SL Green Realty Corp. (SLG) Q1 2011 Earnings Report, Transcript and Summary

Well, I think, what's important for us and the company is generally to have a lot of tools to raise capital to make sure that we can access it in the most efficient way. So far the ATM has worked very, very well for us. And we raised, I think $311 million through the program. So we'd liked it very much as one option to raise capital. As far as leverage, Michael, I think that you've seen over this first part of the year is what I'd like to think that was a very balanced funding strategy we deployed a lot of capital in properties and then we raised a corresponding amount of equity to maintain our credit ratios. And by doing that, in fact, we're upgraded by S&P in the process. Our approach it’s been very prudent. It's been sort of -- the things we've done in the last few months are kind of the many ways, the capstone on what's happened over a longer period of time in the company. And so far, as credit quality, access to cheaper capital and liquidity, I think we feel like we're moving -- we've moved in the right direction and are in the position to continue to protect and improve where we have opportunities.

And if I can ask one more question. Does the 1515 Broadway transaction suggest anything about your view on Viacom's intention to renew or not a few years out? Or is there any reference to be drawn about sort of the increasing value of potential vacancy in terms of asset values, if they do in fact, don't renew a few years out?

Yes. I would say that generally, we manage our investments with an overall portfolio view. We're not always looking at individual discreet assets and individual discreet events. And I think that's one of the benefits of scale that we have in this market over our competitors. To us, it's not a question of will Viacom or any other of large tenants renew in a particular building. But it's certainly much more oriented towards out of 25 million or 26 million square foot portfolio, what kind of rollover do we have each year and trying to manage that rollover through early renewals, trying to keep that rollover down to generally about 1 million square feet a year, maybe 1.2 million, something like that. And where it comes from, who it comes from becomes a little less important in that context especially for wholly-owned asset like this now is. So, I think that Viacom, as a company, seems to be doing terrifically well. We’ve just finished a renovation of that project, which is excellent and I think was really efficient, but complete transformation of certain aspects of that building and that maturity is still probably 4 years or so off. So it's not what would put into kind of the present day active consideration, but something that would likely be worked on over the next couple of years. And we would assume that they seem happy in the building and we think they'll have a continued presence in the building whether that's all or most, I mean, that just something that will be determined over time. But if it does not turn out to be the case, our conclusion was that at this basis in that market for that quality of building and that quality of floor play, especially with the views that you get to sort of halfway up and beyond, it's a spectacular space that, in some cases, can be rented for maybe much more than media companies can often afford to pay, just given how sectors can afford different types of rents for different buildings. So we think our downside is certainly protected, given the quality of the real estate. But I would also say, we think Viacom's a terrific tenant, and there's no reason to think that they're not going to have longevity either. But in a portfolio sense, we think either way, it's completely manageable.

Your next question comes from the line of Sri Nagarajan of FBR. Srikanth Nagarajan - FBR Capital Markets & Co.: Question on leasing spreads. It appears that early renewals always have an impact on positive leasing spreads for you as you sit down with these tenants who have really long-term leases. How is that picture looking today as tenants are kind of pressured with lack of opportunity, if you will, looking forward for the rest of 2011?

Well, we'll see. I think, we've seen a trend over the past 18 months where tenants have clearly been convinced that the market is rising and if they have leases -- if they're confronted with leases that are expiring 2, 3, 4 years out, I don't know, there's a consensus out there that they're scared, and they should be. Tenants are worried about where occupancy or costs are going up because rents are rising and we've had -- we've seen it over the past year. We're continuing to see tenants initiate conversations where they'd like to handle an early renewal today, trying to average rent that's in place with a rent that they're going to be confronted with in the past, then we've always been open-minded to that because as Marc mentioned earlier, we think the long ball view on this, which is managing the least rollover in the future rather than just dealing with leases as they expire present day. But clearly, on the renewal side, tenants have gotten the word that they're being confronted with the rising market. Srikanth Nagarajan - FBR Capital Markets & Co.: Quick question on all the gains. Can you give us some color on taxable income and dividend policy now?

It's Matt. The way the gains are structured, I mean, at this point, we have no real change to our taxable income projections for 2011. As we talked about in the past, we'll continue to evaluate the dividend, and taxable income beyond 2011 as we get later into the year. But none of what took place in the first quarter, as we look forward, will adjust our thinking for 2011. Srikanth Nagarajan - FBR Capital Markets & Co.: A quick bookkeeping question, if I may, you mentioned lease cancelation of about $2.1 million. And could you just repeat what assumptions you're making for the rest of the year as well?

It's actually about $2.7 million. And historically, we've averaged over the course of the last 5 years, call it $8 million a year, so we would expect to see something along the same lines this year.

Your next question comes from the line of Suzanne Kim of Crédit Suisse. Suzanne Kim - Crédit Suisse AG: I'm calling about what you sort of expect is the embedded gain in the structured finance book?

Expected gain in the structured finance book? Suzanne Kim - Crédit Suisse AG: Yes. What's the mark-to-market gain that you're sort of...

I don't know that we have that statistic. I mean, obviously, we're not writing up the investment.

And we don't mark our book to market every quarter. So that's not information that we disclose at any event. Suzanne Kim - Crédit Suisse AG: Okay. And then also with regard with your top 10 investments, could you disclose what the maturity is on the second investment that's yielding 11.25%?

2014. Suzanne Kim - Crédit Suisse AG: 2014. Okay. Great.

[Operator Instructions] Your next question comes from line of Jordan Sadler of KeyBanc Capital Markets.

I'm just not sure if I missed this, but what was the valuation on 1515 Broadway, maybe on a cap rate basis on the PC bought in? And what's the plan for financing?

We assume that, that in place, which was a Bank of China led syndicate loan we put in place at the beginning of 2010, I believe. The going-in cap rate is about 5.5% and we would expect that to grow to about 6% over the next 12 months or so.

Okay. There was no cash equity portion out to the partner?

SITQ did receive proceeds of about $260 million.

Okay. That's going to be on the line and then permanently financed through ATM or otherwise or...

It's on the line today, and we'll permanently finance it at some point.

Okay, that's helpful. And then within the structured finance book, there were a couple of -- you touched on some of them really quickly. I don't know if all of them were realized during this quarter, maybe falling over into 2Q. I think you said 1166, but I'm not sure if you still had exposure there. Starrett-Lehigh and then whatever your remaining exposure is to GKK, on a book basis, I'd be interested in the expected outcome there as well.

Starrett-Lehigh is still outstanding. 1166 is paid off, and we have no remaining position there.

We have a -- on book basis, we have one mortgage invest.

This is David Schonbraun, who runs the structured finance. Andrew Falk, who's also obviously, is part of that who handles the GKK situation.

On the GKK, we have a approximately $34 million mortgage position secured by net-leased bank branches. It sits within approximately $240 million mortgage, which is secured today, I think. The net lenders are working out the loan with Gramercy. I think they entered a 2-week extension approximately 10 days ago. When that flushes out, we'll determine what to do with mortgage. But it's a secured position backed by net-leased bank branches.

But SLG's total carry value is the $34 million?

Yes.

Okay. And so what's the value of the investment in Starrett-Lehigh?

Carrying value is about $85.6 million.

$85.6 million. Is that at par or what's the remaining discount to par?

There's a discount on that. About $10 million left.

$10 million left. Okay, that's really helpful. And just lastly, Marc, in your commentary you mentioned your sort of debt markets feeling good, probably in the back of QE2, any sort of change in terms of your positioning as a result of the assumed end of QE2? Or you just sort of expecting rates to remain low for a while and not factoring that as much?

Well, I don't want to sound like a broken record on this but we're generally neutral when it comes to rates. We like to tag floating rate deals, big upside assets. We put fix financing on mature assets and we try and keep it stable of unencumbered assets to support our credit line and whatever kind of unsecured financings we do. So I just don't make interest rates. That's one way or the other because it's always a bias towards thinking increasing rates are coming, but over the long run, I found that running a book that's a been approximately 20% to 30% floating and 70% to 80% fixed has roughly paralleled our asset base and has been -- could matched funding in that regard and has allowed us to benefit from the lower floating rates while also fixing away the bulk of our debt to protect us against the unknown sudden movement. I'm much more focused on duration management. I think more so than rate issues, I think duration is key where we've seen people more frequently get into trouble, and I think why we were able to manage through the most recent recession, as well as we did was because we had very good liability management on the term side. Jim mentioned earlier, I think that he's now taken our average duration out to -- was it 6%...

Yes, I mean, we've taken the average maturity out to 6% and I think that what's more important in that is that we have a smooth maturity schedule so we don't have a big risk in the year-on-year going forward in terms of maturities.

Right. So I would say regardless of the yield curve, we always model internally on investment yield curve plus 50 basis points on LIBOR. And that yield curve is pretty sharp right now. So we don't -- when we underwrite a deal with LIBOR-based financing, we're not modeling any benefit really from these low LIBOR rates because it ramps up to 4% plus or quickly on the yield curve, then we tuck [ph] 50 basis point inside of that. So we hit the models pretty hard for expected increases in rates or if we're fixing it, we use treasury curve. And we're just trying to kind of get as much maturity as we can deferred and also make sure that we're not mismatching by locking away mature assets with floating rates nor vice versa, we don't want to have assets with tremendous upside fixed away for 10 years. That would be I think very suboptimal. So that's how we approach it. If the rates stay where they are now, it's a pretty good environment with some positive leverage that's available where you can buy in the 5% to 6% range and financing to 4% to 5% range. I find in New York that those conditions don't last too long. The market just doesn't permit it. And eventually, those arbitrage opportunities will go to somewhere between neutral or negative leverage that's -- New York is more often than not a negative leverage market where the cost of debt exceeds. You're going in cap is growing into it, overtime, with the rental increases. But right now, we're still on the right side of that equation, which is why we're net acquirers and why we think this is such a good markets to buy in. When we see that invert, we'll become more careful.

Your next question comes from line of Ross Nussbaum of UBS.

A couple of questions. The 919 Third Avenue financing, can you give a little detail on what the rate in term is on that?

Well we haven't even closed yet. So we've signed an application for the deal and it'll likely to be a 12-year of fixed-rate financing with a rate in the low-5% range.

And was that CMBS, bank, foreign? Who was the source of that capital?

Insurance company.

Okay. Second question, Jim, on the FAD guidance, I think you said you took it up from $2.47 up to $2.60 for the year. The $0.13 delta there, can you pinpoint, at least, from your model what the $0.13 variance was?

Sure. We obviously, some of the -- it's Matt. Some of gains that we took in the first quarter and some of the other positive variances we saw in the first quarter are cash. So that factors in there as offset by additional second cycle and recurring capital that will now pick up as a result of the 1515 acquisition and 521.

Okay. And then final question, Marc, Sri had asked about the dividend. I want to ask it a slightly different way because I understand the argument on where taxable net income is. But just from a higher level view, I guess, the company is asking shareholders to effectively get almost 100% of their total return through residual value, if you will, rather than incur an income. And that is obviously odd for a REIT and odd if one were to buy a piece of commercial real estate directly. Are you rethinking the dividend policy at this point to be able to give shareholders an opportunity to get some incurring income off of their investment?

Well, Ross, I would say to you that it's not us sort of trying to convince shareholders that’s the right approach. It's really us responding to shareholders who have said they are pretty indifferent to the dividends so long as it's obviously compliant with the taxable income rules. And at the moment, given the bullish posture that matches we have and our investors have in Manhattan, they seem to want to see us reinvest it in New York and create these total returns to our stock price. So we're pretty responsive on that level, and I think we get some good realtime data from our shareholder base, which happens to be almost entirely made up of institutional investors who seem pretty agnostic to the dividend. If there was a significant vocal group of our large shareholder base who were more focused on the dividend than they are on share price appreciation, then I think we'd be very quick to respond because we certainly have capacity to increase the dividend above where it is today. We always go above the taxable. We don't have to manage the taxable, as you know. And I think we're just being responsive there. So there's always going to be certain shareholders, retail shareholders like us who hold stock and like dividends. I mean, don't think that anyone sitting around this table doesn't like dividends. We just like high stock price better. And our shareholders seem to be, if not 100%, at least the vast, vast majority seems to be on that program. So that's where we're managing to. When we hear and sense a shift in that sentiment, I think we'll be quick to respond.

I think that's fair. I'd throw out the idea that the higher the stock price goes, perhaps the more indifferent the voices have been on the dividend. But when the share price gains aren't as spectacular, the dividend might become more of a focus.

Yes. I would think that's right. And so were just -- we're measuring this off probably the last 2.5 years of performance, where it's been weighted to appreciation. And I guess if we get to a level where we see those external opportunities and growth opportunities start to subside, then clearly, we'll take a harder look at the dividend return portion of that equation. But obviously, this year, that's not the case. And we think we've been pretty consistent in saying that we expected the dividend to remain relatively static, if not static, completely through 2011 with a revisit for 2012. And I think we're on that path.

Your next question comes from line of Tom Truxillo of Bank of America.

I have a question on your financial policy. You talked about prudent balance sheet management today and maintaining your credit metrics. Does that mean you plan to take kind of a passive attitude towards getting those fully investment grade ratings, meaning, you're not going to pay down additional debt, rather than use the balanced approach with debt and equity as you grow your balance sheet? And kind of letting EBITDA growth result in a natural deleveraging?

Well first of all, our actions, not just in the last few months but in the last year or 1.5 year, got us to investment grade for the unsecured notes with S&P. So I would say that the actions that have been taken have actually been as much very favorable to the...

Yes, I'm talking more of going forward from here. And you obviously done great works [ph] at the last time, yes.

I think consistent with what I've said earlier in this year or late last year, prospectively, a lot of the work that we are trying to do is instructional leverage. We unencumbered 100 Church. We're set up to potentially unencumber other assets. And we're looking at ways to bolster the credit whether that requires a deleveraging in total, I don't think we’re seeing that. I think that we can improve the overall credit through other means, as well. So I guess I'm not answering the question of deleveraging, whether that will come or not. But so far, experience is that we can do a variety of things to improve credit without delevering.

Sure. And then just a bigger question of why look to continue to improve the credit, I mean, looking at your debt maturity schedule you guys just talked about, you've extended it. You don't really have a maturity in 2014, but it's pretty small. You don't have any sizable maturities until 2016. You talked about the capital recycling that you're doing now. You have a bunch of availability in your credit facility now. So it doesn't seem like you really need to tap the unsecured market anytime soon. So why continue down that road, I guess? What do you see as the benefit?

We've said in the past that we feel that after 2, 2.5 years of a consistent program to delever and improve to get to where we've gotten today, that we feel we are at about the right level. I just want to -- there's no significant internal mandate to make another significant push forward to delever another from 8 to 7 debt-to-EBITDA. That's not -- we've stated right around 8 where we think is the right place for us in our market. Different firms, different quality of tenants and buildings. Different markets, probably need to operate below that. Maybe [indiscernible]. But I think, we've said we feel pretty good about where we are. If anything though, you have to realize we've just --we're digesting an enormous amount of transactional activity that took our metrics from where we were and they started to go somewhat in the reverse direction. So now we've embarked on a, what I would call a -- tweaking is not the right word, but a minor adjustments to equity and unencumbering assets. These are not major steps in the context in the size of our company. This is fine-tuning to kind of keep within the same level. So if you see us continue to be very acquisitive and I'm thinking you have to see us figure out ways to raise that due to some unencumbered -- raise equity or do some unencumbered asset bond deals or retain cash flow and sell assets because while we're not looking to necessarily make significant strides to become a more conservative balance sheet, the more acquisitive you are, the more you have to do just to stay where you are. And I think that's probably what Jim was trying to say. And I think it's consistent with what you're saying. We're not managing necessarily towards a rating. We're managing towards a level of debt and liquidity and cash flow coverage that we think is right for our portfolio and can survive all markets. It's substantially below where we were in '06, and '07. It's right about where we think we need to be. But these deals are big and everytime we do big deals, you have to do some fine-tuning to keep that balance sheet on track. If of that answers your question, that's the kind of how we're looking at it.

At this time, there are no further questions in the queue.

Sure, okay. Thank you very much for everyone listening in, and we look forward to speaking with you in the near term.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

Good day, ladies and gentlemen, and welcome to the Q1 2011 SL Green Realty Corp. Earnings Conference Call. My name is Chantal Lei, and I will be your facilitator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, Ms. Heidi Gillette. Please proceed.

Thank you, everybody, for joining us, and welcome to SL Green's Realty Corp.'s First Quarter 2011 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind the listeners that during the call, management may make forward-looking statements. Actual results may differ from predictions that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the company's Form 10-K and other reports filed with the SEC. Also during today's conference call, the company may discuss non-GAAP financial measures as defined by SEC Regulations G. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at www.slgreen.com by selecting the press release regarding the company's first quarter earnings. Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green, I would like to ask those are who are participating in the Q&A portion of the call to please limit your questions to two per person. Thank you. I will not turn the call over to Marc Holliday. Please go ahead, Marc.

Okay, thank you. Good afternoon, and thank you all for joining us today. Last evening, we reported earnings for the first quarter, which in my opinion, are reflective of the company's extraordinary efforts resulting in a high degree of our performance in all areas of the firm, demonstrating a very balanced strategy. Highlights were on the gamut from increases in same store performance and rental rates; substantial gain taken in the structured finance portfolio and absence of additional write-downs or loan loss reserves for the quarter; occupancy increases in Manhattan portfolio; substantial new acquisitions, such as the one we announced earlier this morning; an increase to the 2011 earnings guidance and credit ratings upgrade received from Standard & Poor's, in response to deliberate actions taken to improve our overall credit metrics by issuing equity, unencumbering assets and retaining cash flow and selling properties. The foundation for these results is a continuation of overall market improvement in New York City. The economic climate is reacting quite favorably to a number of factors: First, opening recent passage of a budget, which included no new taxes and a reduction in overall governmental expenditures; also steady improvement in job creation, combined with increased consumer spending and increased corporate revenues; substantial availability of debt financing and a stability of interest rates at or near historical low levels, in part due to QE2. You can see how all these factors are coming together at the moment to basically create the framework in which we're able to execute our strategy. On the jobs front, where there were another 11,000 new private sector jobs created just in the first quarter of 2011 with 4,000 of those being office-using jobs. We are continuing to forecast between 20,000 and 25,000 new office-using jobs for all of 2011, which is somewhat ahead of New York City's estimates, but we think consistent with what we're hearing and seeing in the market. Only half of the projected job losses from the beginning of the recession were actually realized. And at this point, the city has regained 40% of those losses after bottoming in 2009. Examples of some recent market activity that we think back up some of our estimates include: Citigroup, which is rumored to be adding up to 500 new banking and trading positions; Bloomberg, who as we reported earlier in the year, signed up for an incremental 400,000 square feet of 120 Park Avenue, along with Wells Fargo, who signed up for an additional 275,000 square feet at the Mobile Building on 42nd Street, both of these being first quarter deals. And we're even seeing this improvement in the media industry where one of our largest tenants, Viacom, just announced revenue increases of 20% and net income increase of 53% for the quarter, driven in large part by extremely robust ad revenues. Tax collection revenues, business tax collection revenues, another important indicator of the health of the economy, we're up approximately or expected to be up 15% in New York City year-over-year when that tally is ultimately finalized, and personal income tax receipts are also expected to be up between 7% and 9% with increases in sales in New York City also exceeding 10% on year-over-year metrics. It's quite apparent that New York City recovery continues to outpace a strengthening but still lagging overall U.S. recovery. With all of these stimulus, real estate asset prices continue to increase sharply. At our December Investor Meeting, we stated that 2010 was a transitional year with the market moving off the bottom and starting to produce increases in rental rates and asset prices. We predicted that this would accelerate in 2011, much like we saw rents and pricing in 2005 increased after a transitional year in 2004, that was very similar to what we have said in 2010. So again, we are seeing certain cycles repeat themselves from early 90s, late 90s, early 2000. And now late 2010, we feel confident that our strategy is well timed, but also is risk mitigated by managing a prudent balance sheet and also selectively joint venturing assets to diversify certain risks as we go along and enhance our returns with institutional JV partners. In fact, just four months into the year, the rapidity of the recovery is outpacing even our expectations with many asset prices approaching 85% to 90% of peak valuations that were achieved in 2006 and 2007. In this interest rate environment, with interest rate swaps at about 200 basis points inside of where they were way back in '06 and '07, you may possibly see a return to peak pricing levels in 2012 and 2013. This would imply sub-5% cap rate pricing, which again, is consistent with historical norms for cap rate spreads to treasuries, which we detailed back in December to be between 100 and 150 basis points over comparable term treasuries. There is clearly an expectation that rental rates, which were up about 5% in 2010 and look to be up about another 10% in 2011, will begin to exceed SL Green's earlier estimates of 25% rental rate growth over the 3-year period 2011, '12 and '13. In anticipation of these current market dynamics, SL Green has had a decidedly aggressive market posture for the past 18 months after a 2.5 year hiatus. During that period of time, I believe the strategic value of our platform was clearly on display as we consummated over 3 million square feet of off-market transactions utilizing our relationships, structuring capabilities and debt investment platform to maximize opportunities for this company. The examples of this are numerous with counter-parties, such as City Investment Fund, SITQ, a number of German bank lenders, Bank of China and The Moinian Group, to name a few, that produced opportunities for us, such as 280 Park Avenue, 3 Columbus Circle, the buyout of 1515 Broadway, the buyout of 521 Fifth Avenue, the acquisition and ultimate redemption of 510 Madison Avenue debt investment and the same as it relates to 666 Fifth Avenue. This list goes on and on, but these, just to name are transaction, many of which are all within the past year, 1.5 years. We're incredibly proud of these results in such a compressed period of time, thereby allowing our shareholders to benefit as much as possible from a recovering market, not only relating to our existing inventory of assets and tenants, but also with the goal of continued growth of the portfolio to leverage our returns in this increasing market environment. We don't believe in simply riding with the market, but rather, we believe in cause and effect in trying to determine our outcomes, sound investment strategies and careful balance sheet management. With that, I'd like to turn it over to Andrew to discuss in detail some of the more notable transactions in the quarter.

Okay. Good afternoon, everybody. We had a furious quarter of activity since our last call, capped off by our announcement this morning of our purchase of SITQ's interest in 1515 Broadway. More on that in a bit. As we told you in December, the capital keeps coming and there are not enough quality assets for sale to satiate demand. This, in a fertile financing market, are mating from material cap rate compression in the first four months of the year. Deals like 750 Seventh Avenue, Starrett-Lehigh and other pending transactions are demonstrating people's confidence in Manhattan and its rental prospects. The quarter started with our purchase of City Investment Fund's interest in 521 Fifth Avenue. Last week, we completed the recapitalization of that building exercising our contractual right to buyout the fee position and completing a new $150 million loan with an Asian bank, a brand new bank joining our family of lenders. 521 represented this bank's first large commercial real estate loan in New York City, another encouraging trend as more foreign balance sheet lenders get active in this market. That loan is fully prepayable without penalty and gives us extraordinary flexibility as we complete our lease up of the asset and determine the best long-term financing strategy. We then moved on to 3 Columbus Circle where we closed our previously announced joint venture with Joe Moinian. Since closing, we've had a very busy quarter with the building, both on the physical side, as we prepare for the formal launch of our marketing campaign on May 5 and on the balance sheet side, as we completed a refinancing of a bridge loan we used to close the venture. The $300 million facility is significantly ahead of our underwriting in terms of both cost and timing and promises to further enhance our returns on this investment. The leasing professionals who've gotten a sneak peek at our marketing floors have been blown away by the transformation of the building, and initial leasing inquiries have also exceeded our expectations. This morning's 1515 announcement caps off 3 million square feet of off-market acquisition activity, a real credit to our investments and underwriting teams. Since buying 1515 in 2002, we've overseen its transformation to a premiere office and retail trophy, and we're excited about the opportunity to consolidate the interests. One way to think about the deal, capping the retail NOI at a conservative 5% cap rate based on 666 Fifth and several other recent retail trades, leases at a basis of around $500 per square foot in the office portion of the property. We have several revenue-enhancing initiatives underway and believe we can continue our 9-year trend of increasing NOI at the building. On the sale front, we entered into a binding contract to sell 28 West 44th Street completing our disposition to plan for our 2 mid-block 44th Street assets. The cap rate at 5.4% was reflective of a tightening market, and we had a solid field of bidders around this number. Expect to see us rollout additional properties for sale as the year progresses. On the structure finance front, our big transaction of the quarter was 280 Park Avenue. While our partnership with Vornado, a friendly competitor over the years, took some by surprise, we saw a win-win combination on one of Manhattan's best assets. As a result of this transaction, we reduced our aggregate investment in the asset by $125 million while booking an attractive gain and picking up 50% of the junior most mezzanine interest on the capital side. We've otherwise, been active in the secondary market, buying mezzanine positions in our several new originations in our pipeline as well. Given the runoff we've had in our book, we expect positive net originations over the next couple of quarters with returns in the 8% to 10% range, reflecting tightening in this market. We also had a notable resolution in our Third Party Special Servicing business, which should contribute to second quarter results. Fitch has again recognized our excellence in this area, upgrading our platforms’ rating again as of yesterday to CSS2. This rating allows us to handle virtually all highly structured loan workouts. Congratulations to David Schonbraun, Andrew Falk and their team on this great accomplishment in the Special Servicing area. And with that, I'd like to turn it over to Jim to take you through the earnings in more detail.

Thank you, Andrew. I'm going to start off this financial discussion today with some overall observations, and then I'll turn it over to Matt to review our guidance for the remainder of the year. Last night, we reported a $1.75 FFO per diluted share after giving effect to about $0.03 of transaction costs incurred during the quarter. Let me give you a bit of a breakdown on the composition of this number. $46.2 million or $0.57 per share came from transactions in our debt portfolio. The bulk of this, $0.47 per share, was from the sale of our mezzanine debt positions in 280 Park Avenue to a joint venture with Vornado in which we are 50% partners. In effect, we accelerated the amortization of the discount. We have embedded in our position that would have otherwise been taken into income over the remaining term, if we had held these positions to maturity. The majority of the remaining $0.10 per share was gain recognized on the sale of the mezzanine position at 1166 Avenue of the Americas. Excluding these sources of added income, the company's FFO was $99.6 million or $1.18 per share, an increase of 10% from last year's first quarter. As you've already heard this morning, demand continues to strengthen and our financial results reflect the market's recovering employment, office leasing activity and net absorption. Improvements are showing up in our mark-to-market and leases signed and leases that commenced during the quarter in Manhattan, which were both positive. We signed 565,000 square feet of leases during the first quarter and had a healthy 10.6% mark-to-market. Combining our results with overall improving market statistics is a strong indicator of the positive turn in direction for the year. We also saw a pronounced improvement in lease concessions during the first quarter with a just over three months of free rent and about a $29 per square foot of TIs. Occupancy in our Manhattan portfolio increased year-over-year by 90 basis points and is now 94.9%. We positioned ourselves to be able to capitalize on the strengthening market in the near term by acquiring new vacancies, such as at our 3 Columbus Circle joint venture that was just introduced into the leasing market a few weeks ago and at our 100 Church, which we took control of last year and is currently 71% leased. Our suburban portfolio performance is lagging, and we continue to be defensively clustered. We signed 142,000 square feet of leases in the first quarter with a 0.1% mark-to-market on the office component of that leasing. It's important to note that our 86.3% occupancy, while down year-over-year, substantially outperforms the market we are in and that there are some positive signs with the expansions in a few of the larger tenants in Stamford and increasing activity in Westchester. We'll see how things develop over the year, so there's more to come on that. While the office cycle in Manhattan is rebounding, we expect that are NOI performance will lag. Cyclically, the last few quarters and the next couple would represent the bottom of the market for us in terms of property financial performance. With that as a context, we are encouraged by the company's first quarter 2.3% same store NOI growth from the year ago quarter. This improved performance was as a result of strengthening property operations and supports an increasingly optimistic view on the remainder of the year. The company's debt and preferred equity portfolio was reduced by $384 million during quarter and now stands at about $580 million or 5% of the company's total assets. The biggest components of this reduction were the sale of our mezzanine position in 280 Park Avenue and the early repayment of our mezzanine loan at 666 Fifth Avenue. The average IRR on this $490 million in closed-out positions was about 30%. And partially offsetting these reductions were $104 million of purchase debt positions that had a yield of about 11%. Importantly, we took no reserves against our debt and preferred equity portfolio during the quarter. Now turning to the balance sheet. We've been active investors over the past six months and the balance sheet has grown by about $850 million, largely through new investments and properties. Our historical approach to funding new investment activities has been the first, the aggressive recyclers of assets and consistent with our past practices turned properties that relative to the rest of the portfolio, have fewer growth prospects to a lesser quality. We are currently under contract to sell 28 West 44th Street, and as you heard Andrew say, we have other potential targets for later this year. And then if after these sales, we expect longer term growth in the balance sheet, our approach has been to fund to maintain our credit metrics and available liquidity. Consistent with this in the past several weeks, you've seen us tap our ATM program to raise $311 million in newly issued common stock. We've also taken additional steps to strengthen our balance sheet. To give you a sense of the improvements they've made, let me contrast where we are today, against where we were a year ago. First, our average consolidated debt maturity is increasing to over 6 years from 5.3 years. Our floating rate debt, net of floating debt rate investments has been reduced to below 20%. Our debt-to-EBITDA, including prorated joint venture debt, is 8.2x income in comparison to 8.4x last year. And using the methodology that the rating agencies use, our debt-to-EBITDA is below 8x. And finally, our liquidity stands at $1.2 billion, an increase of $400 million from this time last year. So as a result of these improvements, the disciplined approach we have shown in balancing the funding of our growth and due to the overall improvements in our operating environment, we achieved a major milestone with the upgrade of our credit rating on our senior unsecured notes by Standard & Poor's to investment grade. As we move forward, we will continue to prioritize steps to enhance our liquidity and access to low-cost capital. Now I'll turn the call over to Matt to review guidance.

Thanks, Jim. First, I'll take a step back and quickly summarize some of the basic assumptions incorporated into our FFO guidance of $4.05 or $4.20 per share provided at our December Investor Conference and how that compares with our performance in the first quarter. On the leasing front, we projected mark-to-market on 2011 leasing of minus 5% to plus 5%. In the first quarter, that compares with signed leases that had an embedded mark-to-market of 10.6%, ahead of our expectations thus far. We expected that same store NOI to be flat to modestly positive in 2011 versus 2010. In the first quarter, same store GAAP NOI, on a combined basis, increased 2.3%, also slightly ahead of where we anticipated. We expected operating expenses up by between 2.5% to 3.5%, primarily driven by higher real estate taxes and utility costs. As of the first quarter, OpEx is up by about 2.5% right on target. We did project a certain level of new investment activity. Obviously, we've been very active on both the debt and equity fronts, thus far. We expected LIBOR to increase over the course of the year. Thus far, this assumption has not played out, but very few people are under the illusion that LIBOR will remain of these levels forever. We expected debt or other investment reserves, none of which we've taken in the first quarter. And we expect the transaction cost commensurate with our consistent investment activity. This quarter, we incurred approximately $2.5 million in transaction costs, which is pretty much in line with our expectations. The transaction volume continues to be robust. All that considered, our overall operating performance, thus far, is trending modestly ahead of our original expectations. As a result of these positive indicators and as a result of the gains we recognized on our debt investments during the first quarter, we have revised our FFO guidance for 2011 upwards to $4.65 to $4.80 per share. On a normalized basis, FFO for the first quarter, excluding the $46.2 million of additional income recognized on the debt positions we sold or where we were repaid, would equate to about $1.18 per share. Recall that we view items like lease cancellation income, which was approximately $2.7 million in the first quarter, as recurring given the historical precedent. If you were to annualize the $1.18 per share, you wouldn't expect that our revised guidance to be higher than the $4.60 to $4.85 we've provided. However, as we look ahead to the second, third and fourth quarters, it is important to note those items that will cause the upcoming quarters to vary from the implied Q1 run rate. The most significant impact comes from the acceleration of income on our debt investments in 280 Park. Recall that the total discount on our purchases of those positions was approximately $41 million. We began amortizing that purchase discount into earnings in the fourth quarter of 2010 over the remaining term of the debt. The "gain" we recognized in the first quarter of 2011 was basically just the acceleration of the remaining unamortized portion of those purchase discounts. So while we do still hold 50% or $200 million of debt at 280 through our joint venture with Vornado, that income stream will go away. Also given the uncertainty of the property, we have excluded any future interest income of those debt positions from our guidance. In addition, during the first quarter, we are repaid on our $137 million mezzanine investment in the retail condo at 666 Fifth Avenue. This was a repayment we have been discussing since the middle of last year, and we're expecting at some point this year. However, this investment provided recurring yield of approximately 13%, while we are finding a lot of good debt investments in this market, even Andrew would admit that this income stream, which is difficult to replicate. On the financing side, we're in the process of refinancing the low leverage mortgage at 919 Third Avenue, which matures this year. The financing of this Class A stabilized property is very well received by the market and the bidding was competitive as we referenced at the Investor Conference, we anticipated increasing the size of this financing to more prudent level on a long-term fixed rate basis, which will significantly reduce coupon, but increase overall interest expense at the property from levels precedent in the first quarter. We expect this financing to close in the coming weeks. Separately, as it relates to interest expense, we are very cognizant of the current interest rate environment, and while our net floating rate exposures well below 20%, even after taking on additional floating rate debt on 1515 Broadway, we do monitor the forward LIBOR curve very carefully and are conservative in our thinking about debt cost for the remainder of 2011. Finally as of last week, we had issued approximately $311 million of new common equity for our ATM plan with approximately $214 million remaining available to issue under the plan. We feel this equity is a very important piece of our strategy to prudently manage the balance sheet and finance our investment activity over the course of 2011. Turning to FAD, which is FFO less any noncash accounting adjustments and cycle leasing and recurring capital costs, in December, we provided an estimated FAD figure of the $2.47 per share based on the mid-point of our FFO guidance of that time of $4.13 per share. As a result of the items noted above, giving considerations only half of that 280 Park gain being factored into FAD, we now expect our FAD per share to be closer to $2.60 per share for 2011. Year-to-date, our capital expenditures are in line with our expectations. Recall CapEx is historically the lowest during the first quarter of the year, but we will incur some additional capital costs as a result of the consolidation of our partners' interests in 1515 Broadway and 521 Fifth. With that, I'll turn it back over to Marc for some closing comments.

Okay. Thank you. That's really what we wanted to get across as part of the prepared remarks. We've left one hour for Q&A. The question period seems to have been increasing over the past few quarters. So we want to leave plenty of time. We are going do a hard stop at 3:30 if there are still remaining questions. If not, we'll just end it whenever it ends. But there's been a lot of activity we try to concisely convey that in the past half hour, but I'm sure there's a number of questions, so let's get right into it.

[Operator Instructions] Your first question comes from line of John Guinee of Stifel. John Guinee - Stifel, Nicolaus & Co., Inc.: John Guinee here. Andrew, you guys are still basically running at an opportunity fund strategy here. And it is still primarily net asset valuation despite the fact you guys have had good FFO and FAD numbers. Can you walk through the 4 or 5 fully -- without affecting any confidentiality agreements, just walk through the 4 or 5 assets currently on the market right now in New York City and how those are expected to trade and why?

Sure. I can give you a little bit of color on what's out there in the market now. 750 Seventh was, I mentioned in my prepared remarks, that was an asset that Hines marketed that they own with GM Pension in Times Square. That asset, we believe is on the contract and should close shortly. It's a prime asset about 20 or so years old. And there was ferocious demand for this asset so much so that the bidding process got pre-empted to a buyer. So we're curious to see where that price shakes out on that asset. 1633 Broadway also in Times Square area. Paramount is rumored to have consolidated their partners there, Morgan Stanley and Merrill Lynch. And I think that deal also has yet to close. There was a fee interest on the market recently that traded at a low 3% cap rate, sub-3.5% cap rate. Obviously, different kind of position and subject to a long-term leasehold. But that was another very positive trade to the market. I think there's a lot of funds that are considering assets. I mean, it was rumored today that 1211 Sixth can [ph] may be looking at selling. So you're seeing sellers start to re-evaluate as the market achieves new pricing levels. And I think we expect to see more of that, but there is still more demand than there is supply right now in the investment sales market. John Guinee - Stifel, Nicolaus & Co., Inc.: How about the Seagram's Building?

That asset has been reported to be out there as well marketed and looking for the very top pricing, trophy-type pricing -- mostly how that goes as well.

Your next question comes from line of Jamie Feldman of Bank of America.

Can you talk a little bit about any difference you may be seeing in demand or leasing demand for your kind of higher end Class A versus your more kind of prewar? And just what if there's bifurcation of the market at all?

Steve Durels. We saw a year ago that the upper floors, the boutique space, the really high profile-type space was in active demand and rents were rising. But I think for the past 6 to 8, 10 months, we've seen a pretty constant demand or consistent demand across the portfolio. The good news is the strength of the market seems to be buying to location and type of business. Meaning that there's strong demand across the board and we've seen rents rise across the board even though it may have been led by either a high profile, upper floor space and most recently, by the really big blocks of space.

Okay. And then, Jim or Matt, I'm just wondering can you briefly just walk us through the ramp up in the straight-line and other noncash in the quarter? Was that pretty ramp big jump to $53 million?

Yes. Matt, I'll touch on that. So one of the things that drives that significantly higher is about $20 million that's there, which is the noncash portion of the gain we recognized at 280. Recall, we only sold 50% of it. So that's a cash gain, the other half of it is really a fair value gain. The other large component that drives the straight-line adjustment up are the fee positions that we acquired late in December, 885 Third, 2 Herald Square and 292 Madison. Those contribute around $9 million to $10 million of additional straight-line adjustment per quarter. So those are the two big components within straight-line that hit in the first quarter that would cause the variance to prior quarters.

So I guess the recurring is $33 million. Is that the right way to think about it?

It's probably just a little south of $30 million on a recuring basis. We had a couple of retro adjustments for prior leasing, but it's going to be just south of $30 million, I think, on a recurring basis.

Your next question comes from line of George Auerbach of ISI Group.

, Matt, just a follow up. So in the first quarter, what was the GAAP NOI received from the ground fee positions?

It actually equates exactly to what the cash rent is that we reported in the Property Tables in the supplementals. So in total, for the quarter, it's just under $6 million for those three positions in total.

Okay. And Andy, you mentioned that you'd be a net originator of structured finance during the year. Can you give us some sort of a range of where you think the balance could end up at year end?

It's sort of -- it's tough to predict, George, just based on -- because we don't control repayments, obviously. But certainly, our target is higher than the balance is now. And to pick an exact number is difficult.

Do you think you'll get back to the kind of the $900 million to $1 billion you were at in the first quarter?

It's certainly possible as transaction size increases as bigger building start to trade again. So I wouldn't rule it out. I mean, we just got to go find the deals. Right now, the deals I referenced that we have in pipeline are more in the sort of $15 million to $50 million range. And we're going to close a couple of those. But we're certainly out big game hunting as well.

Our next question comes from the line of Jay Habermann with Goldman Sachs.

Marc, you mentioned pricing getting closer to kind of the peak levels that we saw a few years ago. I'm just wondering, how much of that 30% or 25% to 30% sort of increase in net effective rent do you think we have realized since the bottom? And how much more do you think is yet to come?

I think half roughly has been realized, and I don't really know how much is left to come. Based on our projections, roughly another half. But the market would seem to be indicating at least that or more. We tend to be pricing into our underwriting these days depending on the asset, depending on the submarket, anywhere between another 15% to 20% of what will cause extraordinary growth before leveling off into ordinary growth from today off of the gains we've already seen [ph]. So given the price levels that we've seen recently in terms of closed deals and some of the pending deals that Andrew mentioned, one of our conclusions would be that there are people pricing in more growth than that, although that's not necessarily our view. I think for several years or at least two years, we've been ahead of the market in terms of estimating growth potential of rents. Now I think the market has caught up for possibly exceeded our estimates for growth from here forward. If that answers the questions.

It's very helpful. And also you'd mentioned I think on past calls about the number of companies seeking to consolidate and perhaps seeking larger blocks of space. Can you just discuss some of those requirements and where we are today? And also I know you have a development site in midtown, is that something that's starting to appear attractive?

Talking about -- Steve Durels is here and I guess to the extent of whatever we can share that's out there in the market, certain requirements that are out there, which are either consolidations or consolidations and growth more importantly, what does that look like?

Sure. Well I think there's a couple of things that we're that seeing in the marketplace. We're still seeing deals driven by tenants who decide to consolidate both smaller tenants and very large tenants. We're seeing a lot more relocations in the market as tenants have increasingly become long-term managers of their real estate rather than the short-term reactors that they were a couple of years ago. We're seeing tenants that are making decisions because they have an element of growth in their requirement as employment picks up and as they're growing their businesses. We're seeing more tenants take excess space from what they are leaving behind. And some of the big guys that are out in the market today, we're seeing that the banks are out in the market today, BofA. We're seeing law firms like Morrison Foerster out of the markets. UBS, Morgan Stanley are all very large big block users of space that are shopping the market that has a very limited supply of big blocks. So I think the quick answer is there's no one specific area in the market that seems to be driving it. The good news is that it's a very broad based list of reasons as to why tenants are moving in and picking up more space.

Okay. On the development side?

Yes. In relation to 317, where we've ramped our kind of preliminary efforts on that side, as we've mentioned back in December and I think we'll have more to say on that particular site and some of our thoughts as to viability, timeline of execution, things like that later in the year. I would say towards the third or fourth quarter, we'd be prepare to address that I think more fully than we are right now.

Your next question comes from the line of Michael Bilerman of Citi.

It's Josh Attie with Michael. Can you talk about that 10.5% rent growth on the leases that were signed in the first quarter? That was on about 400,000 square feet of space. Was the rent increase broad-based across all that space? Or was it skewed towards some pieces and lower in others?

Well, whenever were reporting mark-to-market, it's tough because it's clearly dependent upon the leases that are rolling off and leases that may have been written anywhere between 5 and 10 years ago. So I’d say, probably 2/3 of the deals, 2/3 of the leases that we signed this quarter had somewhere between modest and significant mark-to-market. And there were still a couple of that were negative simply because there were chunks of space that were at rents well above market. They just escalated to a very high number. And then they were probably maybe 10% or 20% kind of that were just kind of flat.

So I guess, asking it another way, 400,000, it's tough to read too much into 400,000 square feet of space. When you look out over the next 3 quarters and you think about the signings that you're going to be doing, do you feel like they're going to hover around 10.5%? Or do you feel like there'll be a lot of volatility up and down based on what happens to be rolling?

Let's -- rather than focus on mark-to-market, I think it's more useful if I give you a sense as to where we see rents going. Market rents from where we sit today rather than compare them to simply those limited transactions that are maybe burning off on our portfolio. We're still seeing solid increases in rents. We're going through a pricing exercise right now where we're about ready to raise the asking rents in half the buildings in the portfolio. And we're seeing concessions continue to tighten up where TIs, not every deal has to now include a turnkey installation. We're building space where we're capping our contributions on raw space, and we're seeing the free rent significantly reduced from a year ago, where it was usually 12 to 15 months a year ago on large deals where space was raw. Now kind in the 8 to 10 months of free rent, including the construction time. So the combination of continued pressure on upward rents and the timing of concessions, I think we're going to continue to see noticeable improvement for the balance of this year.

I think, we were -- we give a guidance on it about 3 or 4 months ago, which was I think about somewhere between 0% to 5% increase, right, on a...

Plus/minus 5%.

Plus/minus 5%. And I think if we were plus 5%, minus 5% in December, we're probably somewhere closer to 0% to plus 5%, 0% to plus 10% in that range. So I would say low- to medium-single digits on the positive side. So probably a slight adjustment. But I think what Steve is saying is that more important to us then what we're going to get in next quarter is the fact that we have an overall embedded market rent for 25 million square feet and if rents are up, we're going to be bleeding that in over time and that has a real present-day value to us. That may or not be achieved in the next quarter or 2. That just really is a very isolated, dependent on -- could be one or 2 big tenants that we signed up in '00 or '01 that are now rolling. But in general, by and large, we see at the peak of the market, SL Green had a 40% to 50% embedded portfolio of growth. At the trough of the market, we were about 0% embedded market growth. And I think right now, we are seeing we have returned to -- if you had to pick a number, maybe 5%, maybe high-single digits, 5%, 6%, 7% extended market growth. But with the trajectory that I mentioned earlier on our underwriting of some still pretty significant rental growth for the balance of this year and into '12 and '13.

Marc, Michael speaking. Just a question on OPPLTEV [ph], I think the most recent plan, I think it's now, with where the stock is, I guess that has been triggered, the $75 million plan. I guess, where is that today? And where is the Board in terms of re-upping a new plan in terms of compensation philosophy?

Well, this was also, I think, we touched on this a bit in December. The program that we put in place, I'm going to say roughly 1.25 years, sort of 1.5 year ago has been maximized, but not entirely vested. We get into that issue of I think somewhat of a misunderstanding in the market at large that while these programs may be earned their 5-year payouts, their long-term retention plans and at the Board level, our philosophy is to layer these plans every -- whenever one is capped out, we look to embed a new plan, which would again have a long-term retention element, 4 to 5 years, going forward. So I can tell you that since the cap has been reaching end some because I think the cap was somewhere in the 60s, and today, we are at the stock price much higher than that, we are going to explore putting a new plan in place, which would look, I assume, somewhat similar in size, in structure with 30% increases having to be achieved before there's any value in the plan and then beyond that, some participation in what we deem excess profits beyond a baseline hurdle amount, which in the past has been 30%. So I don't think there's any change in philosophy. We've done 4 of those plans over the past 10 years or so. Of those 4 plans, 3 of them were in the money, one expired worthless and in this most recent plan, even though the stock price is well ahead of the cap, only 1/3 of it has actually been earned, another 1/3 gets earned at the end of this year if the stock price remains above the cap, the final 1/3 at the end of 2012. So that's where we stand on that.

Your next question comes from the line of Rob Stevenson of Macquarie.

Could you give some color behind the $104 million of new structured finance investment in the quarter?

Sure. I think the bulk of it was acquisitions in the secondary market where we continue to be the most active buyers of mezzanine paper in New York City and that was and I think that was -- and then bulk of the balance was 280 Park, where we made a couple of new originations, did the joint venture with Vornado and as part of the joint venture, we purchased half of their junior most mezzanine position as well.

Okay. And then can you talk about how the repositioning of 600 Lex is going and that type and level of tenant demand that you're seeing?

Sure. It's actually doing great. We signed 3 new tenants. We've renewed one. All our rents substantially ahead of underwrite. The capital work is ongoing. We've completed -- remember, we have a fairly modest capital program for this building, but we have completed the lobby work. We're about a week away from completion of the plaza work. We've done one public quarter. We have 2 more to go because most of the floors are for tenant floors and the bathrooms are in renovation as the floors turnover. As predicted, the dominant interest has come from financial service tenants. I think every lease that we signed so far has been with a financial service firm. And this is an exercise primarily in rebranding the building, repositioning it to a different place in the market and really re-educating the brokerage community about an asset that had cut fallen off of a lot of people's radar. So the combination of that effort, that marketing effort together with the completion of our capital program is, so far, ahead of expectation.

Your next question comes from the line of Dave Rodgers of RBC Capital Markets.

Andrew, I was wondering if you can give us a little bit more color on just kind of the mess environment overall, structured finance indications in the city. Obviously, with interest rates low and discounts may be abating, can you give it a little bit color, I guess, where you would could stop doing investments in the mez portfolio? What discounts look like today? And again, at what point you would be more inclined to put money directly into assets?

Yes. I think we're actually doing our fair share of both today. I think yields are in the sort of the 8% to 10% range. We're starting to see the re-emergence of a floating rate market, which really hasn't existed too much other than balance sheet lenders, but I think you're going to see the first [indiscernible] floating rate securitization shortly here. And my guess is there's a lot of demand for those bombs that'll blow out and make for a much more healthy and vibrant securitized floating rate market, which will be good for our structured finance program because they need to plug gaps between investment grade and loan amounts, more so than balance sheet lenders do. But as long as we can continue making 8% to 10%-type returns today, that's fairly attractive. And we think a very good balance with the real estate acquisitions we're making, where a lot of times, 600 Lex, 3 Columbus, we have significant lease-up periods and periods with not as much cash flow.

And from originations standpoint versus an acquisition -- position standpoint, are you able to get discounts still in acquiring, or is it going to be mostly in origination market going forward?

I think the joke is par is the new $0.80, so there's been several trades at par and over in the city and that really seems to be the way it's heading. So where you have decent coupons, you can pretty much expect pieces to trade at par and buyers are saying, "I get paid off. I make a fine yield and if I don't, it's a basis in the asset that I like." So it's got an increasingly tougher to get discount other than pay for that has very low coupons.

And I guess last thought on that topic, and the yield is -- do you think, at this point, you have to be underwriting more as a loan-to-own program? And as you're talking about fairly substantial rental rate growth in the assets, it may be 5 caps versus making these loans at an 8% or so. Do you get to that point where it's going to be a loan-to-own or it's less attractive?

Yes. I think the opposite of it I think, it's more counting on the debt to perform. We're always underwriting the downside, we have a program where it generates consistent good earnings for us, and we're looking to get paid off and for the loans to perform. So the loan-to-own sort of concept has gotten a lot tougher as cap rates compress and assets came back, were recappable at the equity level as opposed to from within the debt.

I would just add to that, we've originated since program inception almost 100 separate positions in structured finance and we've had one foreclosure, 100 Church downtown. So this -- we run the business, almost exclusively for yield or for pipeline on a consensual sense. But loan-to-own is just something that really doesn't enter into this equation or else we wouldn't have the pipeline we do. We wouldn't have some of our competitors in New York look to us as their preferred lending source because they like to deal with us in the way we act and restructure and bring some creativity to deals to help them maximize their economics as opposed to the general market at large. So I think that's why you'll see we're still going to do significant new origination volumes in this program, as Andrew said, through '11 and beyond. We've been doing it year-over-year for almost 14 years now with one foreclosure. And in that case, we wanted to restructure the debt. The borrower didn't want to. We were amenable to a restructuring, it just didn't work out, and round up taking that project back. That's it.

I guess one final question then, do you think that incrementally, you'll see while you stay in Manhattan with those positions, will you start to maybe diversify away from office and look at whatever it might be hotel, retail, apartment more aggressively in the next 12 to 18 months?

You mean in Manhattan or...

Yes, in Manhattan.

Let's say -- I mean, I wouldn't say we start to. We have done several, a number, I mean, more than -- I would say 10 [indiscernible]. Retail and residential projects, with all but one having turned out quite well and the one we've talked about at length for over the years is Stuyvesant Town, which is one of the bad investments we made over that period of time in this program. I don't think that's soured us on residential. I think it certainly made us a little more cautious and careful on cap structure and the rent stabilization laws, which got reversed mid-way through the deal and caused havoc through that whole sector of projects not just Stuy Town. But we have done a number of apartment and condo deals certainly retail deals with a great degree of success. And I think it'll certainly be dwarfed by the office transactions just because the office deals are bigger and more plentiful, but no, we certainly see and underwrite a lot of those other types of deals.

Your next question comes from the line of Michael Knott of Green Street Advisors.

Can you just comment on sort of your experience at the ATMs so far? And what do you think any change in leverage philosophy in terms of how you think about your business?