now substantially redeveloped this property and now we've a first class product to offer an attractive price point and has fully been embraced by the market. With the positive success we've had leasing it, given the brokerage community embracing it, we are well on our way to beating our business plan with occupancy well into the 80s, which is well ahead of where we anticipated being at this point. But as importantly, it's actually right around where we actually thought the building would stabilize at full occupancy. In the last 12 months, we signed approximately 400,000 feet of leases led by the Healthfirst headquarters lease.

This success has really made this one of the better deals we've done on a pound for pound basis. With very conservative underwriting, we took it over. As I said, we anticipated occupancy somewhere in the mid-80s. That would've led to a 9% cash on cost return and about a 25% IRR. We now think we're going to blow away that underwriting and have occupancy more to a full level, and that will end up giving us an 11% cash on cost return and about a 40 plus percent IRR.

With the repositioning project like this, our goal is to take over a building, add value and then find a way to monetize it. So while we unencumbered this asset 2 years ago, once we complete the lease-up and now that the building is fully repositioned, we'll likely look to re-encumber it in 2012, which should be a meaningful source of liquidity for the company. Additionally, in order to enhance our returns and also not increase corporate leverage, we may also look to bring in a JV partner on the asset.

Next, Heidi. With 100 Church nearly put away for duration and there was no other near-term exposure to the downtown market, we sought out 180 Maiden Lane, an investment that will allow us to continue to benefit from the thriving and revitalized downtown market that Ed and Isaac have gone through. This 1.1 million square foot Class A property is almost 100% occupied. It was designed by Swanke Hayden and Connell and developed by the Rockefeller Group in 1984 to serve as Continental Insurance's headquarters. Continental owned the property until 2001, when they sold it to the Paramount Group, who later sold it to our partner, the Moinian Group.

Since the property opened a little more than 20 years ago, it's been occupied by the highest quality of institutional tenants, including Continental, Goldman and most recently, AIG and Strook who occupied 800,000 and 225,000 square feet, respectively. This previously owner-occupied building has never really had space on the market other than 1998, when Continental leased their space out to Goldman Sachs. That lease was subsequently assigned to AIG. This Class A building is a first class downtown product, offering sweeping water views combined with excellent access to mass transportation. And we're more than confident that if this space were ever to hit the market, it would be very highly sought after.

SL Green has had a long history with this asset, having actually represented Strook in the '90s, when they signed their lease and more recently owning great bonds and have just paid off mortgage and serving as its special servicer 2 years ago when that loan was extended. This off market opportunity was the result of that intimate knowledge of the property as well as our long-standing relationship with the Moinian Group, our partner at 3 Columbus and a repeat borrower in the structure program. Throughout the summer, we proactively worked with the Moinian Group on this highly structured transaction, where we bought approximately 50% of the asset for a combination of cash and stock. Given the smooth experience we've had with the Moinian Group on 3 Columbus and our longstanding relationship, we knew we could work together and we know the Moinian Group understood our ability to help deliver very efficient financing to this project. We were able to help arrange a 2.5% mortgage. And as importantly, they knew that we could help lease out this property if AIG were ever to roll out of it and also, to operate this in a first-class manner consistent with them. With the going in yield north of 7% and the basis of less than $400 a foot, we're purchasing this trophy asset at a significant discount for above Class A and Class B product trade in midtown. With this attractive basis, we're confident we'll be able to continue upon our history of success that Isaac just walked you through. The approximately 800,000 square feet occupied by AIG rolls in the next 2.5 years and provides us with great upside and opportunity. Although AIG recently spent $30 million in their space, our conservative underwritings that will partially downsize out of the building, leaving us with the upper prime portions of their space to re-lease. We'll obviously try our hardest to keep them in all of the building as much as possible. But any deal we do with AIG, we would expect to be on a net effective basis.

We sought out this transaction though and priced it under the assumption we'd have some Class A space to deliver to this improving market in 2014 and '15. With our low basis in the property were AIG to significantly downsize or leave, we'd be able to aggressively market this space into a market with a dearth of a large block, Class A contiguous space. Once you eliminate from the list of properties out there, other properties with large block downtown availability, you're really left with a very small sample of buildings that can compete with us in quality and timing. These dynamics are very similar to a deal we did 7 years ago at 485 Lex and 750 Third where both were to be vacated properties and ideal as to be wildly successful.

A few key factors give us a really strong feeling about the deal. With our low basis and ability to aggressively market the space, we think we'll be tough to compete with, especially for new construction even net of their incentives. 180's ideally sized floor place also allow us to cater to both the large and small tenants, providing us with great optionality and the ability to offer a wide range of tenancy. Additionally, the robust infrastructure and amenities make the building ideally suited for headquarters location or also for tenants who’ve significant capacity and demands. A combination rarely found at a price point that we can offer this building at. Finally, 180 is in the heart of vibrant downtown as opposed to being across from major thoroughfare, which should be very appealing to our tenants. We're confident that regardless of what happens with the AIG, in the coming years, this building will continue its tradition of nearly full occupancy with the highest quality of tenants.

I'm now going to turn this over to Jim, who is going to go through credit.

James Mead

Good afternoon, everyone. Thanks, David. You've heard a lot today about what makes SL Green a great investment. I'm going ask you to turn your shades around and think about credit for a moment because a lot of what we do on the investment side also makes us a great credit story. What I'd like to touch on is a couple of things. First is to help you understand from our perspective what a great place New York City is to invest in. Being concentrated in New York is a really good thing. I'm going to show you some slides in a moment to support that. And secondly, because we're focused on New York, we have this incredible sharpshooter ability. And I want to touch on what that results in for us as well. Putting those things together, we had a terrific year of accomplishments on the financial side. And I'll review some of our financial accomplishments at the end of our discussion. So first, let me step back and give you a bit of a historical context for New York City as a place to invest.

Could I get the next slide, please? What I did was put together a comparison of New York City and the other, what I'd call high-barrier markets in the U.S. We took a portfolio of New York City and compared it to a portfolio in Washington DC, Boston, Los Angeles and San Francisco and made general comparisons. Comparing those 2 portfolios and if you look at the screen in front of you, the yellow bars are -- or the orange bars are New York City vacancy. The red bars are blended portfolio, those other high-barrier markets. You can see that over the last 10 years, New York City has had a 400 basis point advantage in vacancy over those other high-barrier markets.

Next is net effective rents. If we look at net effective rents and compare a long holding strategy of assets and what this chart shows here is in the, again the yellow bars as New York City, the orange or red bars are the other high-barrier markets. This shows you that if you had a dollar of net effective rent over a 10-year period, what you would've grown to, I think what you see there is that in any 10 year period over the last 2 decades, if you were in New York City, you would have had higher growth in your net effective rents. You can see that the benefit of owning in New York City is stronger through an accelerating cycle and you could see it's weaker during a period where you end up in recession like we did in the last couple of years. But in every one of these periods of time, if you had held properties in New York City for a 10 year period and compare it to a portfolio in other high-barrier markets, New York City would've been better off from a net effective rent growth standpoint.

So we touched on a few reasons today about why these things are the way they are. And one is certainly that we have a fixed amount of supply in New York. But within that supply, we also have a very high level of quality in our buildings. We also have a very high institutional high credit quality tenant base. And so I'd like to turn to next is just to show you what that means from the standpoint of comparing the markets.

New York City has 45 Fortune 500 headquarters as compared with 19 or more than double than all the other high-barrier markets in the United States combined.

So here's the bottom line. Investors understand what New York City provides, and they pay for it in cap rate.

Can you get the next slide, please? Nope forward one slide. We talked about this before and I'll flip through this one quickly because we've talked about liquidity. But again, just reaffirming that this is a slide of New York City in that yellow bar, major office transactions in New York City from a liquidity standpoint has more transaction volume and office properties than the other 5 largest markets in the United States. So again, we're adding up -- vacancy is lower. Net effective rent growth is higher. There's more liquidity and then the next slide is kind of the bottom line and that's -- investors understand this and that's why investors pay more money, lower cap rates to be in New York because of the higher certainty of return. And on average, over the last 10 years, New York City Class A office space is traded for a 4.7% cap rate. As compared with the other high-barrier markets, we have a 210 basis point average cap rate advantage in New York City.

So adding it up again, vacancy, lower vacancy, high growth and net effective rents, more liquidity, lower cap rates and we get to sustain high asset values. It also I think, gives you an explanation of why the company hasn't diversified much in any sizable way, at least outside of New York City. The risk of diversifying outside of New York City is that with few exceptions, there is a possibility that the valuation of transactions outside of New York City would be dilutive to our assets in New York City. So importantly, we've been focusing on New York City and for another reason and that is that while we stay in New York City, we are the local sharpshooters. I think from our perspective, there is no one else in New York City who is as good as us in leasing, in operations and investing and recycling capital. And for sure, there is no diversified portfolio owner that can say that they operate in multiple cities and are as good as we are in our city. So I think that our concentration in New York truly provides a distinctive advantage for operating platform. Sometimes it's a little hard to communicate how good we are in operations. I know you've seen some examples today of lease up, some examples of what we've done recently with, for example 3 Columbus, our development in retail.

But I want to show you a couple of slides, kind of my favorite slides, and cementing the point about how good we are at the operating side. We hire a third party every year to help us do an independent survey of our tenants. It's a very important metric to us. We grade our performance by it and it's really one of the things that we can hang on to, to describe how well we are doing in our marketplace. The orange bar that you're seeing here is us, and the red bar is our other properties that are like properties for us managed by other people in our marketplace. And I've pulled out 3 measurements. There is literally dozens of measurements that we go through, but I pulled out the 3 that are kind of among the most important: Overall satisfaction from our tenants and then the satisfaction with our management and leasing. And you can see in all 3 cases, you could probably understand why brokers and why tenants in this marketplace consider SL Green the superior owner in New York City.

We've also shown this next slide in past presentations. And it's again, because of our exceptional operating skills that we are able to maintain full properties. In fact, our average occupancy since 1993 is 96%. And even in recessions, our occupancy hasn't fallen below 94%.

So now let me hit a couple of slides that you may not have not seen in the past. And the first one is on mark-to-market. So we took our mark-to-market over the last 35 quarters, which is the period of time when the supplement that we have -- we publish every quarter, our financial supplement, reported these items in a consistent way. And you can see, looking back over the last 35 quarters, there were only 4 quarters of negative mark-to-market.

And on the next slide, we look at the same 35 quarters from the last slide. And you can see that we had an average 4% same-store NOI growth rate over those 35 quarters. And only 4 -- and only 3 quarters of 35 that were negative growth quarters. The first in late 2007 because of the step up in the ground rent at 420 Lexington Avenue and the other 2 in mid -- in late 2007 and mid 2010 because of some year-over-year anomalies. We had large lease termination payments in the prior year.

So it's really the strong operating capability in the best market in the United States that leads us to these outsized real estate returns in ways, just an absolutely fabulous foundation for our credit as well. And that in turn supports some actually -- some property prospectors, some very remarkable transactions and events for the year on the credit size.

The first was, we mentioned this earlier, our upgrade to BBB- from S&P, which rewarded us for I think, repositioning our balance sheet as well as acknowledging the recovery in New York City. I'll get to the line of credit in a moment, but I think it's fair to say and it's important to note that with the success of our refinancing of the line of credit, a collection of the world's most liquid financial institutions agreed with S&P in our investment grade rating. So we achieved a major milestone, and we have all the benefits of additional access in capital to go with that.

We filed this year, 3 ATM programs and we sold $525 million of stock through those programs. The ATM has been a great tool for us. It's allowed us to manage the timing of issuances for our needs and also for market conditions and we have today, $250 million left in our third program.

We've had an abundance of availability of secured financing. And as Andrew had mentioned earlier, we did $1.5 billion of secured financing this year. So I'm going to ask David Schonbraun to come up and give you a little update on the market conditions for secured financing in New York City.

David Schonbraun

Thanks, Jim. Heidi can we -- the market -- I thought we mixed -- I'm going to leave the analysts to Jim. I want no part of it. The secured market is a story that hasn't had knots. For well-capitalized sponsors who want low leverage, there's really an abundance of capital. This comes from life companies, insurance companies. They do mostly fixed rate deals right now. And on the floating rate side, balance sheets, loans come from the domestic and foreign banks. In New York, there's plentiful of capital and it's very efficient. Outside of New York or for lesser quality products, we push to the CMBS market or higher cost providers like mortgage REITs and debt companies.

Next one, Heidi. CMBS came up to a strong start in 2011 as you can see with spreads tiding to 100 over. At that level, it could compete with the balance sheet lenders in the middle of the year with the European credit crisis and slower than expected U.S. growth. That capped out and shut down the market effectively where we see ourselves today, although it's starting to restart.

Even with those stops and starts, 2011 originations were still about triple what they were -- or I guess, they are about triple what they were a couple of years ago. And that market has restarted. It's a very important market for New York, not really from a originations standpoint, but those jobs are all -- actually, all in New York. So the extent, that business picks back up, we're creating more office jobs in New York and more revenue for the city and for the banks. We'd expect the upward trajectory to continue. And I don't think we’re going to get back to 2007 levels but maybe, we can get back to the levels of early 2000's.

The state of the lending market right now is for us, there's plentiful of capital. On a floating rate basis, it's between 2% and 3% if we don't swap it. On a fixed rate basis, it's about 3.5% to 5%. To leverage those in the 50% to 60% range is the cost of funds is inside where it was in 2007. The biggest difference is there's a lot lower advance rate. For a company like us, that really doesn't make a difference for a lot of the opportunity funds in private capital, they provide to be -- they were preferred to be in the 70% to 80% range. So for us, we don't need kind of subordinate capital. For those guys, they turn to us in New York to provide that capital. And we tend to provide it as they said, at about 9% to 11%, which is a great business. If you think about mortgages pricing at 3% and for modestly higher risks, we're able to get 600 basis points more. So it's a business we like and it's been very successful. I'm now going to turn it back over to Jim to go more into credit.

James Mead

Thanks, David. We executed our 5 year -- a 5% $250 million 7-year unsecured bond offering this year and we did that last August. It was a very challenging time in the marketplace. It was the beginning of what's been an extended period of turmoil in the credit markets. We had -- we spent a lot of effort and very difficult day but we had a tremendous amount of support from bondholders and we had a great execution as a result. But since that day, unsecured spreads in the bond markets have widened substantially, as you can see here in the slide, and REITs have really gone hand-in-hand with financials. I think financials, because of the possibilities of their credit exposure to other European governments and entities.

And REITs because I think as a class in the credit world, at least, we retain a lot less cash flow than other industries. And in times of weak markets and in de-risking, REIT spreads widen. So as a result, the spreads have widened across the board for REITs. We want to get back in the market. We want to do some long-term financing. But I think as you've heard today and what you'll see in a minute from Matt, is that we have a lots of liquidity. And as you've heard from the secured financing markets, we have lots of availability. We really don't have to tap the markets. So we'll wait until the markets recover to more normal levels, which given the liquidity markets, I have no doubt that they will soon.

Let me take you back to the middle of last summer. Again, when we did that bond deal, we had been discussing with some of our major lenders, their interests. And we heard a lot of interest from them in deploying capital to New York. Several large revolving lines of credit had been refinanced by others in the office sector. And it was clear in August that we needed to look at our strategy because the European issues were going to begin to create issues around the banking environment. So we went back out to the bank markets in August, even though our credit facility didn't mature until the middle of next year to refinance it. And in fact, got just a home run of an execution. Our facility is led by Wells Fargo, JPMorgan, Deutsche Bank, Bank of America and Citigroup. And each of those institutions stepped up with 8 other banks and fully committed our investment grade loan prior to even going to the retail banking markets. In the end, we got $2 billion of demand from 26 banks for our $1.5 billion facility. And as I said a minute ago, and what's tremendously important is that we have the most liquid financial institutions in the world supporting SL Green today.

The facility is what I'd call state-of-the-art. It's a very contemporary facility. It's structured as a fully investment grade unsecured facility with a 5-year term. It has the lowest borrowing spread executed by any office company since 2007. And we have the lowest cap rate on valuation of assets executed by any office company. And that's for our Manhattan portfolio as well as our suburban portfolio.

This means, and I just want to translate this from the banking side, this means that 26 banks have agreed that for our facility's 5-year term, a 6% cap rate provides an appropriate level of downside cushion in our numbers from a credit perspective. It's a pretty astonishingly low number. And we agree with it entirely and think that probably, it does provide a tremendous amount of cushion.

A critical objective to the new line was to restructure it in our company, to be simpler to explain. And from a credit standpoint, to become much more bondholder friendly. This is what the corporate credit structure used to look like with the former line of credit. By the way, that's the one that we took out to the markets to our last bond offering. And to say the least, it was extraordinarily difficult to explain. It was full of all sorts of guarantees and prohibitions. And most challenging, the last bonds that we did, were subordinated to this line of credit.

So with the streamlining comes with an investment grade facility, we'd be able to eliminate a lot of the guarantees in fact, all the guarantees and the prohibitions that make this new line parry with our outstanding bonds and then in the future, the new bonds that we would do.

And in addition, we have the flexibility to downstream assets into our recs and operating partnership to improve the credit ratios and support additional unsecured borrowings into the future. And the covenants that are incorporated into this new line are equally simplified and fairly standard investment grade levels.

So that's the bulk of my piece. I've got a couple of minutes to do what is, I've understood from the SL Green world, expected of me. And that is to honor one of our analysts for some exceptional service to the company over the last year. One of the things I've heard a lot about -- and we can change the slide. One of the things that I've heard a lot about when I joined the company was this thing called Aqueduct Casino. And what I grew to know, and this was before I joined the company, after I joined the company, in a lot of conversations is there weren't a lot of kind words on the street for Aqueduct. I was tickled by a couple of newspaper articles I saw in the last few days. And I'd like to just show you those clips if we could go to the next slide. And the first one on the top left says, the first day in 10 days, operators, bettors -- and bettors pumped a hefty $15 million in the slot machines. The second one says the slot machines are averaging $600 a day per machine. And the final one, which was this weekend, said bettors have wagered $618.65 million in the first 6 weeks of opening. Now just for fun, I had to annualize that, and that comes out to be $5 billion a year. And by the way, $5 billion a year, if we can go back for a moment, please, it says at the top of that December 3rd, that on December 16, they're doubling the number of machines to 5000, so that's at half strength. Pretty remarkable numbers out of this and the -- so we'll go to the next slide. There was one analyst that really had guts. I think that one analyst that really stood out took a stand in print and said that it appears to us that this deal of one could generate above average returns. I think that was an understatement. And Tony Paolone, if you could just stand up, please, and we're going to just give you a round of applause. Tony, stand up, come on, come on stand up. We've got a little gift for you that somebody will deliver to you. [indiscernible] We got a little gift. All right, there you go. Thank you, Tony. That was really gutsy. Hey, there is one thing though and I guess, what it says is that there's no free luncheon at SL Green lunch for the honorees at this event. So before I give an award out, I tend to want to really dig into somebody's credentials. It's just a thing. I've got to know a lot about a guy.

And so I just pulled up some of the coverage just for fun, just to see what Tony was thinking over the years that he's covered us. And I've found out that Tony, you, initiated coverage on us on April 7, 2003, and since then, you've published, let's see, 38 forecasts and 25 price targets. And what I've found out was sort of puzzling to me and kind of upsetting was that 24 out of those 25 forecasts were under our actual price target. So I think you need a little more enthusiasm in your reports. There's something that this team does every day. We take a big drink of something every morning. And if we could -- what we did was, we pull this out of Marc Holliday's special stash and we're going to give it to you and maybe you could feed it to yourself and your team. This is a big case from Marc Holliday's special SL Green flavored Kool-Aid. So I'll give this to you. Have a big swig every morning. Thank you very much. He's right over there. Make sure you take that.

So we're getting near the end of this presentation. We have Matt, who is going to wrap up with our favorite guidance section and financial section. And then we're going to turn it back to some goals and objectives and then we'll take a little break. We're almost on time here so we'll keep going. But just probably another 15, 20 minutes or more, we'll be finished so thanks for the patience.

Matt DiLiberto

Thanks, Marc. I needed to stretch anyways. So I'm going to spend a little bit of time going through a couple of kind of, credit-related points that we spent a lot of time focused on. Marc touched on these within his opening comments, somewhere between 6 and 7 hours ago.

Going to the first one. We are very focused on accessing capital in various forms at all points in the market cycle. Next slide, please, Heidi. The ability to source capital has set us apart from private investors and other public peers as people looked to put capital work in New York City on quality assets with a quality operator on a stable balance sheet. To just the first 11 months of this year, there are a few weeks left, we've sourced $5.5 billion of capital already, double what we did last year, nearly half that at the corporate level. Jim touched on our 3 most significant accomplishments, the ATM plans, our line of credit, and our bond issuance. Not be understated, those are internally generated cash flow as represented in FAD of $225 million for 2011.

Also, we have a consistent pattern of realizing the embedded equity in our assets. We did that this year through calling 5 non-core real estate investments and 3 structured finance positions for about $1.3 billion. We also completed a $1.5 billion of secured financing, that was David's riveting discussion on secured financing that took advantage of the low interest rate environment and termed out our maturities, which I'll touch on in a second, and tapped into a variety of unsecured and secured lenders -- I'm sorry, secured lenders, unsecured is later.

And as we consider the use of secured financing, it's important to consider our balance funding strategy. That was a real focus over the last particularly, 2 years and got us through investment grade rating from S&P, funding everything with the appropriate amount of property level debt, corporate level debt and an equity in order to meet our return thresholds and maintain credit metrics.

And it's interesting, the tide seemed to turn when it came to the last category here on getting repaid on our debt and preferred equity. The last couple of years, I failed a lot of calls, asking -- flip one back, Heidi -- asking, well, will you be repaid on some of these investments, and what about things like 666 Fifth? There's no way you'll get paid. This year, we got repaid on that and a couple others. And I got a phone calls saying, we'll not repaid on it. That was such a good investment. How are you going to put that money back out? So I guess we can't please everybody. Sometimes we do get repaid on good investments -- sorry about that.

Turning to the most boring debt maturity schedule, but that's good, that you could possibly hope for. We've now attended to line of credit, our next most significant maturity thereafter. There is an unsecured bond issuance in 2012 and a secure financing at 717 Fifth. We will easily take care of those through cash and our refinancing. And even through 2015, we have less than 10% of our debt maturing in any given year. To put that into context, the average annual debt capital markets activity that we've enjoyed over time, there should be a line coming up there at some point, is about $1.8 billion or almost the total of the next 4 years of maturities combined.

Turning to our liquidity position. That's obviously a cornerstone of our corporate business model. We need to maintain liquidity to allow us to conduct business at the pace and volume that we do, which is multiples more than many of our other public and private peers as well as a downside protective measure. We strive to maintain this liquidity in various forms, as I depicted a couple of slides ago. As you can see, our overall liquidity position has historically been very strong. And in virtually every year, we've improved our liquidity position from the prior year. In amassing the record $1.3 billion of liquidity we enjoy today, we've also been reducing our leverage. And I'll measure that in debt to total assets from 52% in 2008 to just 47%, which has held steady over the last several years. It's also important to note that we have reduced our line of credit utilization. It's only 30% today. And as we continue to generate more free cash flow and source other forms of capital, we'd expect the line of credit utilization to moderate even further.

Turning to rates. No matter what the interest rate environment, we're very cognizant of our exposure to interest rates and operate in such a way as to limit the exposure to rates in our liabilities. We may use locks, swaps, colors or other derivatives. But more importantly, we're ensuring we're provided protection through the composition of our debt in fixed and floating. You'll note that our net exposure today is only 19% after giving consideration to our natural hedge in our debt positions. This is down from 30% only a couple of years ago. I believe this overall exposure to floating rates is prudent and our use of floating rates is targeted clearly in favor of using fixed-rate financings in the appropriate circumstances. But for assets that are transitional like the 3 Columbus, fixed-rate debt is inefficient. And in doing the Y&R deal that we announced this morning, actually, the floating rate financing that we have in place at 3 Columbus provided us the flexibility to get that deal done with the speed and efficiency that we did.

Also as we look to improve our unencumbered asset pool, the cornerstone of our investment grade strategy, we may seek to provide ourselves the opportunity to repay debt efficiently without large repayment penalties that may exist in fixed-rate financings. So we can refinance on a shorter-term floating rate basis like we did at 521 Fifth and repay that at any time.

Finally, we don't get a lot of credit I don't think, for the embedded value on the liability side of our balance sheet. So much like our strategy of attending to leases early, lease expirations early, we look to attend to our debt maturities when we can early as well, particularly in a rate -- interest rate environment like we are in today. Illustrated here is the embedded potential interest savings that we've refinanced the next 5 years of maturities at today's rates. This assumes the same fixed floating rate composition that we just went over a while ago and that the maturities are refinanced at their existing debt levels. In short, a significant amount of value embedded on the liability side of the balance sheet and we seek to tap that as frequently as we do on the asset side of our balance sheet.

Okay. So we can either skip guidance because people are tired and the room is getting dark or we can do it quickly and I'll send an analyst out to pull the fire alarm. Assuming people want to hear what our guidance is for next year, I'll move forward. But I know Marc wants me to do this quickly.

So we'll start off by reiterating our guidance for 2011. Now that's good to hear since we only have a couple of weeks left. $4.75 to $4.80 was our guidance for 2011. It has been relatively quiet year, John Guinee quoted me on that on our last call. I do believe it, not because of activity but just on our adjustments. That's a sign, I should speed up.

We've adjusted for, on the next slide, some of our nonrecurring items particularly, 280 Park Avenue, where we recognized a significant gain in selling our position -- our mezzanine position to the joint venture with Vornado. So on a normalized basis, our FFO for 2011 stands at $4.23. Recall, we gave guidance a year ago of $4.05 to $4.20 so we've exceeded that guidance even on a normalized basis.

So moving to 2012. This is reflective of all the sales and acquisitions that we've announced to date. And it actually doesn't include any ancillary income from Professor Holliday’s, online course in real estate leverage. The most notable takeaway is that our recent investments in the significant leasing over the last couple of years, coupled with our cost mitigation strategies, will result in meaningful gains in our overall property NOI. Same-store NOI increases, we're projecting at 1% to 2% on a GAAP basis and 3% to 4% on a cash basis. You'll see that cash NOI increase materially, improve our FAD, which I'll get to in a little bit. Not surprising, one of the most meaningful contributors is at 100 Church, where the once 40% occupied building is now approaching over 80% leased and will generate $12 million of incremental NOI in 2012. At 1515, the LED signs, which are now up and running, as Andrew talked about, will contribute meaningfully as well as the leasing we've accomplished there over the last couple of years. 100 Park is now fully leased with Wells Fargo, Acom, ABN AMRO and Nuveen. And finally, 717 Fifth and the watershed lease at Dolce & Gabbana, which will commence in 2012 will contribute meaningfully.

On the expense side of the equation, these NOI increases take place despite the seemingly ever present increase in operating expenses in the Manhattan portfolio. Again, Ed and his team have done a fantastic job in managing our variable costs and maintaining our margins. As Marc alluded to earlier, this cost management is what's allowed us to actually increase our operating margins over time, even in the difficult leasing markets. But those costs that we can't control, again, kind of is going to take their share through electric transmission and delivery charges steam costs. And the city is going to take their share in again, increasing real estate taxes. They are going up again in 2012 by about 5.5% in the New York City portfolio. Utilities are expected to increase about 4% in the New York City portfolio. So no matter what the market conditions, the city seems to find ways to take their share.

With regard to the structured finance portfolio, we have not assumed any net additions in 2012. However, 2011 was very active, where we found many opportunities to put new money to work as well as replacing funds that came back to the firm in the form of prepayments or sales. These investments were done in New York City at very attractive 10% returns and returning the business back to its historical levels, and will contribute meaningfully in 2012.

The increase in interest expense, which equates to roughly $20 million is driven primarily by the expense on our floating rate debt, albeit modest based on the forward LIBOR curve and the incremental cost also modest on our new line of credit. Yes, the LIBOR plus 90 money will be missed.

Overall, our fixed-rate interest expense remains relatively flat year-over-year as lower secured financing costs are offset by additional corporate expense. As we've done in the past, we've assumed a modest amount of transaction costs in 2012. Andy Levine, our Chief Legal Officer, controls those very well. But we won't be sitting on our hands again in 2012, at least not as far as I know.

And finally, G&A. G&A is decreasing. That is a decrease in G&A per share in 2012, as we continue to run a strong -- a sharpshooter streamline sharpshooter, as Jim likes to call it, operation. It's important to note this G&A figure incorporates the effect of our most recent outperformance plan, which the company feels is an important retention tool as well as an alignment of the management team with the investing community as it rewards the recipients only for outperformance in the company's stock. All that considered, we're establishing our FFO guidance for 2012 at $4.45 to $4.55 per share, an increase of over 6% from 2011.

Turning to our free cash flow, as measured in FAD or FFO to a lot of people in the room. This is poised for an even greater increase in 2012. Using the midpoint of our FFO guidance range of $4.50, we're establishing FAD guidance for 2012 of $2.70 to $2.80 per share, that's a 15% increase over 2011. The dramatic improvement in FAD is driven primarily by the 3% to 4% same-store NOI increase I touched on earlier, as well as an improvement in our second generation concession packages, which are moderating. Straight-line adjustments turned the corner and our free rent periods from recent leasing burned off. This improvement began to materialize in the recent quarters and I highlighted it to many of you and it's readily apparent in 2012. Further contributing to this cash flow improvement is Ed and his team's laser focus on managing second-generation recurring capital, focusing on only those high-priority projects that provide for the safety of our tenants or enhance the profitability of the company.

Now I'll turn back to Jim for a few quick comments on our dividend increase.

James Mead

Thanks, Matt. So you all saw that we increased our dividend today from $0.10 a quarter to $0.25 quarter. And just very briefly, go back a couple of years, we employed a number of tax strategies to enable us to lower our taxable income, to enable us to lower our dividend. Something called cost segregation was used, which is an accelerated depreciation process that we have. And despite the fact that our cash flow and our operating results didn't really fall through the recession, we are able to lower our dividends to $0.40 a share. Well, we've increased it now to $1.

And I think it's important to realize that we considered a couple of things very carefully in that determination. The first was where our taxable income was going. The second was what types of investment opportunities we have for retained cash flow. And the third was that some of our investors have suggested there that an interest in increasing current income. So fortunately, our taxable income will rise in 2012 to permit us to increase our dividend substantially. It's 150% increase on a run-rate basis from 2011 into 2012. And it gives us a fairly modest payout ratio. It enables us to increase our dividend, our current income to our investors as well as retain sufficient cash flow for re-investment opportunities. So that's on the dividend. Thanks very much and I'll turn it back to Marc.

Marc Holliday

Okay, well listen. I want to thank everybody. We're going to wrap this up now by going over our goals and objectives for next year, just to kind of line up what we're going to be focusing on doing throughout the year. We'll be back here or somewhere a year from now to go over those results and we put them all up there. We're going to save a little time. I'm going to gun through them one by one and I'm happy to talk to people afterwards if they want any more specificity on anything, but I think it is pretty self-explanatory. You can see from the top, we're going to be looking to do about 0.5 million more of square feet of leasing than is expiring in 2012. We have 1 million square feet expiring. We set our target to 1.5 million. Our average -- trailing average is greater than that, but we'll have to see if Manhattan leasing stays at the same velocity. It's been in '10 and '11, which has been quite high. So we're setting a bar of 1.5 million square feet, which will, if achieved, definitionally result in increased occupancy in the portfolio from I think 95.3% to about 95.8%. So that's starting to march back towards our full occupancy for the same-store portfolio. We're going to decrease debt-to-EBITDA. Our objective is to get it below 8x. I think I showed you on that stabilization page, it seems like a while ago, but do remember that. It was an important one at 7.9x. And we hope to get it there or close to there by year's end. Achieve mark-to-market on New York City leases greater than 5%. You saw that slide where we had all that built in, embedded rental growth over and above just leasing up the vacancy due to mark-to-market. So we hope to achieve a pretty sizable mark-to-market as well as the same-store cash NOI of 4%, greater than 4% for the year. So these are fairly robust numbers, depending on what your view of the 2012 economy is going to be like next year. But we are taking somewhat cautiously optimistic view with putting up numbers like this.

Purchase, greater than $500 million of real estate next year. So we still have a pretty high bar for new investment, new acquisitions next year, but it's balanced this year -- or I should say it's balanced next year with the projection of an equivalent amount of sales. So not necessarily net growth in the portfolio, more harvesting of gains, more fine-tuning, relative equity balance, neutral -- equity-neutral approach to buying and selling. In volume, I think, we'll be busy but we're going to continue to transform that portfolio, hopefully have a lot more new pictures to put up for you next year.

Anchor retail tenant at 1552, 1560 Broadway. It's a fairly ambitious timeline for a site that we just closed. But the response that we’ve received in the short period of time of ownership has been so overwhelming and at numbers that are so compelling that Andrew has gone long and is telling us that he thinks he'll have something inked on or before the end of next year for an anchor at 1552.

1515 Broadway and 717 Fifth Avenue, we expect to have both of those projects refinanced this year. 1515 is going to be a very sizable financing. Well it's -- probably take multiple lenders. We're going to start working on that right after the first of the year and hopefully, within a few quarters, have that put to bed, as well as a pretty significant refi and upsize of 717 Fifth Avenue.

Commenced redevelopment of 280 Park Avenue. Not a lot talked about this investor conference. I would expect it will be a pretty significant focus of the next year's investor conference, when we're much further along with the development plans and possibly initiating leasing, which we expect to be more prevalent in '13 and '14 than in 2012, given the nature of that redevelopment, which will be quite substantial.

Obtain a temporary C of O, certificate of occupancy. At 180 Broadway, you saw a big hole in the ground on the presentation slides earlier. So we got to turn that hole in the ground into a building that can be TCO-ed for our tenant beginning in 2013.

Issuing the unsecured bond market. Jim, that's one of -- it's probably the # 1 challenge for this year. Last year was get the investment grade rating. We got it this year. It's going to be, be an issuer again hopefully of size 7 or 10 year maturities in the bond market. We've done a lot of work to get the balance sheet in shape for that. We hope to get the bondholder and rating agency continuing recognition for those efforts and utilize that market much more than we've done in the past. And hopefully, markets will permit that.

Ink and Anchored tenants for 3CC. And you'll see is a little green thumb next to that. That's how quick it all came together between goal and objective and completion so we get to take one of these right off the table upfront.

Sell at least one suburban asset. We have been marching along the path of paring [ph] down non-Manhattan assets, what we call suburban asset. 1 Court, this year's substantial divestiture. I would expect one more next year to be determined and add at least 1 new prime retail asset. Not easy to get. You heard about Jeff's 2400 linear feet. Well, what he said was when there's only 2400 linear feet, there's not a lot to lease. What he didn't say, I don't think, is then, there's also not a lot to buy. So to get these are really special moments. That's why that DFR portfolio that we purchased, which included 724 Fifth and 752, 762 Madison Avenue, big deals -- big-time deals in those to get product in those trade zones.

And raise the dividend again in 2012. We had a nice bump this morning on the dividend. But you saw in the FAD analysis and given all these earnings we expect to be making over the next 12 months and beyond, I wouldn't be a surprised if that above-average percentage increase and the dividend continues on into the following year. And lastly, the thing we look at mostly, our stock price because we want to make sure that everything we're doing is fully reflected into that stock price, that we're getting value from our investors and shareholders in making value for our investors and shareholders in the things were doing. So it's not just a lot of activity but it's a lot of profitable activity that will keep us on or near the top of that 1, 3, 10-year TRS chart. We're intensely focused on that. And I think we've done a very good job to date of emphasizing that. And we have a good loyal base of investors as is evidenced by the turnout today. So we appreciate that. But that is our goal and objectives for next year and I just wanted to reinforce for you again before you leave, top 10 reasons right on the slide. I hope you have them down. These are all the things that we feel, differentiate us. Along with this presentation today, it's like an honor and a privilege to work with this management team and all the support that goes behind it to make today possible. Heidi Gillette, Ellie Winkelman, a lot of other assistants

and analysts and backup support. There's reams and reams of data that go into this presentation. It's all pretty accurate. I think -- I'm sure somebody will bring to our attention if they had an issue with any of it. But 14 years and we haven't had a major incident so far. So I think we're in good shape on the data. It's an enormous undertaking. It focuses our thoughts, efforts and goals for the coming years. So it's quite useful for us as a management team to not only take the time to convey this all to you but to crystallize and isolate in our own minds, what it is we're doing, how to do it better, make sure what we're doing is translating into what you all want to see and hear and invest in. And if you like what you see on the screen, those 10 differentiating factors, then we are on the right path.

So thank you, everyone, today for this attention and great turnout. And we are going to take ideally, 5-minute break. All right. Please, if you can all sort of -- we'll do to take a quickie break, be back within 5 minutes. We're going to introduce Mr. James O'Connor from the 9/11 Memorial Foundation. He's going to -- for those of you that are staying for either the presentation and/or the presentation and tour, it's outstanding, not to be missed. The daylight is not a factor, I've been told. So we can get a little half-hour presentation done by Mr. O'Connor and then we're getting to get the hard hats on and head right over to the site. So I'm looking forward to it myself. Thank you, everyone, and we'll see you soon.

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