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SL Green Realty Corporation is a self-managed real-estate investment trust (REIT) that owns, manages, leases, acquires, and redevelops Class B office properties, almost all of them in midtown Manhattan. Class B buildings are 25 years or older and rent space to tenants less well-heeled than the big banks, brokerages, and law firms that occupy New York City's trophy buildings. One important asset of SL Green's buildings is desirable location; most of them are within a 10-minute walk from Grand Central Terminal, Pennsylvania Station, or the Port Authority Bus Terminal. SL Green is the largest property owner in the Grand Central area. Substantially all of the company's assets are held by an operating partnership, in which the company is the general partner.
The First 15 Years: 1980-95
A native of Brooklyn, Stephen L. Green was a tax attorney before starting an import-export firm that specialized in human-hair products from Asia. After selling that business he opened a travel company that organized charter trips for skiers. He sold that business, too, and moved to Key West, Florida, to try real-estate development before returning to New York. In 1980, he incorporated S.L. Green Properties, purchasing a Manhattan residential cooperative on Broadway, just south of 14th Street. He next bought three residential condominium properties in the same area.
Frustrated by the rules and regulations governing housing in New York City, Green turned instead in the mid-1980s to commercial properties in an area sometimes dubbed "Midtown South." S.L. Green converted a 12-story loft building at 5 East 12th Street to a commercial condominium. S.L. Green and the periodical Adweek purchased, in 1986, a former factory building at 49 East 21st Street, with Adweek taking four floors in the 12-story structure. S.L. Green had previously converted a 12-story loft building at 5 East 12th Street into a commercial condominium. In 1988, the company took a 49-year net lease on a 12-story former United Parcel Service warehouse at 333 East 38th Street. A $12-million renovation began the following year, and two years later the building was fully leased. By this time S.L. Green owned and managed ten commercial buildings with a total of three million square feet of space. Green's wife, Nancy Ann Peck, was named president of S.L. Green Real Estate Inc., the design and construction arm of S.L. Green Properties Inc., in 1991. A partnership led by S.L. Green Real Estate purchased a foreclosed office building at 18 East 34th Street in 1992.
Although the 1990-92 recession hit New York City hard, S.L. Green never had a vacancy rate higher than 6 percent in this period and lost only one property to its lenders, an office building in Hempstead, Long Island, which convinced Stephen Green to confine his activities to Manhattan. Since the slump made it impossible to obtain financing in order to buy new properties or even further develop existing ones, the company began marketing itself to banks and other institutional owners, offering to manage distressed properties. The work S.L. Green obtained brought with it such problems as major electrical and plumbing defects, often in violation of building codes. Moreover, at times as many as one-third of the tenants had stopped paying their rent. "It's an immense amount of work," a company executive told Judy Temes of Crain's New York Business. "It can be a nightmare."
Appetite for Acquisition: 1997-99
By 1997, Manhattan had entered a new era of prosperity. S.L. Green Properties had disposed of the aforementioned properties but had acquired a new roster of midtown office buildings, mostly between 23rd and 42nd streets. These included 673 First Avenue, 470 Park Avenue South, 1414 Sixth Avenue, 29 West 35th Street, 70 West 36th Street, and 36 West 44th Street. None of these Class B buildings had been constructed later than 1928.
Acquisitions made by S.L. Green Properties in 1997 included landmarked 110 East 42nd Street for $30 million; 1140 Sixth Avenue for $26.5 million; and 1372 Broadway for $52.5 million in midtown, plus the office portion of 17 Battery Place, a Class B downtown building with a magnificent view of New York Harbor, for $65 million. S.L. Green acquired all of the 22-story north tower of this structure and 13 floors of the 31-story south tower. In Midtown South the firm purchased 50 West 23rd Street for $36 million. The company held 12 properties in August 1997, when it went public, raising $228.7 million for the firm by the sale of common stock. Green personally pocketed $27 million and retained a stake of 18 percent in the firm, including operating-partnership units.
Armed with this war chest, SL Green, in February 1998, agreed to pay $165 million for 1466 Broadway, just south of Times Square, plus the long-term leaseholds on 25 West 43rd Street and the Graybar Building at 420 Lexington Avenue. The 31-story Graybar, adjacent to Grand Central Terminal and completed in 1927, was once the largest office tower in the world. After acquiring a 31-year operating sublease on the property, SL Green began a renovation budgeted at $8 million. The Graybar became SL Green's flagship, the site of its headquarters. During the year SL Green marketed big blocks of common and preferred stock, thereby raising another $353 million. By the end of 1998, SL Green had added four more midtown buildings: the 25-story Fashion Gallery Building at 1412 Broadway, for $72 million; 20-story 711 Third Avenue, for $44.6 million; 18-story 440 Ninth Avenue, for $32 million; and 321 West 44th Street, for $17 million.
During 1999, SL Green purchased a 65 percent interest in the 20-story BMW Building at 555 West 57th Street for about $66.7 million. In Midtown South, the firm purchased 286, 290, and 292 Madison Avenue and, with Carlyle Realty, purchased 1250 Broadway for $93 million, taking a 49.9 percent stake in the joint venture. In a joint venture with a Morgan Stanley & Co. fund (in which SL Green took 35 percent), 90 Broad Street, in lower Manhattan, was purchased for $84.5 million. As a public company, SL Green was delivering the kind of financial returns to hearten its stockholders. In 1998, the company had net income of $29.45 million on revenues of $134.55 million. The following year the totals swelled to $42.86 million and $206.02 million, respectively. As a REIT, SL Green exempted itself from certain taxes--most notably the corporate income tax--by distributing 95 percent of its earned income to its shareholders as dividends.
The growing need of tenants for high-quality digital telephone service, e-mail, and direct access to the Internet made it imperative for SL Green Realty to rewire its buildings. "People expect these kinds of services in A buildings," Stephen Green told John Holusha of the New York Times in 1999. "Our agenda is to give the same level of service in older, well-located buildings at half the rent." To execute this function, SL Green turned to On Site Access, a company recently organized following the deregulation of local telecommunications service. At the Graybar Building, an unneeded air shaft provided the necessary vertical access needed for wiring. A $2-million renovation at 440 Ninth Avenue also included fiber-optic wiring for high-speed Internet and telecommunications access. Nevertheless, SL Green--able to pick and choose among potential tenants--was reluctant to lease space to new-media or high-technology firms for fear they would be out of business before their leases expired. In order to accommodate such firms, SL Green, plus two partners, established eEmerge Inc., a temporary office-space provider, in 2000. A floor of space established by eEmerge at 440 Ninth Avenue in the summer of 2000 was completely filled less than a month after it first became available.
SL Green in 2000-01
During 2000, SL Green sold most of its downtown properties in order to concentrate on midtown Manhattan, where the company believed the diversity of businesses would enable it to more easily deal with an economic downturn. The firm sold its interest in 90 Broad Street for $60 million and its share of the south tower of 17 Battery Place for $53 million. In midtown, it sold 29 West 35th Street for $11.7 million and 36 West 44th Street for $31.5 million. The company also converted 65 percent of 321 West 44th Street to a joint venture. It took 49.9 percent of a joint venture with Prudential Financial that purchased 100 Park Avenue for $192 million and 180 Madison Avenue for $41.5 million.
In early 2001, SL Green was again buying properties in Midtown South. One Park Avenue, a 20-story office tower built in 1925, was purchased for $233.9 million. The company also bought 1370 Broadway for $56.5 million and took a 35 percent stake in 469 Seventh Avenue for $45.7 million. In June 2001, SL Green purchased 317 Madison Avenue, a 22-story office tower with direct access to Grand Central Terminal, for $105 million. SL Green's average asking rents at the end of 2000 were in the high $30s annually per square foot, compared to as much as $80 in Class A buildings. "We buy older buildings with high ceilings, great floorplates, windows that open and close," Stephen Green told Leslie Jay of Crain's New York Business. "Then we create state-of-the-art infrastructure," he added, citing improvements such as broadband wiring and, most recently, lobby upgrades and installation of small television screens in the elevators so that riders could follow headline news.
SL Green's portfolio at the end of 2000 consisted of 19 properties with about 6.7 million rentable square feet of space and one triple-net leased property located in Shelton, Connecticut. This space was about 99 percent rented. The company also had ownership interests in four office properties encompassing about two million square feet of space. In addition, it was managing four office properties, owned by third parties and affiliated companies, with about one million square feet of rentable space. The company had net income of $86.22 million in 2000 on revenues of $230.32 million.
Substantially all of SL Green Realty's assets were held by, and all of its operations conducted through, an operating limited partnership of which the company was sole managing general partner. The company owned about 91.4 percent of the economic interests in the operating partnership at the end of 2000. All of the management and leasing operations were being conducted through SL Green Management LLC, an entity wholly owned by the operating partnership. SL Green Realty, through the operating partnership, also held 95 percent of the total equity of S.L. Properties, Inc., which was responsible for the parent company's service operations. Companies run by Stephen Green's son Gary held contracts for custodial and security work. Stephen Green was the principal shareholder of SL Green Realty common stock in March 2001, with 8.9 percent.
Stephen Green's brother, New York City Public Advocate Mark Green, was running in late 2001 for the office held by Mayor Rudolph Giuliani. Reporters noted that the city was SL Green's largest tenant, paying the firm more than $10 million a year in rent to house several agencies, including the Department of Correction and the City University of New York. "SL Green has so many enterprises related to the city government that it retains its own lobbyist who has repeatedly interceded with top city officials to renegotiate leases or seek approvals for renovation projects," wrote Eric Lipton in the New York Times. "It routinely files appeals with the Department of Finance challenging tax assessments on its buildings. It has dozens of code violations pending before the Department of Buildings." By August 2001, Stephen Green had raised hundreds of thousands of dollars in campaign donations to his brother from friends and business associates and had helped recruit a team of corporate executives to advise his brother. Wayne Barrett of the Village Voice reported that Mark Green had promised "full disclosure" of business interactions between his possible future administration and SL Green Realty, but Barrett also wrote that in a recent Times interview the brothers had called inquiries into such interactions "unjustified" and "irrelevant."
Principal Competitors: Reckson Associates Realty Corp.; Vornado Realty Trust.