Thank you, everybody, for joining us, and welcome to the SL Green Realty Corp's Third Quarter 2020 Earnings Results Conference Call. This conference call is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. Actual results may differ from any forward-looking statements that management may make today. Additional information regarding the risks, uncertainties and other factors that could cause such differences appear in the MD&A section of the company's latest Form 10-K and other subsequent reports filed by the company with the Securities and Exchange Commission. Also, during today's conference call, the Company may discuss non-GAAP financial measures as defined by the Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measures discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the Company's website at www.slgreen.com by selecting the press release regarding the Company's third quarter 2020 earnings and in our supplemental information filed with our current report on Form 8-K relating to our third quarter 2020 earnings. Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc.

Thank you. Good afternoon, everyone. And thank you for being with us today. I'm joined here by Andrew Mathias, Matt DiLiberto, Ed Piccinich, Steve Durels, David Schonbraun, Andy Levine, and Maggie Hui as well as several others. And we're all together here socially distant and looking forward to a good earnings call today. So yesterday we released our earnings for the third quarter of 2020. And for the most part, the results and achievements met or exceeded our expectations and are aligned with our corporate goals, which were of course altered back in March and April at the outset of the pandemic, which you might recall from our Q1 call. Our earnings for the quarter were in line as we track towards the higher end of our revised guidance range. So we're pleased with that. And our office and overall collections remain relatively strong surprisingly strong at 97% and 92% respectively, something that we're quite proud of as it relates to the rigorous nature of our underwriting and our diligence and the – just the superior quality of our tenant base this far into the pandemic. Our occupancy dipped, but finished the quarter above 94%. We are aggressively managing our operating expenses in order to maximize our bottom-line throughout generating of savings in excess of $30 million of operating expenses year-to-date realized without sacrificing service to our tenants. We leased approximately 187,000 square feet of Manhattan office spaces slightly less than we had hoped for. But the pipeline looks very good at 825,000 square feet of leases and term sheets pending are in negotiation. So that pipeline number has actually increased. While we do not expect to certainly close all of that activity by year end, we are on track to lease 1.2 million square feet for the full year,…

[Operator Instructions] Our first question comes from the line of John Kim of BMO Capital Markets. Your line is open.

Thank you. Good afternoon. Marc, I was wondering, if you can give the breakdown of your 825,000 square feet of leasing in the pipeline, as far as how much is renewal versus new or expansion space and how much of that is in your new developments?

This is Steve Durels. So I'll respond to that. So in the pipeline we've got 825,000 square feet, 51% of that are new transactions, and 49% are renewal transactions, heavily weighted by legal, financial and publishing industries, and heavily centered around the grand central area where we see the most leasing activity right now, in particular, a lot of activity at One Vanderbilt, and then our buildings at 485 Lexington, 750 Third Graybar and 800 Third Avenue.

As a follow-up, I'd like to ask about dispositions and how much you're looking to sell. And in particular, the media reports on 410th Avenue just given it's your foothold in the Hudson Yards area, it leads to great tenants, why sell that asset at this time?

Well, Andrew will talk about, why and everything else going on, but we have a – we've been selling fairly robustly our mature and non-core assets since 2015, 2020s no different. We've been able to accomplish much year-to-date. We have several assets in the market now. We can chat about. But this is all part of a long-term plan. Volumes may be altered slightly by COVID, but really nothing new here, everything we talked about in December about recycling of capital, monetizing of gains, and paying down of debt and repurchasing of shares, which we're well alone for this year, maybe not quite $500 million but closing in on it. So some of the specifics, Andrew what we're doing.

Well, I mean, particularly with 410, it's an asset that is drawing a lot of interest given, where interest rates set today. And the extraordinary jobs, Steve and his team did leasing that asset up. So we don't have to sell it. We're evaluating bids. We actually closed a financing on the deal over the summer $600 million financing, which funds all the capital improvements, which was part of our business plan for the year. But we did get approached with some interesting offers and decided to test the market. So, 410 is out there in the market along with several other assets. Haven't made a decision yet about whether to pull the trigger on a sale or not.

Is there an update as to how much in total you're looking to sell?

I mean, I think, the guidance for the year is unchanged. And if we were opportunistic sellers, if we like prices for assets we have in the market, we'll transact. But otherwise, there's no pressure to sell.

Great. Thank you.

Thank you. Our next question comes from the line of Jamie Feldman of Bank of America. Your line is open.

Great. Thank you. And I appreciate all the color on SL Green’s efforts to keep the city moving here. Can you just talk about – you had talked about your efforts to market the city and promote the city and bring people back. Can you talk about the feedback from tenants both large tenants and small tenants, just in terms of, are they changing their attitude at all on how soon they want to bring people back. And then as you think about the leasing among both small and large tenants, what are they saying lately about their space needs and maybe shrinking or expanding?

Well, let's handle the first part of the question is, which is, what are these business leaders, what are they saying in terms of wanting to get their people back to work? I would say, out of the 900 tenants plus, in the portfolio and the 100s we've spoken with directly at the senior levels, almost to a person they all express a desire to have their employee base back in the city. They recognize the benefits. They recognize the need to do it. And I think they recognize an urgency to it. Surprisingly, what I read into it mostly is a concern over liability, which surprises us because there's actually, very little in the way of employer or landlord liability, if you do things right, and right means following all the DOL, DOH, OSHA guidelines for what you need to do in your space which we and many other – most other landlords in New York City are doing. So the buildings themselves are among the safest places. We know many people in our company are using mass transit. Andrew and I, and others use mass transit. The mass transit is clean, efficient, much more so than it was previously because they're taking extra steps for sanitization overnight and throughout the day, everyone's wearing masks or most people are adhering to mask by and large. So there's – it's hard to put a finger on it. It's always, sort of right around the corner. We're hearing in August, it'll be right after Labor Day and Labor Day its October. So it feels imminent. And yet the numbers don't bear that out. We're still as a portfolio right around the city average of probably 15% to 20% back to work – back to office work. And that's out of a…

Well, I don't think anybody out there has a clear picture as to exactly where the trend is going to head. When lockdown started, there was a lot of conversation and speculation about how work from home was going to sort of overtake all of our lives. And as time has gone by that conversation has done 180 degrees shift where almost every day there's a constant barrage of discussions with tenants who continually expressed frustration about being home, the isolation of being home, the inefficiency of working from home. So whether or not it's a – they're staying at home because of all the press with COVID and short-term fears. I think when they look past that, you're hard pressed to find a business manager out there that really has locked down a point of view as to how they're going to operate their space and manage their employees going forward, other than the fact that they all recognize they want to be back in the office. So in the short term, it'll mean changes to the furniture environment, some of the design elements of spaces. But I think, looking past that, and if you talk a little bit more about the pipeline of deals that we're working on with tenants. They're looking past the immediate disruption of COVID and saying, okay, we recognize, there's now a lot of it in the tunnel, whether that's six or 12 months out, but they're starting to begin to plan for their offices and how they're going to run their space. But I don't think they have a firm point of view as to how much of that is work from home or how much of that is hoteling. It's just – it's all over the board right now.

Okay. And then just to follow up, small versus large tenants, are you seeing a change there or a difference there just in terms of, giving back more space or giving up leases, or how they're thinking about their space plans?

What you're seeing is it's in the second and third quarters of the year. There was a lot of renewal activity, a lot of short-term renewal activity, anything from a year to five years. And I don't think that was exclusive to a larger small tenants, I guess, you could argue that some of the very small tenants and I'm talking very, very small, a couple thousand square feet. It was easy for those types of tenants to just simply say, I'll work from home. But our average size tenant in the portfolio is 25,000 square feet. And things have started to decidedly shift in the second quarter 77% of the transactions in our portfolio were renewals. In the third quarter, it was 56%. As we sit here today, 51% of my pipeline are new transactions. So clearly we're – the tides are shifting where tenants are beginning to look past it. And they're now saying, let's talk about relocations and let's talk about longer-term planning as opposed to where the thinking was earlier in the year.

Okay, great. Thank you.

Thanks.

Thank you. Our next comes from the line of Michael Lewis of Truist Securities. Your line is open.

Great. Thank you. I want to ask for a little more color on 885 Third, which was a preferred equity investment. It looks like the common now. You don't ascribe any value to, it looks like there's also a large expiration right around the corner. Maybe just your thoughts on keeping that building leased and the strategy there.

Well, I'll start off then sort of follow in. We – 885 is, it was a great building, 53rd and third, otherwise known as lipstick building. It's very iconic, beautiful buildings that right now is going – nothing to do with COVID. It was going through a transition because one of their larger tenants was rolling out, I think essentially now, or over the course of the next few months.

Yes, next year.

Next year is probably when they stop paying rent. So that building, from our standpoint, fits the category of one that we will – we have and will develop and will execute a full building repositioning and updating and cleaning and COVID compliant of that building to position it as kind of, the best or among the best buildings on Third Avenue. Our basis is quite low, our last dollar pref there is quite low. David, I want to say around $6.

$6-something a foot.

$6-something a foot as we enter – as we transition control to ourselves. We actually now have operating and managerial control of the property. We'll be executing a redevelopment plan, which is, I mean it's really modest, I call redevelopment plan but the building is a recent vintage and it's in excellent shape. So we'll go into it in more detail in December. But the goal is to invest an adequate amount of money to bring it up to the standards of, as I said, best on Third and then have a leasing program that we will execute over the next two plus years. In fact there is a lease out on two floors already. So it's better laid plans. We have a two-year lease up plan, but there is activity at the building right now, but that – we still are committed to going in this direction. And upon completion, I think you really got something that's kind of a world-class asset that would have both domestic and a lot of foreign interest because it's just that – it's that kind icon building. David, anything you want to add?

I mean I think we're kind of taking over given capitalization issues of the sponsor less the asset. The asset just need money to reposition a small redevelopment of release and the sponsorship wasn't in a position to do that. So we're stepping in. But the asset is iconic. As Marc said, there's lots of people in the U.S. and internationally of interest. And in a couple of weeks, we've already had strong leasing demand without even reintroducing the building to the market. So we're excited about what's done there for the next year or so.

Great, thanks. And for my second question, maybe give us a sense of how sublease space available in your portfolio has changed? And even more broadly, what the – with the increase in sublease space available in the city what say – that's giving us – how much of a hurdle you think that is? What it all means.

Well, overall in the market, the availability rate on sublease is 2.9% of the total availability. And between the third and second quarters, sublease inventory as far as availability rate increased by 25%. We did not see a similar increase of availability listings within our portfolio. In fact, since COVID and I'm not talking just since the last quarter, I'm talking about since the work from home mandates. So over the past six or seven months, we've seen less than 200,000 square feet of sublease listings added within our 28 million square foot portfolio. And I guess on historical terms, we don't have any large blocks of space available for subleasing in our portfolio. It's a lot of more kind of 5,000 to 30,000 square foot type spaces. So I don't really view it as competitive pressure. And remember, even though there'll be a lot of subleasing, I think there is more sublease inventory to come on the broader market. It's always damage goods. It's term constrained. The sub lessors typically are not funding work letters. They can't offer renewal and expansion options. The credit of the sub-landlords is always a question mark. So there are going to be tenants out there to take advantage of that marketplace, but there is always something more from a direct lease basis that we have to offer which is why we always seem to do well, irrespective of the sublease inventory.

Great. Thanks a lot.

Thank you. Our next question comes from the line of Rick Skidmore of Goldman Sachs. Your question please.

Good afternoon, Marc and Matt, can you just talk about how you're thinking about leverage in terms of debt-to-EBITDA. Debt-to-EBITDA has gone north of 10 times. If you annualize the third quarter, it's probably north of 12 times. Can you just talk about how you think about leverage and use of capital as you go forward between leverage and share repurchase? Thanks.

Yes, Rick, it's Matt. I'll hit the math first. I think if you're annualizing a quarter, you're going to come up with a bad number and of course everybody does debt-to-EBITDA differently. And debt-to-EBITDA is of course the most unreliable and least relevant leverage metric you can use in real estate, particularly when you do a lot of construction. So we looked at our leverage as still holding steady. We look at it on an LTV basis in the mid – mid to high 40s in a market that generally see 70%. So 50%-plus equity cushion where we feel comfortable and we've been managing that very closely as we balance capital in – between debt repayment and share repurchases. With the construction that we have and use that EBITDA, you're basically saying One Vanderbilt, One Madison, 410 Tenth, 185 Broadway are all worth zero, and I don't think anybody in the call would actually say that. So we look at leverage differently and we feel we're comfortably protected.

Yes, Rick, I would just urge – consider what Matt said, I've been hearing we're over-leveraged for 21 years and we are a company that's always got a large pipeline of active projects that we're going through heavy redevelopment or ground-up development. And by its nature, we incur a lot of financing on those projects. In the case of One Vanderbilt something that's finished and yet are recognizing a little to no income, and excuse those numbers. So if you take the leverage associated with properties not in service out, our operating portfolio is widely under leveraged. And then, on an overall LTV basis, even including all the leverage on assets that are among the most – the irony is the most valuable assets in the portfolio are the ones that have the leverage and aren't yet producing income. So right now, One Vanderbilt, soon to be One Madison, 410 Tenth which is fully leased, but we're not recognizing income yet. What else you got? 185 Broadway, which is going to be, I think, one of the best rental buildings and downtown, but obviously not yet leased up because we don't have our TCO. So got to dig – we don't have to, but we would suggest people dig way beyond debt-to-EBITDA and really dig into property by property loan-to-value, look at stabilized values, look at the quality of the earnings. But we, on an LTV basis, probably 45% or less, tons of interest coverage. A lot of capacity, very – little outstanding on our line of credit and we think we're in a – no near-term maturities which I actually think is more important than level of leverages, is the balance of terming out your maturities. So I guess it's a matter of perspective. But we would disagree with the notion that the company is highly leveraged.

Thank you.

Thank you. Our next question comes from Peter Abramowitz of Jefferies. Your line is open.

Yes, thank you. I just want to ask about – it looks like you have a couple of upcoming lease expirations with News Corp at 1185 Sixth Avenue and then Fairchild Publications as well. So I just wanted to ask, with those coming up, kind of how are those discussions going? Are they definitely renewing and kind of how are they considering – are they considering changing their space needs based on the current environment?

No, the leases at 750 Fairchild, which is the largest tenant over there, they moved out of the building years ago. A 100% of that space was subleased to a variety of different tenants, probably, and I'm going back in time, I'm going to guess three or four years ago. So there was never a chance. They're part of Conde Nast, so their whole operation moved down to the Trade Center a long time ago. We are in active discussion with probably 25% to 30% of the sub tenants that we think there is a good probability that we'll be able to convert them over to a direct tenant basis. And then, was our second tenant News Corp?

Yes.

News Corp at 1185, no they've – they made the election probably 18 months ago that they were going to consolidate into News Corp's headquarters. But that's a building – the space that I'll get back from them, it's upper floors, a building that we recently completed a significant capital program, redoing the lobby, the entrance, the elevator cabs, corridors, bathrooms. So that building is very well positioned to be able to retenant that space.

Got it. That's helpful. And then from a high level, any other factors, either from move-outs or from incremental vacancy leasing to think about as we try to forecast your occupancy, say over the next six to 12 months?

Well, I don't think there is anything that's not already within our budget today. I mean, we've not been hit with any big surprises. As we've said in the past, one of the silver linings of this whole experience is that we probably have been able to have a fighting shot to keep some of the sub tenants and keep some of the tenants, the direct lease tenants that were otherwise anticipated to be vacating, just through the natural course of their business management. So, I can think of at least six or seven tenants that we're probably going to end up keeping, and tenants of decent size whether they're long-term or medium-term type tenancies, but clearly it will preserve the cash flow in some of these buildings that we were otherwise budgeting interruptions.

Got it. That's all from me. Thank you.

Thank you. Our next question comes from Alexander Goldfarb of Piper Sandler. Your question please.

Good afternoon down there. So just, the first question is on the DPE book. One, clearly, congrats for being able to transact in the current market. So I think it's a testament to the positions. But just to that point, you guys did take a little bit of a haircut on the DPEs that were sold in the quarter and then you had the write-off of your equity position in the ground position at lipstick as well. So I’m curious there was no seasonal impact you guys were clear that you didn’t have to take any marks there. How does it just for us, because we’re all getting to new to CECIL, how does it work as far as taking an impact on the remaining positions? Do individual sales during the quarter not require you to reevaluate the other positions or just how does it work as we’re all sort of getting used to a CECIL world?

Yes, Alex so I just want to correct one thing you said. I think you said we took a mark somewhere on 885 taking back the equity position, which isn't the case, we didn't do that this quarter, the mark, we took. The marks we took this quarter or only on assets sold. We sold – netted to $122 million of proceeds, took $9 million of hit on those. Those had not been reserved previously, we took pricing mark on those to generate the liquidity to put back into debt repayment and share repurchase on accretive basis. We took $0.885 a long time ago, when we start evaluating that probably 12 months ago. As to CECIL, CECIL is an ongoing analysis, we are required to look at the portfolio under CECIL every quarter, we were very conservative, you're looking at a whole bunch of inputs, a whole bunch of potential outcomes and probabilities when you do that. You recall back in the first quarter, we took significant amount of marks, we were very conservative, and looking out through COVID, and the impacts and erring towards the side of conservatism. And when we evaluated the entirety of the retained portfolio again, at the end of the third quarter, there was no additional reserve required. It's not impacted by the sales we do because again, we're electing to sell things at $1 price that we feel is appropriate. So we can take those proceeds and go buy back stock or pay down debt. The retained portfolio is looked at on a hold basis based on potential outcomes, and no additional reserve was necessary. And we'll look at it again at the end of the year.

Okay, Matt, that's helpful. And then Marc, just going back, I think, to Jamie's questions on the city and COVID there was that letter. I'm guessing that you were part of it from a bunch of the city leaders for the mayor's office about addressing concerns with the city safety, trash removal, et cetera. And it seems like a lot of, just speaking to folks, it seems like a lot of the issues are – people aren't necessarily worried about the office per se, as sort of getting to and from the office. So in your dialogues sort of the best that you can say, how do you think that City Hall is understanding it display case, the letter that a lot of business leaders put out addressing those concerns, which to your point is what seems to be the necessity to get people to feel comfortable coming back commuting back in the setting?

Well just a couple of points on that. One, there were two letters delivered, I think. One from the real estate industry, another from the partnership. And all the – we work very closely with the city, with the state on all of these kinds of decision mentioned. We were not signatory to the letter, but we have a very – we have a voice in that as others expressed, we may have different views as how to achieve it. As it relates to mass transit, in particular, the notion out there that I want to come to work, but I don't feel safe. From my – this is a purely personal perspective, I'm giving you now it's not even a necessarily a company position or anything personal. I don't believe in that. I believe that if it's okay for me, and others, and essential personnel and people who grind into the city day in day out have been doing so since March 1, mass transit is a viable alternative. And I think there are people out there – I don't believe 85% of the people not coming to work, they are not coming to work because they have concerns over mass transit. I think that at its core, there's a lot of people who don't want to come back to work, because if given the choice between, I can stay home, in my room get paid full and save an hour to commute a day, there are some who will opt for that. And maybe many. And it's just not something I believe in. So I think that while the city has been – can do a lot more to make the mass transit safe, and clean and hygienic. And I think the city, and the state, and the…

Thank you.

Thank you. Our next question comes from a line of Emmanuel Korchman of Citi. Your question, please.

Sure hey it's Michael Bilerman, here with Manny. And Marc, I share your same enthusiasm about being back in the office. I'm here right now to go out for lunch with my colleagues. So it is very refreshing to be back into a live, in-person, environment. And we spend a lot of time obviously talking about New York because that's clearly where you're focused. But I guess if which often New York has its share of complexities, but you look across everywhere, whether it's Boston, DC, San Fran, London, Toronto, doesn't matter what country or what city office densities or very low. May be there's some differential 15% here, 10% here, 20% here, but it's all within the same realm. So it feels obviously much more of an office issue, than maybe just a New York issue. And so do you think there is a shift that comes with what types of jobs or industries end up in certain cities or predicting a return to the way things were. I guess how do you sort of reposition or adjust for potentially those types of changes?

Well first of all, Michael, glad to hear you are back in the office first and foremost, because, we speak to a lot of folks out there that are as we hear prohibited either from coming to the office because of company policy, and/or prohibited from taking one on one meetings with people like us. And that's very frustrating. So welcome back. Just to make sure I understand the question, your question is, how do we think the profile of industry demand for space in New York, is going to shift or change relative to other let’s call them gateway cities? Because that’s like a relative question.

I mean, part of it is – I mean, part of it is just you step back, and all these markets are having difference. You are right, and how does New York adjust relative to those other metros that are seeing the same issues? And I think a lot of the things you talked about, were the businesses have to step up? Unfortunately, businesses right now, we're still in the pandemic, I think, what's great what you're doing on the childcare, but not enough companies are doing that, it’s a real concern. Healthcare is still a concern of many people batting that risk. The commute where they may be living right now, I mean, this is not just a New York thing, it's in every city, right. It's not like all of a sudden Boston is running at 80% density, even in the suburbs. And so it just seems that this is a massive office issue, and how is it going when things do come back?

Right.

What the city have, is it going to change is the type of roles and responsibilities that are in New York City going to change relative to where it was before?

Okay, I got so. So look, New York, is a 400 million square foot office market. And I think it's probably five times larger than the next biggest city in terms of that density. And it got to be that because of sort of insatiable demand for office space. It's not a situation where there was just loads and loads of government build projects or spec projects that took decades and decades to fill. There is – work-from-home is not a new concept, right. This is a concept that's been around for a long time, and has been tried into or utilized by companies for a long time. There just generally has been, and I believe, continues to be a realization that in highly competitive markets, which New York is. I don't care if it's tech, or healthcare, or finance, or advertising, or any creative work, certainly building a business services, lawyers accounts, whatever, that the work is more structured and efficient, the teams are more bonded, the client relationships are stronger, when it's face-to-face, in person, in the office. And I don't think this period of time is going to change that paradigm, which has been proven out over decades and decades of people wanting to be not only in offices, generally, but in very highly functional offices, wired with state of the art technology, high ceiling, natural light, sustainable, well serviced amenitized, I can go on and on, I still believe that is the best way to conduct businesses, for almost all industries. And between now in December, we'll try and think about who we think are those outlier industries that might actually do better from home, because I can't think of more hands, to be honest. I know that I'll speak to and I'll just broadly, say…

If we look specifically at your portfolio, can you talk a little bit about sort of how much of your square footage is actually open if people want to come in? So how many of your tenant spaces so we're fortunate city reopened their offices, most Labor Day, we are happy to present here…

How many tenants are open?

[Indiscernible]

[Indiscernible]?

We have I mean…

I know your buildings you have to see, but the tenant spaces in terms of and then maybe you can talk a little about the differences between larger tenants versus smaller tenants because I would imagine…

Let me – Mike, let me tell you what we have. Let me tell you what we have. Ed Piccinich and his team have the card swipes every tenant, every building, every company, and we track the larger companies, I don't know if we track every single company, maybe we do it – because you're here at work. So I know you're not home. So I know you probably have it. Just very succinctly, what do we have in terms of – what percentage of our tenants are open? Doors open, people coming into their spaces, whether it's 1%, or 100%, or nobody is at 100%. So for us…

I think Marc, mentioned – right, Marc mentioned it earlier, 15% to 20%, we were both here when it dropped off to 1.5%. And we've been counting each week, as the percentages go up. And I could say that that percentage will continue to grow. You mentioned 40% 50% by December, that's the trend we're seeing. And across the portfolio when you look at that attendance, it varies. Some of the bigger companies don't have as many as the smaller companies and vice versa. So we have been seen a trend throughout. And I think a lot of it in large measure is due to the program we have in place. Everything from PPT to, the additional filters, where we went above and beyond what's called for by the executive orders and things of that sort. So the activity, if you walk into any one of our lobbies, you'll see tenants going about their business, the only difference is, is that they were in a mess. Now we had situations with somebody who is getting turned away because they get picked off by our Silent Sentinel because of a high fever. I could probably count on one hand where our entire portfolio where someone was turned around. But otherwise, that growth continues on a percentage basis.

Okay, are there any generalized you can say, where larger tenants have more or less population in their offices or smaller tenants or by sector like the business services firms are more in the office but the financial services are at home? Any trends like that we encountered?

I don't think there's – like I said, the largest tenants obviously their numbers are larger because they have bigger footprints. So they're able to have more of their employees than maybe some of the smaller ones for dealing with the social distancing requirements. And some are ahead of the game and putting up what we did, they put a plexiglass so that people can still work within their cubicles. But the difference in our lobbies is that you see the activity, but people are walking around with masks. Other than that, growth continues.

Okay. I think it was financial – I was trying to get you the…

We need the financial firms and the lawyers back, I would say just let's leave it at that, Michael, we need those guys back.

Okay.

Once those guys are back and whenever they're going to come back and each leader will make their own decisions about how much, and when, and what timeline, and when to mandate and when to make it optional. But if we can get financial services and lawyers back, I think, things will cascade from there. So please move on maybe to next question, Michael. Thank you.

Thank you. Our next question comes from the line of Craig Mailman of KeyBanc Capital Markets. Your line is open.

Hey, guys, just curious you are kind of active here in the sales market, just want to know what the feedback has been kind of what bidding pools look like? And just how do you think people are getting comfortable underwriting cash flows today, given kind of expectations, or you may have, negative net effect as people are trying to get those around CapEx? Kind of how are people getting comfortable? And what's pricing starting to look like?

Well, I think there's more focus on weighted average lease term than there was previously. So assets with longer contractual lease streams sell with more, there's a lot more liquidity for those assets, like you saw with our sales 609 Fifth Avenue, the Puma retail condo. But the bidding pools are very strong, even large assets like a four ten tenth got enormous amount of tours and interest. Foreign capital generally if they can bid without a site visit, they’re interested as well. I mean if anything you do loose some foreign buyers who aren’t able to get to New York to do a site visit. But I think we see a fair amount of liquidity out there. And financing rates are so attractive that people who [indiscernible] returns are very significant even at cap rates that people still – we still find compelling to sell at.

Do you think people are significantly changing their required returns to be in office or be in the gateway city?

No, because I think you have this dual impact of much lower rates and they are fixing out ten-year interest rates at 3% or some sub-3% in some cases. So, they're able to achieve higher levered returns at not far off of earlier this year’s market cap rates.

Great, thanks.

Thank you. Our next question comes from the line, Vikram Malhotra of Morgan Stanley, your line is open.

Thanks for taking the questions. So just building on the last question, I guess you've outlined jobs are coming back, utilization is inching upwards, you're hoping things look different in three to six months. Can you sort of maybe give us your current view on where market rent growth, or where market rents are going to shake out, versus pre-COVID? And similarly just values, what's your sense, kind of everything said and done if we do see this recovery you are sort of starting to outline. Where are the marks on both those issues?

Yes, Vikram, I think, December is the forum for that. I mean, I know, I don't want to mentioned that a couple of times, it's only six weeks away or something. We have not given yet our estimates or projections of rents and vacancies, all that for 2021. You know as we will dive into the detail in December when we have the full surmised to get up there and present what's going on in our portfolio, we need to take a deep dive into our portfolio, which is part of the budgeting process that goes on right now. It doesn't end until like mid-November, we roll it all up and then we run into the meeting in December 7. And we'll have views on 2021 for our portfolio for the market generally. It'd be premature right now, especially as I mentioned earlier, this is a city in pause. And by the way, there’s a lot of cities in pause right now. And to try and take away anything substantive about trends in future when the city is not fully back, I think, it's a little dangerous. So, if we're sitting here with 85% people at home, it feels one way. If by December, we're up to 30%, 40% it's something else. And we'll have a lot more discovery that really started just post Labor Day. So it's only been, I don't know, seven weeks, really, since there's been people really to talk to, because over the summer people's focus were within different areas, like, hygiene entity, and staying virus free. So that's still a focus, but people are now working through the questions you asked which are what's the future of their space going to look like? How are they going to densify? How are they going to balance work-from-office, work-from-home, if they're going to balance that at all, and allow any work-from-home? And that will impact the trends in rents and vacancy. So I don't think we're in a position to handle that now. It's not that we want to answer that question as much as you want to hear the answer. But I would say let's table that till December and then we'll have a discussion on that and hopefully more discovery between now and then.

Okay, and then just…

Speaking to our current rents, I mean, might just be to our current rental levels, I mean, it hasn't been much but it's – the rents are down probably 10% plus or minus, but we've been getting a good traction, I'd say by and large.

Yes, we've answered this question a couple of times in the past where we've seen a shift in the market is less on the rents and more on concessions. So I would say rents are probably down depending on the building anywhere from 5% to probably less than 10%. But concessions are up. So it used to be $100 in TI depending on the building it was $80, in TI, they're probably up $20, $25 a foot. If free rent was at 11% a month, it's probably at 13%, 14% a month. So as a percentage concessions have – are getting more pressure. And to no surprise, every time there's this disruption in the market and tenants are on the defensive, they want to husband their cash, and they want the landlord to fund the near term cost of tenanting their space, so they look for the free rent in TI, but they're willing to absorb the rent cost over the life of the lease.

That's fair. Thanks for that color. Just as a follow-up with just sort of the longer term issue or potential issue, I should say, if you hear what corporates globally are talking about now, in various industries, not just financial, it's pretty clear that some are thinking about their office footprints, and they may not have specific numbers, or they were cutting by x percent, like Fujitsu in Japan has been very clear. But I'm just wondering, in your portfolio, has anyone approached you to talk about spaces that they may have where there's maybe longer lease term, or shorter these terms, and think about a restructuring over call it the next six or 12 months this fee driven by sort of a post-COVID view?

No, because, as I said earlier, so many of the tenants and I think the vast majority of tenants don't have a definitive point of view as to what their long-term needs are going to be. Until their employees are all back in the office they don't know the condition of their business, they don't know how what their headcount is going to be, they don't know what the impact from work-from-home is, they don't know what the impact of densification or hoteling is going to be. So the conversation is very fluid. So much of the discussion, six months ago, we’ve taken our Q off of where people were speculating at that point in time, would be radically different than where the conversations are today. So I think the only thing you can say is that there's a great unknown out there, nobody has really figured it out. And I don't think we're going to know it until we're past COVID. And people are largely back in their office. And then business managers can really start to establish a game plan for the real estate.

Okay, great. Thanks so much. And congrats on having a space allocated to the school and kids. I think that the great effort and a great gesture.

Thanks Vikram.

Thanks Vikram.

Thank you. Our next question comes from Steve Sakwa of Evercore ISI. Your line is open.

Thanks. Just two questions. I guess, your largest DPE loan, I guess went nonaccrual this quarter Marc. I'm just wondering if you can sort of provide any commentary around that, sort of care periods or how we should be thinking about that.

Andrew is handling that one. Why don’t you?

Hey Steve. Yes, so that position is a loan opportunity we saw in 625 Madison, that – a loan on the fee where we control the leasehold separately. And it was an opportunistic loan on a situation that's pretty fluid given the ground lease re-val and we decided to take a conservative approach. And given that the loan is paying kind, stop recognizing income probably for the pendency of the revaluation but not sure.

Sorry. So we should kind of assume moving forward until the ground lease is resolved that that would be kind of a non-cash paying loan?

Correct.

We'll keep it on non-accrual, correct.

Yes. And the valuation date is middle of next year.

Middle of 2022.

Determination is middle next of next year.

Middle of next year determination. So, whether we keep it on non-accrual through the actual reset day, which is middle of 2022 or through the determination date, because that's sort of rubber meets the road on determination date, that's middle of 2021, I think right?

Yes.

So another six to nine months.

Got it. Thank you. And then I guess just going back to the new leasing activity that Steve mentioned, I guess it's a little over maybe 400,000 feet. Steve are the tenants that you are talking to kind of in similar size space today? So it's a similar size move are they downsizing and coming into the 400, if all those deals got made or are they expanding, just looking to see if there's any change in density on these – on the most recent set of new deals?

Well, most of them are, I’d say it’s a mixed bag. We’ve got one large tenant in that group that’s actually moving into New York. And I think there’ll be a big surprise deal. But they are 100,000 square foot tenant that plans to actually bring bodies from outside the city into the city. We’ve got 79,000 square feet of leases out at One Vanderbilt. And all of those tenants are coming from smaller spaces. And then we’ve got a mixed bag of renewals and smaller transactions. So I don’t think, if your question is, are the size requirements being impacted by COVID? I haven’t seen it yet as based upon the deals that we’re currently working on. Doesn't mean there won't be a shift down the road, but in the current pipeline, it's not been part of the conversation. I think the more – the bigger conversation for these crop attendants, it's just, how are they going to use their space, how they're going to design the space, how are they going to furnish it? And that they're working through with their architects.

Got it. Thank you.

All right, I think, it's going on an hour and 15 minutes. And I think we have one more question in the queue. So we'll take the last question operator.

Thank you. Our final question comes from the line of Nick Yulico of Scotiabank. Your line is open.

Thanks. So I just, I guess one of the themes of the call is that you feel very optimistic cities will come back, cities on pause right now. But you did talk about already you are giving them some more free rent and doing some shorter term renewals. There has been rents down I guess the question is, how do you change your strategy if you're wrong? Right. If the city is not just on pause, but the city has a structural problem for the next two years, how does that change your leasing decisions? I mean is this an issue where you can be more competitive on price? Does that make your portfolio more competitive? How should we think about the scenarios where hopefully it doesn't happen, but the city is on pause for a while or just structurally problematic for a couple of years?

Sure. A couple of points of clarification. In saying the city is on pause and we're investing for the future and we'll recover, but what if it goes two years? This could go two years. I didn't want – I don't know hopefully the common thing come across is like, there's going to be some kind of V-shaped recovery right after January, because that's – I don't – December we'll have a – we'll express a forum view, but that's not our forum view. So, this is – but I look at, I guess the difference Nick, between, how you pose and how I say it, I don't look at two years as a long time. I look at – if you said to me, there's going to be sort of a one to two year not pause in the sense we are now, because every month we see things improving somewhat, but I'll call it a very slow recovery over the next one to two years before things get sort of cooking again, we don't want then hopefully be quicker than that. But that's not something where we change this. Fundamentally these are – One Vanderbilt is built for a 100 years. And one Madison we're going to deliver at least in 2024. So, whether it's one or two years, the goal for companies like us right now is to stabilize and get through this. You buy time. The way we buy time is we renew our tenants. When you say the tenants are demanding shorter, free rent and shorter terms, Nick, we went to those guys, they didn't ask for it. We had a program, I think, we might have talked about this last call. We went to every single tenant that had a renewal in the next…

That's helpful. And, and then I guess in terms of the portfolio, then as we think to next year, is it just a lot, is there still a lot of renewal activity, right? And the new lease activity stays challenged if it is a market where things are on hold and 50% of people are back in offices and not a 100%. I mean, does that just tip the scale to a lot more of this dynamic of renewals, shorter term renewals, you offering free rent to keep tenants, which makes sense as a strategy to hold occupancy?

Nick I guess, when we see you in December we'll give more color commentary on it. But I'm sure you heard me say earlier that 50% of my 825,000 square foot pipeline are new transactions. So to focus and say, is it just going to be more of the same of short term renewals? You're just not hearing what we're saying is that it was short term renewals earlier in the year. It started to change the corner. And as we sit here and going into the fourth quarter, clearly the new deal activity is ramping back up. And knock on wood that'll continue to go forward as the months pass, going down the road.

Thank you.

Okay, thank you everyone. I think we reached the end of the call list. So operator there's no further questions we're going to sign off.

Yes, sir. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.