Hello, and welcome to the Vornado Realty Trust Third Quarter 2019 Earnings Call. My name is Michelle, and I will be your operator for today's conference. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Cathy Creswell. Ma'am, you may begin.

Thank you. Welcome to Vornado Realty Trust Third Quarter Earnings Call. Yesterday afternoon, we issued our third quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents as well as our supplemental financial information package are available on our website, www.vno.com, under the Investor Relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our Form 10-K for more information regarding these risks and uncertainties. This call may include time sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments is Michael Franco, President. In addition, Steven Roth and our senior team are present and available for questions. I will now turn the call over to Michael Franco.

Thank you, Cathy, and good morning, everyone. Overall, our business is in great shape. Our buildings are full, and we can see us drilling in on a significant opportunity that we have with the redevelopment in the Penn district. Let me review our third quarter financial results before giving some thoughts on the markets and our portfolio in particular the Penn district. Third quarter FFO as adjusted was $0.89 per share, $0.07 lower than last year's third quarter. As I discussed on last quarter's call, these results were impacted primarily by reduced income related to the over $3.1 billion in asset sales we completed year-to-date, and the lost income from the Topshop and Forever 21 bankruptcies. Last quarter, I also discussed the impact of Topshop's closing at 608 Fifth Avenue, and 478 Broadway. In August, we delivered the required 9-month notice to the ground lessor at 608 Fifth Avenue and we will terminate the lease in May 2020. This permanently reduces FFO by approximately $10 million annually and nicks our NAV by roughly $1 per share. This ground lease has only 14 years left on it and was not economic for us to hold on to. Now for Forever 21, which we mentioned last quarter was a restructuring candidate. As you know, they filed for Chapter 11 bankruptcy protection at the end of September. They are a tenant at 1540 Broadway and 435 Seventh Avenue. They have a third lease with us at 4 Union Square, which expires next month, and we chose not to renew with them. We have already released a portion of that space to Whole Foods as part of their expansion and have a lease out with another important tenant for an additional portion, both at higher rents than what Forever 21 was paying us there.…

Thank you so much, sir. [Operator Instructions] The first question in the queue comes from Manny Korchman with Citi.

If you think about the leasing pipeline, you talked about in the Penn District and you dissect that, how many of those tenants are looking to make a move or stay within sort of Hudson Yards, Manhattan West, Penn District corridor versus looking elsewhere in the city?

Hi, Manny, it's Glen Weiss. We're seeing a real balance of activity both from Penn and Midtown of Park Avenue tenants, 6th Avenue tenants looking at all of our projects. In addition, we have had a lot of activity from the tech sector and the [ ever-growing, brimming] tech guys are all looking at the project as well. So I'll tell you, it's a balance of tenants from within Midtown core and from tenants looking to continually expand in the city.

And then on the Forever 21 comments that you made, how did you think about sort of giving them that rent relief and the impact it would have on both leasing and other tenant psychology?

Manny, obviously, it was a negative surprise, right, in the sense that we had a term on the lease and all of a sudden, they filed and so you had to deal with a real time situation. And I think the deal that we struck has been finalized now, it works for both parties. But I think importantly, it keeps the space occupied, paying rent and allows us the flexibility to go [ troll ] for tenants and find tenants who will occupy the space long term. So lease up the locations individually. 1540 Broadway is arguably the best location in the city right now, right? From the street retail perspective, Time Square is the strongest marketplace. Tenant sales are holding up the best, and we have the waterfront. One side of the boat side, that is the premium location. So with -- at an appropriate time, we will find a replacement tenant, a great tenant there and are confident about what we can achieve. On 435 Seventh Avenue, right, that was always a short-term deal. It was a 5-year deal, intended to get us through the period when we were ready to redevelop the entire block. And so this is [ continues to ] preserve that for a period of time, we can go to placement if we want, if not we'll keep it in play. But again, there's a bigger picture on 435.

And the next question in the queue comes from Nick Yulico with Scotiabank.

I just wanted to ask about -- you talked about Topshop, Forever 21. I just wanted to be clear. Are these impacts that are only starting to hit NOI in the fourth quarter? Just trying to kind of bridge what you reported in the third quarter versus these impacts.

Nick, it's Joe. The Topshop started to affect us in Q3, in Q2 even. Forever 21 starts to affect in Q3.

Okay. So I guess I'm sorry if I missed this if you went through it, but I'm just trying to understand how when we about that $3.40 kind of soft number for the year on FFO, what are some of the items in the fourth quarter that create that drag versus what you reported in the third quarter.

So Nick, when we had the second quarter call, we said that the sales items and the other items we discussed that reduced NOI going forward, if you apply them to the 6-month numbers, you will get $3.40. The third quarter last year was $0.96. This year, it's $0.89. That's a diminution of $0.07. That really comes primarily from sales, specifically, the retail JV is $8.2 million of that reduction, 330 Madison, $1.4 million. The sale of Lexington share, $3.3 million. The sale of Urban Edge, $1.9 million. The delta between the dividend on PREIT and our share of their earnings, $11 million. And then there are other items that makes $0.07 or the delta in 9 million -- $15 million. So all of those items continue in Q4. And with that -- and now with even the Forever 21 effect in Q4, which we didn't know when we talked about the $3.40, other pluses and minuses leave us comfortable at $3.40.

Okay, that's helpful. Just one last question on Farley. I mean, you have a lot of interest in the building from what we've heard, there's been some press reports on it. Can you just give us a sense for [indiscernible] on getting the building leased? And then in terms of the yield that you're giving there in the supplemental, I don't think that's been updated in a while. We've heard you've kind of been pushing rents in the building. So that -- is there upside to that yield in the building?

Look, I think there has been a lot of press speculation about Farley, and there's quite a bit of interest in the asset. And I think as we talked about on prior calls, it's a totally unique asset. We wish we had 5 of them. And so the interest has been high. We're not prepared to comment on when a deal might get done, the terms of that deal. But even if we sign a lease near term, the cash flow is not going to start probably until beginning of '22. So the interest is high, I think the yield that we published in the last quarter was our best assessment as to where it will end up. We're not prepared to make any adjustments to that. Obviously, we had some sense based on some dialogue at that time and I think the interest in retail has been significant as well. So we have to let it play out, but I think we've put in the third -- second quarter numbers, it was -- it continues to be our best guess as to where the yields will end up.

The next question comes from Steve Sakwa with Evercore.

I guess Mike, when you look -- Michael, when you look through kind of the retail tenant list, some of these things are kind of popping up that maybe you weren't expecting. Just what's -- like how do you sort of look at the watch list today? What other potential tenants maybe without naming specifics, are you sort of worried about moving into 2020 at this point.

Look, Steve, the retail market is soft. Tenants performances are not what they were a few years ago. And so generally, we watch everybody. And 6, 9 months ago Forever 21 was struggling but we didn't necessarily expect them to file bankruptcy. So I don't think there's necessarily anybody that we look at, that we view as in the same position today. But we're constantly watching what may happen to the retailers. And so there is risk in the sector. We do have, I think, on average, about 8 years weighted average term on leases on retail, and we continue to view that durability as a real strength. And so there's no specific names that I would mention. But everybody is being focused on.

Okay. And then maybe just a question for Glen. I mean, I realize you guys don't have a lot of space coming due that Michael outlined. But just sort of what is the tenant psychology today as tenants are thinking about their '20, '21, maybe '22 expirations? And are you seeing more tenants coming to you sooner in order to lock in deals? I mean, just sort of what is that dynamic today?

I think the tenor of the market is very good, Steve. We're seeing a lot of tenants, number one, expanding in the portfolio, a lot of tenants looking for new space of the portfolio, but we do see tenants who have expiring leases forward who are looking at our development in Penn specifically. And so I would say, I think the market overall is healthy. Tenant demand is strong, and the tenants are still very active across all the sub-markets.

So I would just add, Steve, look I think as we look at the -- as we look at the pipeline, we were chatting here a few days ago, I think the activity really across all sub-markets, so Midtown, Midtown South, Penn district, we have good action across the board. And I think that's reflective of the fact that the tenants are growing and the market's healthy.

And then just lastly, could you just comment on the TI leasing commissions. I think it looked a bit elevated on a couple of areas. I think in New York, it looked a bit high. I was just wondering if that was a specific deal or kind of what you're seeing on the concession front?

It's Glen. During the quarter, particularly this quarter, we had a bulk of our leasing via our turnkey program. So we built space for tenants. Those leases had relatively short-term at around 7 years on average are now leasing. And the way we look at the turnkeys, we build them today, we lease them for the term, and there's definitely a great value in the next-generation of the leasing of those spaces. So that's why you see that elevated TI number this quarter.

The next question comes from Jamie Feldman with Bank of America.

So I know you guys kind of confirmed that $3.40 for FFO. But I think on the last call, you talked about a low 200 range for street retail? Are you still comfortable with that outlook? Or has that changed?

Good morning Jamie. That is the number that Steve referenced in the last call. Look, I think that number may still be fine. But there are some things in flux. Obviously, Forever 21, we have a handshake deal. Until that's done, we'll see how that plays out. [ But then ] generally as a company and that specific arrangement, that can have an impact. We sold a couple of assets, including [ 340 M ] for example, that comes out of that number. And the last thing I would say is that we're now projecting to take the retail -- Long Island Railroad Concourse out of service next year for a couple years while we redevelop the concourse. And so when that comes back we're going to have additional retail square footage, which we think is going to be in very high demand based on that retail today. And the income will be higher, but we're going to lose $12 million per year temporarily. So there's a couple of things that are moving around -- again, some of those temporarily, we need to see how Forever 21 plays out. But I think the general number that Steve outlined on the last call still appears fine.

Okay. And then I thought I heard you say you're in talks for a 400,000 square foot headquarter deal at 2 Penn. Can you talk more about that potential lease? And then just timing, like a 400,000 square foot block, how that would fit into the building and how we think about the ins and outs over the next couple of years if that hits?

The lease is out, we expect the lease get done in the next few months. The tenant would start their construction once we deliver the redeveloped building to them. So it's a deal, it's a deal we like a lot. And we're going to try to close it in the next few months.

Okay. And then finally for me, just -- I know you had said you're seeing expansions pretty healthy market conditions. Can you just talk about your view of kind of traditional Midtown versus Midtown West. It sounds like a lot of the activity is Midtown West. But if the tenants you're talking to, do end up moving to the west side, what do you think the outlook is for more traditional Midtown and market conditions there?

If I could speak in terms of our portfolio, Jamie in Midtown, and we are still seeing expansion in the buildings in Midtown, whether it's the 1290 -- at 90 Park, at 280 Park, and [ 8 -- 887. ] So we are seeing expansions throughout our Midtown portfolio. We, in our portfolio have not lost a tenant to the new developments on the West side. So I can't really specifically speak about others moving their tenants, migrating there. But we're seeing expansion still healthy within our portfolio in the Midtown district.

And what I would add, Jamie, is that I think we've talked about this now on a few calls, is that in order to compete effectively in this marketplace, your buildings have to be modern from an infrastructure standpoint, a technology standpoint, amenities standpoint. And we got ahead of that starting many years ago, all of our buildings in Midtown, have been renovated. We attracted top-flight tenants to anchor those redevelopments. And so when you look at our assets, notwithstanding the activity levels, which are healthy on them, you can generally put to bed for a while, right? There's not -- so if you look at the leasing activity in the last quarter, this quarter or next quarter as we alluded to, there's not a lot of [ roll ] because we did the work, put those buildings to bed at healthy rents and strong tenancy. So I think where you're going to see some impact is from the landlords that have either inferior locations or functionally obsolescent assets where some of the move outs are going to occur beginning in 2, 3, 4 years.

The next question comes from John Kim with BMO.

A question on the Forever 21 rent cut. Is your expectation that you will re-lease that space in a meaningfully higher rent? Or is the new rent really reflective of where market [ rates are today? ]

John, we've had a little trouble hearing you at the end there. Just repeat the question, please.

Sure. Do you foresee re-leasing the space of Forever 21 at a higher rent? Or is the new rent really reflective of where market rates are today?

Yes. I would say, taken individually, right, on 1540 Broadway, our expectation is, as I said, given the quality of that space, that we should be able to achieve higher rent from what the deal is with them. And 435 Seventh was a temporary deal. If we want to lease that long term, the rent will absolutely be higher. But again, we want to keep flexibility there and so balancing flexibility with how much rent we're going to get. So frankly, I know you guys care quarter-to-quarter what the rent is there. We don't really care what the rent is for the next 4.5 years, as we continue to put our plans together for that block.

Okay. And Michael, you mentioned 65 tenants potentially looking for up to 16 million square feet in Manhattan. Do you have any commentary on how much of that is new demand versus just musical chairs?

John, it's Glen. It's a mix of type of tenant, whether demand expansion, relocation, it's a mixed bag across all the industry sectors, across all the submarkets. I wouldn't necessarily pinpoint one particular flavor of activity within that subset.

John, so the one thing I would add is we see that really, I think the space [ issue, ] right, as the growth from the tech companies, which I don't think most people didn't see the magnitude that was going to occur this year, and there continues to be dialogue on. Those are major impacts that tend to happen. And I think with much greater speed than a lot of the other leasing in traditional tenants. So we continue to see a migration. Once those tenants get here, their expansion has been pretty significant.

The next question in the queue comes from John Guinee with Stifel.

Right. Two sources and uses questions. First, can you remind us again when you have access to the preferred equity from the retail deal you did earlier this year? And then what you expect to be the remaining after-tax proceeds at 220 Central Park South? And then the next sources and uses is, how do you think the JPMorgan news ultimately plays out? Does this result in a stable head count in New York City? Or is it down 20%?

So John, I'll let Joe answer the after-tax proceeds on 220.

Okay. We'll start with that, John. It's Joe. John, we had wonderful -- excuse me?

Where's Steve?

Sitting next to me. We have $1.9 billion in future sales, a lion's share of which is under contract. There's another $100,000 of taxes against that $1.9 billion and another $100,000 of cost to complete the project against that $1.9 billion. So net of all costs, net of all taxes from this point forward, we will be receiving $1.7 billion, plus or minus, from remaining sales, closing with the sales at 220.

So John, just to your other questions. So on the retail preferred, we have not said specifically in the past when that can be refinanced. And I think we continue to not want to state that -- there's some tax sensitivities to that, but we will in the -- in due time be able to refinance and redeem that retail preferred. But thank you for pointing that out. That is another significant source of capital we will have access to in a few years. In terms of the JPMorgan announcement, look, I think the most important thing to remember is that they are building a significant world-class headquarters on Park Avenue right now and have recommitted to New York City for doing that. So this is their home. And I don't think it's unusual for a company, particularly the banks, to move back-office personnel outside of New York whether that's into New Jersey or other cities. And so I think this is along those lines. But I haven't heard any announcements on this percentage of head count, whatnot, and we will all have to sort of read that in the news. But there are ebbs and flows in the city in terms of companies and how they grow and manage their head count, and I think JPMorgan is just doing that.

The next question in the queue comes from Alexander Goldfarb with Sandler O'Neill.

So 2 questions. First, you guys obviously talked a lot about the big tech demand this year that surprised the market. And at the same time, SLG is busy contemplating redeveloping 1 Madison. You guys have The Farley but, at the same time, you have the Forever, Hotel Pennsylvania. So are there -- is there sufficient demand in the market where you guys would start to -- I don't know if it dusts off the old plans maybe reconceived, but would that project start to be something that may actually come to fruition given the tech demand in the city and its location?

Look, we are unbelievably excited about the Hotel Penn site. We believe that, that site, [ we are done ] transforming Seventh Avenue with Penn 1 and Penn 2, we think it's going to be the best development site in the city. So -- but time is not here yet. We're going to finish developing in Penn 1, Penn 2. And we think that follows that after the fact. So -- and you're guesstimating what demand is going to look like in 2, 3, 4 years, knowing that you can effectively do that. But we think it's [ going as planned -- ] and the plan we have for that is going to be unique. We think that will appeal to all sorts of tenants.

And then the second question is just going back to the questions on retail rent. Topshop, you mentioned a cut to rent. The IKEA replacement for the Sears out in Rego Park is a cut from what Sears is paying. So it would almost sound like rents for street retail are -- they're either coming down dramatically or these were special circumstances where they were so far above where the market had moved or maybe it's just the amount of space. So maybe you can just give a little bit more color on the dramatic cuts that we're seeing in these locations versus where you think sort of generic, your average street retail lease would reprice.

Look, I think we've talked about -- I think it's the last at least 2 years, the street retail rent. And Steve was really -- I think he was early in saying it and -- that the market has been correcting, right? The retail demand is down and, therefore, rents they follow. I think it's probably the most significant in Madison Avenue and SoHo. And again, deals that were signed at the high-water mark are seeing those rents come down. So Madison could be down certainly well north of 1,000, and certainly below that, below 1,000 today. So the market has been correcting, and we bottomed. The answer is in some submarkets, we were close, and maybe in a couple of others, not necessarily yet. But I think it's case-by-case, right? It depends on when the lease was signed. We have many leases that are still below market, and we have obviously some that are above market, depends on what the advantage of those leases were. And obviously, when those leases roll, [ you can't ] predict where the market will be at that time. But in some cases, the asset, there may be a better use. So Topshop, SoHo that was entirely retail. And today, the best answer on that would be that the ground floor space is retail and then the upper floors become office, and the income is not that different. That office space with the Crosby Street address, we think is going to be very attractive, and we have interest on. So I think it depends on the asset. It depends on the submarket. But clearly, rents have been correcting.

And the next question in the queue comes from Vikram Malhotra from Morgan Stanley.

I have 2 questions. So just one following up on street retail. Any update on the Massimo space or the Madison assets?

Nothing really to report on either one of those. We have some tenant dialogue going on in Fifth Avenue. But nothing is imminent. Retailers continue to be cautious and are conservative on making large commitments, which Fifth Avenue generally is. So nothing to report there. I think Madison is a little bit different where -- Madison is slow, there's no sugarcoating. The demand on Madison is probably the lowest of any submarket in the city. And so it's going to really take some time to fill up.

Okay, great. And I just want to clarify on the $3.40 and the run rate going into next year. Joe, should we assume that, therefore, the FFO in 4Q is closer to $0.80 to hit that $3.40? And do you still anticipate recouping a lot of those losses heading into 2020?

Vikram, Look, so far, we've talked about Forever 21. We've said that the rent at share is $20 million, and that's going to be diminished by at least half. We talked about the Long Island Rail Road concourse coming out of service next year. These are one of those things we included when we talked about the 2020 versus 2019. Now as you know, we don't give guidance. But that being said, as a result of that negative effect of Forever 21, additional out-of-service at Penn 1 and Penn 2 to support our development plans, including the LIRR, a lower expectation from Hotel Pennsylvania, we no longer believe that 2020 will be a substantial bounce-back year. We're going to have to wait a little longer.

Yes. Thank you. I would just add to what Joe said, which is notwithstanding, it will not be a bounce-back year. And I know you and others are very focused on the next few quarters. And I think as we look at our business, our big growth engine is Penn District. And we have tremendous confidence in what we're doing there, and the early reception has been very positive. And so it's going to take some time to kick in, but it's going to be meaningful when it does. And obviously, we published the information on the first few redevelopments last quarter. And so we feel good that. So it's going to require a little patience, but the growth is going to come quite meaningfully.

No, that's great. And I just want to just clarify, just on the $3.40, Joe, the run rate. Is that $3.40 still intact for the reported full year? Or is that -- was that a run rate sort of number?

That's the number we expect to publish at the end of this year, for calendar 2019.

And the next question in the queue comes from Manny Korchman with Citi.

Hey, it's Michael Bilerman with Manny, just a few follow-up questions. Michael, you mentioned that 400,000 square foot headquarters lease. And I don't know if Glen or David or yourself want to answer this. But I guess when do you sort of disclose that information to the Street? I got to assume in your comment that there was a lot more in the works, and I assume that's at Farley and maybe other stuff at Penn 1 or Penn 2 and other buildings. So I guess, at what point in the negotiation do you feel comfortable making a statement like you did about a significant value-creating lease like the one you mentioned?

We will announce when the lease is actually signed. And I think that's the general view. We have a good dialogue on the assets right now. But the actual detail will come when we finalize the lease.

But I guess, in this case, this lease is out for signature -- I guess you talked about it on the call, it's out for signature. I just didn't know at what point in the process, let's say, at least at Farley it would be in and at what point you would be talking about that in the open [ about real? ]

Yes. Just when it's signed, Michael.

So in this case, the 400,000 is signed and you're just going through the...

No, 400,000 there is -- we're negotiating the lease.

So I guess in the other leases that you're negotiating, how sizable are those? And where do they stand in the process relative to this 400,000 at Penn 2?

Michael, look, I think you're trying to pin down on exactly where we are on this. I mean I think there really is nothing more to say, right? I think high level, I think what we said is sort of all we're prepared to say right now. When the leases get signed, we'll announce those. And you'll know about those. But until they're done, nothing is done. Anything beyond what we mentioned specifically is, again, still just active dialogue and negotiation and not ready for it to be reported.

Okay. It's very exciting to hear about the Penn 2 lease. And I was just trying to understand the sort of policies that you have in terms of disclosing it. That was a little more what I was trying to get at.

Yes. We're excited, too, Michael, but you have got to wait a little bit.

Okay. And maybe a question for Steve. You've not been shy about where your shares trade relative to the inherent value of the asset base, and you've been extraordinarily aggressive over the last 6 years at simplifying a lot of the complexity: spins, merge, sales, completing the construction at 220, doing the Farley buyout, all variety of long lists. I guess where is your head today in terms of further sort of potential sales? And most obvious would be something on the office side, even in New York or outside of New York, either in joint venture or outright? Or is all the focus right now on Penn Plaza and the redevelopment effort?

All of the above. I'll say a couple of things. Number one, everything is on the table as it has been for the last number of years. Number two, we are certainly not done yet. Number three is we definitely are not satisfied with our stock price at all. And just I would like to turn it back to you, for example, you said asset sales outside of New York, and I guess you're referring to San Francisco or Chicago, I would remind you that for the last 5 years, you and your brethren have been begging me to sell in San Francisco. And in the last 5 years, it had gone up and back to over $1 billion since we continue to hold it. So everything's on the table, we're not done yet. Look, we're actually surprised by our stock price, but Mr. Market speaks, and we're not done yet.

Joe, just in terms of 220, the $1.7 billion, does that also include the basis -- the money you have in the building? So is it effectively, we should think about $1.7 billion of cash?

Michael, Joe spoke a little bit out of turn, trying to be very, very thorough. The answer is that we have published numbers, which show that the sellout of that building is about $3.3 billion. And the cost of that building is about $2 billion, okay? So you can do the math from there. The important thing is that all of the -- we paid off the indebtedness. So all of the closings that come in the future, go into our treasury and go to finance Penn Plaza. So we've announced that we signed -- we have closed $1.2 billion [ or $1.3 billion. ] You can deduct that from the sellout. You can do the math.

And Mike, my math was consistent with what Steve said.

Okay. You can't go back with that. One of the reasons. I've been accused of being secretive with respect to that property. That's really not the case. We have a very important clientele, and I think the word discreet is more important than your -- the residential real estate market is a very gossipy market. So information that gets into that market is not helpful.

Okay. The next question in the queue comes from Daniel Ismail with Green Street Advisors.

Just a quick question on New York City office cap rates. Given the movement in the 10-year and some of the sales that we've seen in New York, where we stand today -- earlier this year, you guys put a 4.5 cap rate on your office holdings. Do you think that we've drifted higher or lower since that time?

I don't know that, that I would change it, Daniel. But obviously, we will do it once a year, and we'll revisit the time and see where the market size and what we're hearing from capital sources. I do think that the -- that the fact that interest rates have trended back down and appeared to be stabilizing at lower levels, I think, is bringing capital further into real estate as a general matter. And I think that a number of capital sources we talked to, I think, view New York as there is value here, right? So cap rates probably widened a bit over the last year or so given where the 10-year is and you can finance on a reasonable leverage basis generally below 4% right now. So that's a very attractive cash-on-cash yield. And so the hedging costs have come in for a number of the capital sources abroad that are -- that's an important issue. And I think you're seeing capital sources refocus a bit, not just in the U.S., but [ on ] New York, a potentially value play, given values, frankly, are pretty flat, maybe a little bit down last year. So there's a lot that goes into what we publish, not just where the market is, but how much growth is in a particular asset, or vacancy or what not. So we'll revisit that as we get closer to when we publish it but I think today, directionally, it's not far off.

Okay. And you guys have been hustling that New York is overpriced. I'm not sure we agree with that. So if you look at comps, the comps pretty much support the cap rates that we have been using. The volume of activity in the capital markets has definitely been declining. It's declining all over the country and all over the world. So it's a very specific asset-by-asset calculation. Now the NAV calculation is not intended to be nor can it possibly be a rigorously ruthlessly accurate and correct number into the penny. It's a range. And so the volume is down. Pricing is pretty much holding on specific assets. And we think that you are a little bit too pessimistic on your thinking about it than we are. Maybe even significantly too pessimistic.

All right. That's fair. Maybe just a quick follow-up on Penn 1 and Penn 2 based on some earlier comments. You mentioned wanting to do the flex space there yourself. Is that a result of any of the turmoil we've seen at WeWork and wanting to reduce operator risk? Or is that a conscious decision that we can capture some of the upside in flexible leasing and keep sort of that tenant experience in-house?

It's Glen. We think in Penn, it's important to create the flex space for our portfolio for our tenants, particularly at Penn 1, it's a big building, 2.5 million feet, more than 200 tenants are in the building. We are always seeing tenants needing agile space, whether it's swing space, expansion space, short-term band-aid space, for whatever reason. So we've taken Penn, doing the co-working, the flex space can be a huge benefit for us and our tenants. And of course, with that, we do expect it to be a profitable operation, which is why we've decided to do it at Penn 1.

And when you think about -- so this is -- this is the centerpiece of the Penn District. We want to control exactly what goes on here, create exactly how we want to, to create the right environment. And so we don't think there is anybody better to do that than ourselves. I think we've proven that over the years in what we've done. And then when you think about when you lease to a co-working operator, you are generally providing the bulk of the TIs and getting the lease and maybe getting a little upside, but you're not getting a lot of credit and you have a capped upside. So here, we're going to invest the capital exactly the way we want it and create the right environment and capture the bulk of the upside. And so for us, it's a pretty straightforward answer. And that's always been the plan.

And the next question in the queue comes from Jamie Feldman with Bank of America.

Just a quick follow-up on that last question. I mean have you -- I know it hasn't been that long, but what changes have you seen in the market since WeWork pulled their IPO in terms of demand for co-working or just tenant behavior or discussions?

We haven't seen any change, James, no change.

And obviously WeWork is not signing [ any leases soon. ]

Well, I guess, just the attitude towards co-working and flex leasing? I mean it certainly seems like the product -- this cycle seems a lot more talked about and tenants seem more interested?

Look, I think it's -- look, I think the way that people work, how they may use that space, we think that's here to stay. It's one of the reasons why we're offering that type of space in the Penn District. I do think -- my own view would be that there's been this big discussion of shift toward enterprise from these co-working companies, particularly WeWork. And I think those large enterprises are going to focus even harder on who their landlord is. So I think that accrues to the traditional landlords quite a bit like us. And so the desk-by-desk and small companies, I think co-working will continue to an alternative for a number of those. But I do think that this shifts the tenant back a little bit.

We have no other questions at this time. I will turn the call over to Mr. Michael Franco for any closing remarks.

Thank you, everybody, for joining the call. We look forward to seeing many of our investors out at the NAREIT conference in Los Angeles on November 12 and 13. And our next earnings call for our fourth quarter earnings would be on Wednesday, January 19, 2020. And we look forward to you participating again. Take care.

Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.