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Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today February 15, 2024. I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations.

Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our fourth quarter 2023 earnings release and supplemental information, which we released yesterday. Both can be found under the heading Financial Results in the Investors section of the Paramount Group website at www.pgre.com. Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and the financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2023 earnings release and our supplemental information. Hosting the call today, we have Mr. Albert Behler, Chairman, Chief Executive Officer and President of the company; Wilbur Paes, Chief Operating Officer, Chief Financial Officer and Treasurer; and Peter Brindley, Executive Vice President and Head of Real Estate. Management will provide some opening remarks, and we will then open the call to questions. With that I will turn the call over to Albert.

Thank you, Tom, and thank you all for joining us today. Yesterday, we reported core FFO of $0.21 per share for the fourth quarter bringing our total for the year to $0.87 per share, the high end of our most recent guidance range. We leased 174,000 square feet in the fourth quarter, bringing the full year leasing volume to 740,000 square feet roughly in line with midpoint of our guidance that was established at the beginning of 2023. To date we are initiating 2024 core FFO per share guidance with a range between $0.73 and $0.79 per share. And the leasing guidance range between 650,000 and 900,000 square feet. Wilbur will review our financial results and guidance in greater detail. 2023 was an eventful year for Paramount. We began the year in rising interest rate environment and one with elevated inflation. We had the regional bank crisis early in the year in which two of our key tenants, SVB Securities and First Republic who also happen to be our largest tenant failed. We worked diligently to make good for a bad situation and we did. We negotiated with JPMorgan Chase to assume 75% of space that was leased by First Republic under the same economic terms. The remaining 25% that they didn't assume was because it wasn't utilized and a large portion was subleased to other tenants. We then entered into a direct lease with the subtenants for most of the remaining space. All said, we took a potential $43 million problem and mitigated it down to $5 million. Concurrently with that negotiation in San Francisco, we also negotiated a new lease with the entity acquiring substantially all of the assets of SVB Securities. The new entity retained about 62% of the space previously leased by SVB Securities on a long-term basis and kept the remaining 38% on a short-term basis. We focused on protecting our balance sheet by making strategic decisions on which debt maturities we sought to extend, where modest debt paydowns in lieu of favorable interest rates and extended terms made sense, like at 300 Mission Street, and where investing additional capital to support the asset didn't make sense, like at 111 Sutter Street. We deployed capital into Paramount Club, our 32,000-square-foot, state-of-the-art amenity center that will serve the Paramount campus. Paramount Club is set to open this spring, and it already served as a magnet in attracting our New York's most discerning tenants. We also reduced our dividend, enabling us to retain an additional $40 million in cash annually. Now with 2023 behind us, we will carry that momentum into 2024, where our primary focus in 2024 will undoubtedly be on leasing. Our lease expiration profile over the next couple of years is elevated, and our goal is simple de-risk the role. The biggest expiration in 2024 is Clifford Chance's 329,000-square-feet lease at 31 West, which is set to expire at the end of May. As you know, we have already de-risked 106,000-square-feet or over 32% of this space, and we are underway in dealing with the remaining availability. Peter will provide additional color on this in our leasing pipeline. Though headline vacancy rates in Manhattan remain elevated, it's important to understand each sub-market and the quality of the assets within each sub-market, as variations can be pronounced. For instance, the 6th Avenue sub-market has among the lowest overall availability rates, over 500 basis points lower than the overall Midtown office market. We have continued to capture more than our fair share of demand in this corridor, where a majority of our assets sit, and that is demonstrated by the same store lease occupancy rate of our New York portfolio, which is at 90.2%. The bulk of our current availabilities also happen to be on assets in this corridor, and we are poised to continue to capture more than our fair share in 2024. We believe this is to be reflective of the quality of our assets and our ability to execute in all different types of competitive market environments. We are confident that we will continue to benefit from the ongoing demand for high-quality office space in the Sixth Avenue corridor. In San Francisco, the market continues to lag. Although, there are green shoots in the form of record venture capital funding, AI-based leasing demand and an improving return to the office statistics. We are long-term believers in the San Francisco market, and our focus here will be to remain a core portfolio of assets in this market that will flourish as the market recovers. Just last week, we announced the modification and extension of the loan at One Market Plaza, wherein we paid down less than 13% of the principal balance of the loan and return for a three-year extension and a favorable interest rate. One Market Plaza continues to raise the bar in San Francisco. In 2023, we signed two leases over $130 per square foot and the asset is currently 94.7% leased. Turning to the transaction market. Activity remains muted. However, we anticipate that 2024 will see increased activity. We believe the number of distressed assets coming to market will rise and once interest rates begin to decline as many expect bid-ask spreads will begin to narrow. That said, equity markets have remained volatile, and there have been very few high-quality assets brought to the market. As always, we will be strategic and disciplined in allocating capital towards external growth opportunities. Lastly, we are very proud of the remarkable progress we made in our sustainability initiatives this year. Our dedication to sustainability and ESG as a whole is one of our fundamental operating tenants. We are leaders in the field and we know that, this has not only enabled us to reduce operating expenses, secure high-quality tenants, and ultimately increased portfolio value, but also minimize the environmental footprint we leave behind. For this reason, we were honored to receive the 2023 ENERGY STAR Partner of the Year Award for the second consecutive year with Energy Star labels for 100% of our portfolio. Additionally, we had a 5-star rating in the 2023 GRESB Real Estate Assessment for the fifth year in a row. We aim to build on these impressive achievements in 2024 as ESG will remain a priority in how we run our business. To close, our priorities for 2024 are clear. We are laser focused on the lease-up of our available space with our portfolio of stable trophy assets and our proven ability to allocate capital, we remain well positioned for the long term. With that, I will turn the call over to Peter.

Thanks, Albert, and good morning. During the fourth quarter, we leased approximately 174,000 square feet with approximately 139,000 square feet in Eastern New York and approximately 35,000 square feet in San Francisco. The weighted average term of leases signed during the quarter was 10.2 years. During the fourth quarter, we signed a 49,000 square foot lease with Major League Baseball Players Association at 1325 Avenue of the Americas for an initial term of approximately 17 years. We also signed a 41,000 square foot lease with Smith Gambrell & Russell, a leading law firm for a term of approximately 11 years. Smith Gambrell will relocate within 1301 Avenue of the Americas and expand our footprint by approximately 40%. These transactions demonstrate our ability to attract and retain high-quality tenants in our Midtown portfolio and service two good examples of tenants expanding their existing footprint. a trend we are seeing more than our own pipeline, particularly in New York. For the full year, we leased approximately 740,000 square feet for a weighted average lease term of 9.6 years. Tenants continue to prioritize the highest quality assets in our two markets, choosing to pursue well located amenity-rich buildings run by best-in-class well-regarded owners. Our portfolio is uniquely positioned to capitalize on these pronounced trends. We remain laser focused on delivering exceptional services and executing on our business plan. At quarter end, our same-store portfolio-wide leased occupancy rate at share was 87.7%, down 40 basis points from last quarter and down 360 basis points year-over-year. As we look ahead, our 2024 lease expirations are manageable with 9.8% of annualized rent or approximately 764,000 square feet at share expiring by year-end. Our focus for 2024 is the renewal of tenants in our portfolio with expirations over the next several years and the lease-up of currently vacant or soon-to-be vacant spaces. Our pipeline continues to strengthen. We currently have leases in negotiation and proposals in advanced stages for more than 300,000 square feet, a good portion of which is for a vacant or soon-to-be vacant space. Beyond the 300000 square feet, we have a healthy and growing pipeline with ongoing negotiations at various stages. Turning to our markets. Midtown's fourth quarter leasing activity of approximately 4.3 million square feet, excluding renewals was up 49% quarter-over-quarter and 29% ahead of the five-year quarterly average. While availability in Midtown remains elevated at 18%, select submarkets in Midtown's core have far less availability, covering at or close to equilibrium. The result of this has been improved economics in premier buildings, particularly on upper floors in these sought-after submarkets. Absorption in Midtown was positive during the fourth quarter and positive for the full year, first full year of positive absorption in Midtown since 2018. This was driven by leasing activity, largely by the financial services industry and by space withdrawals attributable to building purchases and residential conversions. Tour activity in our New York portfolio continues to increase as does our pipeline of prospective tenants most notably for the remaining vacancy at 1301 Avenue of the Americas and the block of space we are currently marketing at 31 West 52nd Street. At 1301 Avenue of the Americas, our market-leading amenity center is set to open in May 2024 and it continues to be a differentiator in our pursuit of leading companies. Our New York portfolio is currently 90.2% leased on a same-store basis at share, down 20 basis points quarter-over-quarter and down 190 basis points year-over-year. During the fourth quarter, we leased approximately 139,000 square feet with a weighted average term of 12.4 years with an initial rent of approximately $78 per square foot. In New York, lease expirations during 2024 will be 10% of annualized rent or approximately 572000 square feet at share, driven largely by the known move out of Clifford Chance at 31 West 52nd Street. Shifting our focus to San Francisco. San Francisco recorded 1.5 million square feet of leasing during the fourth quarter, up 25% above the pandemic era quarterly average but 34.8% below the quarterly average during the preceding 10-year period. For the full year, leasing activity in San Francisco remained muted with very little demand coming from the traditional technology companies. Despite a lackluster year of leasing transactions, we are optimistic as San Francisco remains a hot bed for premier tech talent with high-growth potential. Return to office continues to accelerate and San Francisco-based companies, particularly AI-based companies continue to attract significant venture capital funding. As a result, total square footage of tenants in the market continues to increase will be closer to San Francisco's historical average. AI-based companies contributed to approximately 25% of the leasing activity in 2023 and have become an increasingly large percentage of the demand pipeline in San Francisco pursuing states of varying sizes in San Francisco's premier buildings. At year-end, our San Francisco portfolio was 80.8% leased on a same-store basis at share, down 120 basis points quarter-over-quarter and down 810 basis points year-over-year, driven by the known move out of Uber, which we have partially backfilled with the previously announced Waymo lease. Looking ahead, our San Francisco portfolio has 9.3% of annualized rent or approximately 192,000 square feet at share expiring by year-end. We look forward to updating you on our progress. With that summary, I will turn the call over to Wilbur, who will discuss the financial results.

Thank you, Peter and good morning, everyone. I will start off my prepared remarks by covering the details of our fourth quarter results and then get into the building blocks of our 2024 earnings guidance. Yesterday, we reported core FFO of $0.21 per share for the fourth quarter, which came in at the high end of our guidance range and $0.01 above consensus estimates. Same-store growth in the fourth quarter as expected was negative 8% on a cash basis and negative 7.2% on a GAAP basis, driven by tougher comps and the previously talked about lease termination of an 83,000 square foot tenant at 1633 Broadway in our New York portfolio and the Uber lease expiration at Market Center in our San Francisco portfolio. During the fourth quarter, we completed 173,770 square feet of leasing at a weighted average starting rent of $80.17 per square foot and for a weighted average lease term of 10.2 years. Mark-to-markets on 112,898 square feet of second-generation space was negative 2.5% on a GAAP basis and negative 7.5% on a cash basis. Turning to our balance sheet. Our outstanding debt at year-end was $3.66 billion at a weighted average interest rate of 3.9% and a weighted average maturity of 3.1 years. 87% of our debt is fixed and has a weighted average interest rate of 3.28%, the remaining 13% is floating and has a weighted average interest rate of 8.01%. Our liquidity position at year-end remains strong at over $1.2 billion comprised of $469.1 million of cash and restricted cash at share and the full $750 million of capacity under our revolver. As you all saw last week, we announced that we together with our partner had modified and extended the loan at One Market Plaza. We paid the loan balance down by $125 million of which our share was a little over $61 million. There was a minimal uptick in the rate, and we pushed out the term by three years to 2027. Needless to say, this was a terrific outcome in a very challenging capital markets environment. As we have reiterated throughout the year, protecting our balance sheet has been and continues to remain our top priority. On the one hand, we have dealt with several near-term maturities by opting to pay down a portion of the debt on certain assets like One Market Plaza and 300 Mission, in exchange for favorable rates and extended terms. On the other hand, we have opted not to pay down any debt or invest additional capital in certain assets like 111 Sutter Street and now Market Center. 111 Sutter and Market Center have been dealt a hard blow with the timing of several key lease expirations coinciding, with a tough leasing environment and upcoming debt maturities. In the case of 111 Sutter at year-end 2022, we wrote down our investment to zero. And in early 2023, we defaulted on the loan and negotiated a cash flow loan whereby we did not invest any capital from our balance sheet. The loan is set to mature in May of 2024 and our position on the asset hasn't changed. In the fourth quarter of 2023, we also wrote down our investment in Market Center to zero. The occupancy at Market Center dropped significantly as a result of Uber's move-out, and currently sits at 55.1%. Furthermore, over 110,000 square feet is set to expire in 2024 and the debt is scheduled to mature in January 2025. These two assets are in workout mode. We do not know, what an ultimate resolution will look like and there is a strong possibility that these assets may not be in the Paramount portfolio going forward. The value of these assets on our books have been taken down to zero and the fair value of the assets are significantly below the existing debt amounts. They are currently, a drag on occupancy, a drag on earnings and a drag on leverage and we get no credit for it in our stock price. So all that said, we decided to remove these assets from our core and same-store portfolio effective January 1 2024, until we reach a resolution with our respective lenders on a solution that makes sense for all parties involved. To that end, we have provided additional disclosure in our supplemental package and our investor deck, to help investors understand the impact those two assets currently have on portfolio operations. Now, let me spend a minute on the assumptions used in deriving our 2024 core FFO guidance. We expect 2024 core FFO, which again excludes the impact of the two noncore assets I described earlier, to range between $0.73 and $0.79 per share or $0.76 per share at the midpoint. In order to facilitate an apples-to-apples comparison between 2023 and 2024, we have also presented in our supplemental package a 2023 core FFO figure as adjusted, which is $0.86 per share and excludes $0.01 per share of earnings contribution from the two noncore assets. So on a comparable basis, core FFO is expected to decrease by $0.10 per share from an adjusted figure of $0.86 in 2023 to $0.76, which represents the midpoint of our 2024 guidance. The $0.10 per share decrease in core FFO is comprised of the following: an $0.08 net decrease in cash NOI, driven primarily by significant lease expirations; a $0.03 decrease in termination income that is not budgeted for in 2024; a $0.02 decrease in interest fee and other income net of taxes; a $0.04 increase in interest expense; and a $0.01 increase in G&A. These negatives aggregating $0.18 per share are partially offset by an $0.08 increase in straight-line rent adjustments due to new lease commencements. Our same-store growth is expected to range between negative 6% and negative 4% on a cash basis and negative 4.5% and negative 2.5% on a GAAP basis. We expect to lease between 650,000 and 900,000 square feet and we expect to end the year with a same-store leased occupancy rate between 86.1% and 88.1%. For additional information on our 2024 guidance, please refer to our supplemental package and investor presentation, both of which are available on our website at www.pgre.com. With that operator, please open the line for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from Camille Bonnel with Bank of America. Please go ahead.

Good morning. Appreciate your comments Wilbur on Market Center and 111 Sutter. So just want to better understand the motivations here, because the refinancing risk has been known for a while and if we look back to prior discussions around these assets, they've been highlighted as top quality and uniquely positioned within the market. So has something around the team's expectation for re-leasing these buildings just been pushed so far out that it just doesn't make sense to own anymore?

Sure. Camille, I mean, obviously, we bought these assets, because we do believe they are top quality assets. We invested in these assets in 2019 and the world has changed dramatically since then with COVID and rising interest rate environment inflation, et cetera, et cetera. And San Francisco continues to lag New York in terms of fundamentals. And we have limited resources and we got to make relative bets. We have a certain amount of cash. We have a certain amount of ability to work these loans, and we have to make the right capital allocation decisions on where we see fit to invest additional capital and where we deem it not. In the case of these two assets, they were also dealt a terrible blow in the midst of this declining fundamental environment with significant lease expirations. They sit at 55% and in the case of Market Center will probably go down to the 40% with the roll in 2024 and you have an impending debt maturity there. So we sit here as a group on the capital allocation table and making a decision on which assets we think make sense to invest the capital and which it doesn't. And so we decided the ultimate resolution of this will take some time to play out, but it muddies our core portfolio operations. So by excluding it from the get-go investors are able to appreciate the impact on a go-forward basis should the resolution be where we end up handing the keys back to the lender.

And so it sounds like more.

Camille, it also shows that we are really focusing on shareholder's value here than doing the right thing for the Paramount shareholders. There are certain assets where it makes a hell of a lot of sense to invest more capital. And normally these situations they get negotiated and we are starting that negotiation at Market Center. And we -- you might recall I mean we are in the good situation as a company that we have a clean balance sheet without any debt and with cash available and we want to keep that company strong. And that's like what Wilbur was saying we are focused on the assets where there's equity currently. Could there be equity in Market Center and 111 Sutter? Of course, if the market turns around since San Francisco seems to be historically turning around quicker and more dramatic in both ways up and down we will see what time will bring. But currently, it doesn't make sense to invest expensive shareholder capital.

Got it. So it sounds like this is more of a capital allocation decision. Looking though at how tight your concentration is in that market, I'm sorry if I missed your earlier comments Peter, but how confident are you in backfilling or retaining the large lease expiry in One Front Street and One Market Plaza through 2025?

Yes, Camille. Good morning. So you're right we do have a significant lease roll in 2025 in San Francisco approximately 1.1 million square feet or 35% at share approximately. Roughly 65% of that roll is made up of three tenants and those being KPMG, Google and JPMorgan. I will tell you that we enjoy a very, very good relationship with all three. We are in discussions with all three and there's not much more I can say beyond that.

Okay. And just finally the mark-to-market on leasing during the quarter declined quite a bit. Has anything changed around how you're approaching your leasing strategy? And overall how should we be thinking about the pace-to-pace leasing this year?

No I think it's hard to look at it on a quarter-by-quarter basis. What I would say is that our properties and I'll start in New York are in submarkets predominantly the Sixth Avenue submarket which has an availability rate that's hovering close to equilibrium. And I think what we are seeing is for the first time a bit of pricing power on upper floors as an example. We do know that a disproportionate amount of Midtown's availability happens to be concentrated on lower floors. So when and where we have availability in our very high-quality buildings, of course, we are starting to push on spaces that we're now marketing on upper floors.

Camille, I will say on your mark-to-market comment as Peter said it does fluctuate quarter-to-quarter. It's a function of tenant mix that expires in that given quarter and leases that you execute. But if you look at the full year for 2023, mark-to-markets were flat on a GAAP basis and down less than 3% on a cash basis.

Thank you.

Next question is Vikram Malhotra with Mizuho. Please go ahead.

Thanks. I guess, I just wanted to go back to the buildings that you mentioned 111 Sutter in the Market Center. And I guess in the K you've also mentioned 712 Fifth and then 60 Wall in terms of the basis and additional capital, so maybe just any thoughts on those other two properties? And I guess Wilbur if you can clarify, if these buildings are given back is there a tax implication in terms of the debt value versus you're writing them down to zero?

Sure. Let me start with the first part of your question Vikram. You're talking about the basis being negative. There is an accounting convention for investments in equity method joint ventures upon, which when you get to zero or you get to a negative basis you discontinue the equity method of accounting. And so you're no longer allowed to pick up your pro rata share of earnings from that venture. And you only recognize earnings to the extent of cash flow distributions. So that's the comment with respect to 60 Wall and 111 Sutter, the impairments on these assets have taken our investment down to zero. In the case of 111 Sutter and Market Center that's a deliberate decision for us not to invest additional capital in that. So that's a strategic decision versus the others are more an accounting convention. As far as the second part of your question, I'm sorry Vikram, can you repeat that again?

Yeah. Just -- are there any tax implications like if you give back the asset…?

Yeah. So there are. Essentially the way you should think about it is you acquired these assets for some number in 2019 the -- if you hand the keys back, you're handing it effectively at the debt balance. So that's your proceeds, you'll have a delta between that and the basis of the asset, which in this case will generate tax losses given when these assets were acquired. So there's no punitive element of handing back the keys if that's where you were trying to…

Yeah. Okay. Yeah, I was just trying to clarify like if the base is actually zero, so there's actually a tax bill, but you're actually clarifying that no there's -- it's a punitive impact. So that's helpful. Just a second question on the.…?

Vikram from my end with regard to 712. 712 is an asset there's no negative with that asset as such. The asset is a prime asset in Paramount's portfolio. It has been bought a long time ago. And Wilbur I think answered that question, but I don't want investors to get away from this that 712 is in any kind of financial distress.

That's helpful. I guess, Albert, just sticking with you, some of your peers have decided to buy out JV Stakes and take, I guess, operational execution opportunities down the road, hoping for a lease-up or just redevelopment. I'm wondering, either in the fund business or in general, how are you thinking about deploying select capital towards some of these JV Stakes or even mezzanine investments like you do have a debt book. If you can just clarify, is it the time right now? What are you watching for, if not?

I think it's too early to really go into this in detail. We like to treat our partners as real partners. We wouldn't take advantage of them unless they really decide against a certain going-forward situation. And we have the opportunity to buy a piece at the low-market level. We will be, again, in each and every case, very, very selective, because I said over and over on these calls that our cash is very valuable to us and we don't want to spread it out amongst other assets if it's not crystal clear that we can generate superior returns to our shareholders.

Okay. Great. And last one, if I could just clarify, Peter, did you say there were 300,000 square feet of deals under LOI, or is that sort of a pipeline that you're pursuing towards the leasing goal that you laid out?

Vikram, my reference to 300,000 square feet was specifically related to leases in negotiation or proposals in very advanced stages. Beyond that, we have a pipeline that we feel good about as well. It is growing, and as I mentioned in my remarks, it is healthy and better than it was a year ago, I would say. But specifically, leases out or proposals in advanced stages, that was my reference to the 300,000.

And could you break that up just roughly between New York and San Fran?

It's roughly 50-50.

Okay. Thank you.

Thank you.

Next question, Steve Sakwa with Evercore ISI. Please go ahead.

Yeah, thanks. I guess, Albert, we've seen a couple of very high-profile retail transactions along Fifth Avenue at sort of high-popping pricing. I know you still have some vacancy from the old Henri Bendel space, and I'm just curious how you're sort of thinking about some of those street retail positions that you own today?

Well, we have quite a presence on Fifth Avenue, as you rightfully said. 712 is right in the mix, and Peter and his team have been cautiously marketing the -- I would call it, leftover space from Henri Bendel. You might recall that we leased a relatively small space of that former Henri Bendel space to Harry Winston at roughly the price that the entire Henri Bendel space brought for the investors. The retail market is clearly picking up not only on the investment side but also on the demand side in the luxury area. And we are also in discussions with various opportunities with regard to the asset where we hold 1%, which is 745. Fifth Avenue it's an asset management opportunity for Paramount. And I don't want to go into more details. Of course we have watched the transactions that just happened between end of last year and early this year. So, we think it's great news that Fifth Avenue is in that location which is a world-leading retail location is picking up significantly. It's good for Paramount. It's good for New York and it's good for our shareholders.

Okay. Thanks. Wilbur the refinancing that you and your partner did at One Market was certainly great. I guess we were certainly surprised I guess pleasantly at the rate that you guys were able to achieve. And I can understand the banks and the CMBS folks sort of pushing problems out. I guess I was just really surprised that the rate was basically flat to where the old rate was which is certainly sort of a below market rate today. Just any color you can sort of offer on how the banks and lenders are thinking about resetting these loans if they're willing to push them out?

Sure Steve and I think I kind of alluded last quarter on this. Each process is bespoke. It depends on the quality of the asset. It depends on the quality of the sponsorship and in this case, obviously, One Market Plaza is arguably the best asset in San Francisco and it's close to 95% leased in-place rent is north of $100 a foot. So, it has a great, great quality together backed with great sponsorship. I think we were very early on talking to our lenders in this instance. I think the sponsorship, the relationships all this play into the factor of getting a superb execution done.

And that relationships, Wilbur mentioned it, relationships is a very important -- it's part of our culture at Paramount and we think that is very important for the long-term and we try to have the best relationships with our lenders. And I think the straightforwardness and the forthrightness and dealing with these situations have helped Wilbur and his team. And that's the way how we approach things.

Okay. Just last question maybe for Peter. Just on the leasing, I appreciate the color on kind of the pipeline. Just any color around the types of tenants that you're speaking to? Is it broadening out at all from financial services and legal? And I guess I know you've got this big Google expiration coming up in 2025. The loan there got extended for three years. Does that is that sufficient to maybe allay any fears that maybe they had about kind of the ownership of that building as they think about space needs in San Francisco?

Certainly I think they acknowledge that it was really very important what we accomplished and it shows our investment and our commitment to that property. And we've had productive conversations and there's not much really as I said earlier I can say as it relates specifically to Google. But I will generally say One Market in terms of the limited availability and vacancy that we do have happens to be active currently. And so we feel good about that. As it relates to the types of tenants we're speaking to in New York. It's predominantly financial services and legal. The legal industry in 2023 contributed 20% towards leasing velocity. They represent about 11%, 12% of our market in Midtown. So they continue to show up and we're seeing them with proposals and tours and they're generally very active. In San Francisco, it's predominantly tech that we're communicating with and we're speaking and trading paper with some smaller AI-based companies. It's interesting. At this time last year, AI was not really much in terms of part of the tenants in the market pipeline and by year's end they had contributed about 25% towards total leasing activity in 2023. So these requirements come about very quickly. We have our eyes wide open. We're in front of every one of these requirements. When I refer to the 25% of course that was made up primarily of Anthropic and OpenAI but these are requirements that come about very quickly and we're in front of them and we're trading paper with them. So as Albert mentioned earlier, this is a market that can change very quickly. And I think the team is doing a very nice job being in front of every single requirement and when we have an opportunity our buildings show very, very well. So we are hyper focused on leasing our vacant spaces and then of course dealing with the role that we have in front of us in San Francisco.

Great. That’s it for me. Thanks.

Thank you, Steve.

Next question Tom Catherwood with BTIG. Please go ahead.

Thanks and good morning, everybody. Maybe going back to your comments about capital allocation and focusing on retaining tenants with expiring leases over the next few years. Do you have near-term plans to invest additional capital into select buildings to facilitate these expansions beyond just the normal course leasing expenses?

Well, we have – as you know we have worked on the amenity center that we call the Paramount Club here at 1301 Sixth Avenue. It's going to open in the second quarter of this year. Peter has talked about it a couple of times. We got some very positive feedback already from tenants. They are already booking space for events. And that's something that's really the team spent a lot of time on it to really structure it. So it's helpful for the infrastructure of the Paramount buildings here in Midtown. So we are very focused on hospitality. We are very focused – but these are soft factors on security in these assets. Other than that, I think Tom, we talked about in the past, our assets are pretty well maintained and they are kept very modern and we do upgrades where they are necessary. And we have done that in San Francisco. We have a couple of amenity facilities in the various buildings there. And I think that's why tenants like these kind of assets.

Thank you. That’s it…

Tom, just to add to what Albert said. Obviously, in terms of major CapEx, when you look at the portfolio, it's really the amenity center that we have about $10 million-or-so left to spend. We had talked about that being roughly a $39 million project, of which $29 million has already been spent through year. So you got about a $10 million spend there. And the only other outside of regular TI CapEx is the -- our share of the development on 60 Wall. And again, that's going to get offset by the fee stream that we generate from that project.

And we only have 5% in that asset. So that's a long negotiation that was held with the lending team and with our partners and there will be a large amount of capital being invested. We talked about that and as Wilbur was saying that's basically for Paramount, since our share is limited and it will be relatively benign.

Got it. So I appreciate that. Let me just make sure I put this together and understand it. So going back to Peter's comments on the 1.1 million square feet expiring in San Francisco through 2025. So there aren't the major capital projects to get ahead of some of those expirations in One Front or One Market Plaza. I think the buildings are up for and then in that case it's just the leasing costs from a capital allocation front.

That's correct.

Got it. Got it. Then maybe --

1.1 million square feet in 2025 not through 2025.

Got it. Thanks, Peter. Then maybe going over to the non-core portfolio and Wilbur I appreciated all the explanation of thought process and the capital allocation. But what is the risk of other assets heading in that direction especially given the impairment on 55 Second in 4Q?

Look, I think each asset has to be looked at differently. We've said this at risk of sounding like a broken record, but the impairment that was taken on 55 Second end market center was taken at the joint venture level. It wasn't us impairing our investment in the JV. They are two very different models for impairment. So there was a real estate impairment at the property level that we picked up our pro rata share, which caused our basis to go to zero. So in the case of 55 Second you run through the model, you run through lease expirations. And obviously, you have KPMG's lease expiration that's looming on that. And so all those things were factored in and you run through an undiscounted model and if the undiscounted cash flows are lower than the basis then you go to a step two approach, where you measure it on fair value and that's how that impairment loss was derived. I would not take a GAAP impairment loss as an indication of strategy.

Appreciate that color, Wilbur. Thank you for that. And kind of last one for me, Albert you mentioned very distinctly remaining disciplined on allocating capital. Along those lines though there's a number of firms out either raising opportunistic funds or now deploying opportunistic funds. And over time that was very much part of Paramount's DNA. What is your appetite for maybe expanding your involvement in this side of the fund business again?

Well we -- this is not new. We have been in the market to just now to raise our special opportunity fund. And that fund is -- it's focused especially on these opportunities. It's a fund very similar to the previous funds. We had a special situation funds before the company went public in 2007, 2008 that special situation fund number one did very well for our investors. And we are out marketing that fund. I don't want to say what kind of numbers we are expecting. We are hopeful currently that we have the first closing in the first half of this year. And then we take it from there. I think it's a great opportunity, because I think, in the later part of this year and in 2025 there will be opportunities there. And we will take advantage of it.

Appreciate all the answers. Thanks everyone.

Thank you.

[Operator Instructions] Next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning. So just to be clear the core 2024 guidance excludes the income from 111 Sutter and Market Center, but also excludes the interest expense from those assets. So first is that correct? And second, I guess, I understand putting some NOI and discontinued operations, but I'm not sure I've ever seen the associated interest expense excluded. So can you just talk about how you came to that decision? And whether you guys will continue to in your presentation get both total FFO, including the impact from non-core assets along with the core FFO, excluding all impacts from those assets as long as they're still in the portfolio?

So to answer your first part that is correct. The core figures, exclude any contribution positive or negative from those assets. We have dimensioned it both for 2023 and 2024. To answer the second part of your question, it will absolutely be included in FFO. Hence, the alternative measure Core FFO where we are taking out, elements that distort the comparability of earnings period-over-period. And because a decision has been made on these assets not to invest additional capital, nor fund the interest expense shortfalls. It is entirely appropriate to remove that from your core operations and show it as the way we look at our business, so that investors can appreciate the comparability of results year-over-year. But it absolutely will be included in the Nareit definition of FFO.

Okay. Yeah. I've definitely seen some of your peers carve out non-core portfolios. One of them did that late last year, but they're still including the interest expense on debt secured by those assets and guidance. So I just -- I'm not sure, I've seen that part of it before, but ...

… that peer that you're referring to..

…helpful commentary.

Blaine, that peer that you're referring to does not present two measures of FFO. Just to be clear.

Okay. All right. That's helpful. And then just second question. You're sitting on a relatively large cash balance at $428 million. You guys talked about the $10 million for common area development with Tom's question and you'll have leasing costs as well. But past those, can you just talk about potential uses for that capital in the near term? Are you guys interested in share repurchases here? Or do you have better opportunities to pay down debt?

Blaine, this is Albert. We have been saying over and over on these calls that we want to be very selective in what we do with our capital, especially in times like these. These are very unusual times. We want to protect our cash on balance sheet. I think that's in the best interest of shareholders. There could be things coming up that require cash there could be opportunities to pay down debt, but we want to keep our optionality. I think there's nothing more important and we have the wonderful opportunity that our balance sheet is crystal clear. We don't have any debt on balance sheet. I say this again. And we don't want to get in a situation where the company gets into any kind of distress. So, we will be very, very selective in using that cash.

Okay. Great. Thank you, guys.

Thank you, Blaine.

I would now like to turn the floor over to Albert Behler for closing comments.

Thank you. Thank you all for joining us today. We look forward to give you all an update on our continued progress when we report our first quarter 2024 results. Goodbye.