Jacques Cornet - ICR Managing Director Albert Behler - Chairman, CEO & President Ted Koltis - EVP, Leasing Wilbur Paes - EVP, CFO and Treasurer.

Nick Yulico - UBS Jed Reagan - Green Street Advisors Brad Burke - Goldman Sachs Jamie Feldman - Bank of America Vikram Malhotra - Morgan Stanley Tom Lesnick - Capital One Securities, Inc. Rich Anderson - Mizuho Securities Co., Ltd. Vincent Chao - Deutsche Bank.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group's Second Quarter 2016 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, August 04, 2016.

I will now turn the call over to Jacques Cornet with ICR..

Financial Information, Quarterly Results in the Investor Section of the Paramount website at www.paramount-group.com. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements within the meaning of the federal securities laws.

These forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases are not guarantees of future performance.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore you should exercise caution in interpreting and relying on them.

We refer you to our recent SEC filings, including our most recent Form 10-K as updated by our subsequent quarterly reports, including Form 10-Q, for the quarter ended June 30, 2016, which was filed with the SEC this evening, for a more of a detailed discussion of the risks that could impact our future operating results and financial conditions.

During today's call we will discuss non-GAAP measures which we believe to 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 according with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2016 earnings release and our supplemental information.

Hosting the call today we have Albert Behler, Chairman, Chief Executive Officer and President of the Company; Wilbur Paes, Executive Vice President, Chief Financial Officer and Treasurer; and Ted Koltis, Executive Vice President, Leasing. 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 Behler..

Thank you, Jacques. Good evening. We appreciate everyone joining us. Today we reported core FFO of $0.23 per share for the second quarter. Our second quarter results were better than expected, primarily due to improved operating expense management. With the first half of the year now behind us we are raising our guidance for the full year.

Wilbur will go into details later in the call. As we move into the second half of the year, our focus continues to remain on executing on our core strategies of leasing available space and proactively managing our properties to increase occupancy and rents to generate long term NOI growth.

Additionally, we continue to work on refinancing our above market debt, all in an effort to enhance value for shareholders. In the second quarter we leased 149,000 square feet at a weighted average initial rent of $74.15 per square foot, generating a very strong positive mark to market of 22.9% on a cash basis.

Our leasing results for the quarter included a 59,000 square foot lease at 1633 Broadway with Bleacher Report, a leading digital media company. We were very happy to have this lease for a couple of reasons.

First, Bleacher Report's decision to call 1633 Broadway its new home reflects the strength of the building's attributes and continues the positive leasing momentum we have had at this enormous 2.6 million square-foot trophy asset.

1633 Broadway continues to attract a wide range of tenant industries because of its ideal location on the west side of Manhattan, and large, efficient floor plates. That coupled with our recent Plaza redevelopment, which is now on full display, has positioned us extremely well as we look to lease out the newly vacated space.

Looking back over the past 12 months, we have now leased over 535,000 square feet at this trophy asset. Second, with the execution of this lease, our TAMI tenant exposure in our midtown Manhattan portfolio is now over 1 million square feet.

And while much of the market conversation surrounding TAMI tenants in New York City has been focused on Midtown south and Downtown, having a million square feet of TAMI tenants in our type of portfolio demonstrates the value that these tenants place on the infrastructure and location of our midtown assets.

At 1633 Broadway, specifically, over one-third of the occupancy of almost 800,000 square feet is now comprised of TAMI tenants, including Warner Music, Showtime and now Bleacher Report, among others.

As expected, we ended the quarter with our overall lease rate at 92.9%, versus 95.6% last quarter, due to the long-anticipated departures of Deloitte at 1633 Broadway in April, and Commerzbank at 1301 6th Avenue in June.

These two blocks of space, along with the upcoming move of Assured Guaranty from 31 West 52nd Street to 1633 Broadway, create additional opportunities for us to lease up space at current market rates.

Yet, as we have said consistently, these large blocks of space typically take time to retenant, and in most instances do not lease until they are vacant, white boxed and brought into show condition.

As Ted will continue, we are seeing a healthy level of demand for space across the portfolio, and remain confident in our ability to lease our current vacancies. And beyond 2016, our expirations average less than 4.5% or 470,000 square feet annually for the next four years.

In Washington, D.C., even as office market fundamentals remain subdued during this election year, the quality and superior locations of our assets are a continued selling point. In our trophy portfolio the big opportunity remains at 2099 Pennsylvania Avenue.

We have had good showings and are confident that we will see some meaningful progress at this spectacular asset this year. Other than 2099, the rest of our D.C. portfolio is 97% leased with no expirations until 2019.

Turning to San Francisco, the market continues to remain healthy and our one-of-a-kind asset at One Market Plaza remains basically full at 98.4% leased. Our retail and lobby project here is complete, and new storefronts continue to open and our rebranding of the food court as One Market Place only increases the building's appeal.

Shifting to the funds business, during the quarter we announced the successful close of the $775 million Fund VIII.

This represents the largest debt fund we have raised to date, and the enthusiasm shown by new and existing investors is a strong reflection of Paramount's reputation for having a deep understanding of our target markets with significant operating experience. Wilbur will go into more details on Fund VIII.

Looking ahead, we will begin to see the benefits of all the leasing we did in the second half of 2015. At the end of June we had $86 million of contractual pro rata annualized cash rent attributable to either tenants in a pre-rent period, or to leases signed but not yet commenced.

Nearly 80% of this will become cash-paying by the end of the first quarter of 2017. In summary, as we move into the second half of the year, we remain optimistic about the lease up and the embedded mark-to-market in our high quality Class A portfolio.

As we continue our efforts to capture that value, we will maintain our discipline and consistency in executing the strategy, all with the objective of creating great returns for our shareholders. With that overview, I will hand the call over to Ted to discuss leasing activity and provide an update on all markets..

Thank you, Albert, and good evening. Overall not much has changed from our perspective since we last spoke. We see all the reports that you see, and certainly New York along with San Francisco seem to be the most polarizing markets among brokers and investors.

Though the markets may not be as exuberant as each was last year, from our vantage point, each remains very healthy, especially midtown Manhattan and the South Financial District of San Francisco, we continue to have good activity across all of our availabilities.

Turning to New York specifically, at the end of the quarter our New York portfolio was 91.8% leased, which reflects the recently vacated Deloitte and Commerzbank spaces that Albert mentioned.

During the second quarter we leased 124,000 square feet at a weighted average initial rent of $72.16 per square foot, with a positive mark to market of 9% on a cash basis.

Looking at the year to date, recall that last quarter our mark-to-market figures included the impact of releasing an above market lease at 1633 Broadway that was terminated in advance of the tenant potentially filing for bankruptcy.

Excluding that lease, our year-to-date mark-to-market for New York on a cash basis is positive 19.3% and 25.1% portfolio wide. On the vacancies mentioned above, we are seeing activity from a diverse representation across industries.

Certainly, we see our fair share of financial and legal services, but we are also seeing a good portion of TAMI tenants and we expect these types of tenants to continue to gravitate towards the west side of Midtown, and into large, efficient floor plates.

As Albert mentioned, a noteworthy example of this is the 59,000 square foot lease we signed with Bleacher Report at 1633 Broadway on the entire second and entire third floors of the building. Bleacher Report joins an already high quality, investment-grade tenant roster that is one of the most diverse in the market for a single Class A asset.

And with the expanding appeal of our large floor plates to more diverse users, we continue to market the recently spaces at 1633 Broadway on floors 35 through 38, and at 1301 Avenue of the Americas, floors 41 through 45, and remain confident in the quality of what we have to offer and our proven ability to close deals as we enter the fall leasing season with these blocks finally vacant and in show condition.

In Washington, D.C. our portfolio was 92.4% leased as of June. Overall, the market continues to be moderate. Of course, we are in an election year so that may contribute to some trepidation on decision-making by tenants, but our activity level is as strong as it has been at other times.

If you follow closely our portfolio here in D.C., you will know that we have outperformed the market over the last few years. The simple reason is that we have some of the best trophy space in the CBD, and because of previous success we do not have a lot of it today, or scheduled to becoming vacant in the near future.

We continue to remain firm on asking rents as we do not see this market moving down, and we continue to expect our portfolio to outperform the current sluggish nature of this market. In San Francisco, our property was 98.4% leased as of June, up another 10 basis points from March.

During the second quarter we leased 25,000 square feet at a weighted average rate of $91.49 per square foot, and an average term of five years, where we achieved positive mark to markets of 63.2% on a cash basis.

Tenant improvements in leasing commissions were less than 5% of the initial rent per annum, continuing the trend of low concessions in this market. We do not have much space available at One Market Plaza, and when we do have it we are achieving mark-to-markets in excess of 50%.

The office market is healthy overall and in our submarket there remains little inventory along the Mission and Market Street corridors. As for the spectre of sublease space that is mentioned every once in awhile, it seems that it is leasing up and taken back out of inventory almost as quickly as it is out to the market.

Also with are continuing to lease up our expanded retail in small pieces, and now have over 50% of the new retail leased or in lease. With that overview I will turn the call over to Wilbur, who will discuss the financial results in more detail..

Thanks Ted, and good evening, everyone. We had another strong quarter of financial performance. Our core FFO for the quarter was $0.23 a share, up a $0.01 or 4.4% over the prior year's second quarter. Our pro rata share of GAAP NOI for the quarter was $100.2 million, up $7.7 million or 8.4% over the prior year's second quarter.

The current quarter includes $24.7 million of straight line rent of which $21.4 million was attributable to free rent. Our mark-to-markets for the quarter were robust 22.9% cash and 11.3% GAAP. As expected, our portfolio leased occupancy decreased by 270 basis points from the prior quarter to 92.9%.

This decrease was driven by scheduled lease expirations at 1633 Broadway and 1301 Avenue of the Americas.

Not withstanding this decrease, as we look ahead a few quarters we will realize the benefits of our leasing efforts over the past year or so, which translates into $86 million of contractual pro rata annual cash rent, $69 million of which is attributable to tenants that are in a free rent period, and the remaining $17 million relates to signed leases not yet commenced, which is not contributing toward earnings.

80% of this $86 million is expected to become cash-paying by the end of the first quarter of 2017. And as we lease up the current vacancy, there will be more to come. As Albert mentioned earlier, during the quarter we closed Fund VIII, our debt fund, with $775 million of capital commitments.

We are very happy with the amount of capital raised in this fund as our initial goal here was to raise $400 million. The capital here was primarily from investors in Europe and Asia who are looking for yields not available at home, and continue to view the US as a safe haven for investments. The benefits of this fund are twofold.

Not only will we generate a fair amount of fee income from this fund, but it also gives us tremendous visibility into deal flow, as the focus of this fund is on mezzanine and preferred equity investments in each of our three markets.

Turning to our balance sheet, we ended the quarter with over $1 billion in liquidity, comprised of $252 million of cash and restricted cash and $780 million of availability under our revolving credit facility.

Outstanding debt remains unchanged from the prior quarter at $2.7 billion with a weighted average interest rate of 4.3% and a weighted average maturity of 5.2 years. 93% of our debt is fixed and has a weighted average interest rate of 4.5%. The remaining 7% is floating, with a weighted average interest rate of 2%.

Our leverage metrics remain conservative, with net debt-to-enterprise value of 37.1% and net debt-to-EBITDA of 6.7 times. We continue to remain laser focused on the right side of our balance sheet, taking advantage of the low interest rate environment and refinancing above market debt, well ahead of their maturities.

During the quarter we refinanced 31 West 52nd Street with a new $500 million loan at a fixed rate of 3.8% for a 10-year term. This debt replaced a $413 million loan at 5% that was scheduled to mature in December 2017.

We don't have any debt maturing this year and only $484 million maturing in 2017 that has a weighted average interest rate of 4.9%, presenting us with yet another opportunity.

As Albert mentioned, and as highlighted in our earnings release, we are raising our full year 2016 core FFO guidance to between $0.81 and $0.85 a share, up a $0.01 on both sides from our prior guidance of $0.80 to $0.84 a share. The increase in guidance was driven primarily by low operating costs in our portfolio.

With that, operator, please open the line for questions..

[Operator Instructions] Now our first question comes from the line of Mr. Nick Yulico from UBS. Please proceed with your question, sir..

Hi, everyone..

Hi, Nick..

Hi, Albert. I just had a leasing question for the – talk a little but more at 1633 Broadway and 1301, where its going to ready to sort of re-lease back half of the year.

Can you talk a little more about the types of tenants and, I guess, more so, these firms that have a lease expiration in the next year, and that's kind of driving their decision making, and then how should we think about your prospects to get the space re-leased if maybe we are heading into a tougher New York City market where existing landlords are giving more concessions to get tenants to renew rather than move.

How should we think about that?.

Well, hi, Nick. First off, I would say I don't think that we are seeing a tougher leasing market. I mean, we are seeing the market still as a pretty good, strong demand, tenants focusing on high quality space, location. I think the other positive for us is that we are really seeing a good range of tenants, a well-balanced range of tenants.

Even the leasing we have done has kind of been a third financial and law, a third TAMI, a third legal. That's sort of a mix that we are seeing. And as I mentioned earlier, we did just get these spaces back, Deloitte specifically we got back in April.

So, generally it is probably about 60 days or so to prepare the space for show and so consequently, as you would expect, I probably would say we have the most number of showings at 1633 right now as compared to 1301 which is coming along there for show. So, we're in various stages of proposals with each of these types of tenants.

Given when we got the space back and when we prepared it and where we are right now, we feel pretty good about the market..

Okay. That is helpful. And then, Albert, I guess, how are you thinking about pricing of assets in your markets and then particularly in relation to, you have had good success raising capital from foreign, institutional capital for the mezz fund.

What does that sort of make you think about your own portfolio and perhaps the public market not exactly giving you credit for all the value.

How does that actually your thinking about any other opportunities to maybe do something with your own portfolio, or something else in the market?.

Well, I think the values remain actually quite high in the market. The market has been a bit slower on the transaction side early this year. But I am sure you are aware of the transaction that just happened at 1095 6th Avenue, that shows how solid the market is, looking at that valuation.

I think that basically confirms our strategy of creating additional value with mark-to-market leasing of our assets. There is a lot of foreign capital that is looking for investments in our markets, like the bicoastal cites, New York, Washington and San Francisco.

We get a lot of incoming calls for -- where partners who are looking for investments, and that is why we also have been quite successful in raising the debt fund. So we see opportunities, on the acquisition side.

We will be cautious because of the valuations where they are, but if there is a good value proposition, we will be looking at it and most probably in a joint venture structure with additional outside equity investors because of our current capital constraints..

That is helpful. Thanks..

Sure. You are welcome..

Our next question comes from the line of Jed Reagan of Green Street Advisors. Please proceed with your question..

Good afternoon, guys..

Hey, Jed..

How is the pipeline of leasing interest for your vacancies relative to where we sat a quarter ago, if you were sort of pegging that? And then do you think these vacancies end up getting backfilled by smaller tenants.

Are these single tenants that are going take down entire blocks? How you are you thinking about that?.

Look, I think, firstly, I will just say overall we have said this before. I mean in our experience it does -- you are not leasing a big block of space, really for the most part, until it is vacant and prepared for show. I mean, that's been the general trend.

We have been fortunate to lease a fair amount of the Commerzbank space before it became vacant, but I think that is atypical. But certainly we feel better about where we are this quarter versus last quarter on those bigger blocks. Certainly on the Deloitte block for sure, because it is now ready and it shows really great.

We have had some really great showings of it and some good activity on that, and certainly we are move that way with the Commerzbank space as well..

Okay. Thanks. And just looking at, by my math you are talking maybe high $60 million to $68 million of free rent that burns off over the next several quarters.

Can you give a sense for how much will hit, or burn off by quarter? Or maybe how much hits this year versus early 2017?.

Hi, Jed. It's Wilbur. As you know we don't provide quarterly guidance. That said, we sort of gave the $69 million of free rent and kind of indicated that it burns off as of the end of the first quarter of 2017. There are building blocks within our supplemental that talks about the lease expirations and the move-ins and the move-outs.

In addition, if you go back to the guidance that we had provided in the beginning of the year, we said, cash NOI was going to be $10 million to $15 million lower than 2015, and we are still trending along that..

Okay. That is helpful. And then it seems like the lease term, signed lease term this quarter was a little bit shorter than what I think you guys typically sign.

So, are there any comments you can make about that?.

I mean, look, we have a bunch of renewals in there this quarter. It is a small sample size, so I would not read into that..

Okay.

I guess the Bleacher Report deal specifically was -- can you share the term on that?.

We don't share specific terms on our deals..

Okay. All right. Thanks very much..

You are welcome..

Our next question comes from the line of Mr. Brad Burke from Goldman Sachs. Please proceed with your question..

Good evening, guys. Wilbur, just a quick question on the quarter, the sequential increase in lease amortization, was that entirely due to the lease term that occurred in the first quarter? And then for the guidance too, the updated guidance to midpoint would imply $0.18, $0.19 quarters in the back half of the year, which a pretty big step down.

Is that step down due entirely to occupancy or are there other things that could be driving that?.

Sure. So, let me take the first part of that question. In terms of the lease amortization, you are right. In the first quarter we had a lease term and a write-off of the FAS 141 above market lease asset, which was $10.9 million. So that's why that was negative in the first quarter.

But that negative was also offset by the acceleration of the Assured Guaranty space at 31 West for about $3.8 million.

So there are two moving pieces in the first quarter, in the second quarter the $7.1 million includes $3.9 million of accelerated FAS 141 amortization, and those figures I just talked about are broken out separately in our same-store reconciliation. So that takes care of the amortization.

With respect to the guidance, it does, again, we're not providing quarterly guidance.

You would say that given the move-outs that are happening, the back half would be lower, typically because when you consider Deloitte vacated April 1 as Ted mentioned, Commerzbank vacated June 1, so the impact on the second quarter for the Commerzbank space was only for one month.

And it will be obviously more severe in the third and the fourth quarters. Furthermore, the Assured Guaranty space, which is 110,000 square feet, vacates in August. So, you'll have a full quarter effect of that in the fourth quarter, less so the third quarter, so that should help with the numbers..

Okay. And then I wanted to ask on the dividend, your payout ratios just over 130% for the first half of the year? And I appreciate the glide path for the $86 million increase in cash NOI for the end of the first quarter in 2017.

Is it fair to think that by the time you get to the end of the first quarter of 2017 that you would be payout ratio below 100%?.

You know, again, I am not commenting specifically on 2017. The payout ratio is currently elevated, Brad, because the timing of CapEx spend does not necessarily coincide with the timing of GAAP revenue recognition, so it's lumpy quarter to quarter.

And given our profile, you know, over the last couple of years and the leasing that we have done, you are expecting to spend a lot more cash up front today, and we are not seeing the revenue offset of that currently. So, going forward it will be much more normalized..

So, you are comfortable with the dividend where it is now?.

Yes, we are..

Okay. Thank you, guys..

Thank you..

And our next question comes from the line of Jamie Feldman from Bank of America. Please proceed with your question..

Great, thank you. Just to follow-up on some of the prior questions.

Just to be clear, so, based on all the leases you guys have signed and all your known move-outs through year end 2016, you think your cash NOI is on schedule to be down $10 million year-over-year? Did I hear that right?.

Yes. We said $10 million to $15 million lower than 2015..

Okay.

That is with no incremental leasing?.

Yes..

Correct? Okay. And then --.

Incremental leasing would not typically contribute to 2016 cash NOI..

Okay. Good point. And then you talked about $17 million of signed lease not commenced.

I assume that is the GAAP impact through the first quarter of 2017, the GAAP, the FFO upside?.

Yes. That's the EBITDA and FFO impact.

Okay. All right.

I guess so I have a better sense of timing because you talk about, you need the space to be vacant and you need to have it ready to show, can you just walk us through, in terms of the amount of square footage, like what will be ready and when? Just so we can be realistic on expectations?.

Sure. So, we'll go through kind of the three large blocks that are coming up this year, right? Or they will come up. Deloitte came back April 1. Typically, like I said, it is somewhere around 60 days. It could take 90 days.

It really depends on what the existing condition is and how difficult that demolition and white boxing, is what we call it, of that space to get it to a show condition. So the Deloitte space came back as of April 1. So sometime in mid-June, I would say we had that ready for show and started showing that in great show condition.

We are just finishing up the Commerzbank space now so for the fall leasing season, September we'll have that ready for show condition. You know, that came back to us June 1. And then Assured Guaranty over at 31 West 52nd,that comes back to us -- they are vacating by the end of this month so we will get that in September.

That will really be toward the end of the fourth quarter that we will have that ready in the show condition. And certainly for these large block types of spaces, we see nine to 12 months of down time from the time we start showing the spaces. And the other thing I will say is, we don't have to lease these in completely large blocks.

We can do deals as small as 25,000 square feet I would say on these blocks of spaces, so we have some flexibility there as well..

Okay.

You said nine to 12 months of down time from the time they are ready to show or from the time you sign the lease?.

No, from the time that they're ready to show, I mean, that's generally what we would model. But some spaces do get -- I pointed out before, Commerzbank we were fortunate to lease a good amount of that space before it even became available, but that's a typical for some of these larger spaces..

Okay.

And how soon do you think you could record revenue if you did get them leased?.

Well, revenue typically gets recorded when the space is handed over to tenants and the space is ready for its intended use. So, once they take possession and begin to build out and so on and so forth, that's when we would recognize revenue on a GAAP basis..

That will be shorter than nine to 12 months, if you're assuming you get a lease, right?.

Well, it will be once it is leased, and its handed over to the tenants, and the buildout is commencing, typically that is when the free rent period will begin and revenue will be recognized during that free rent period..

Okay.

And what about the ING space? What is latest with that?.

Well, ING is still in that space. It doesn't come back to us until January 1st of next year. They did have a sub-tenant on one of the floors, so we were able to re-lease that, so we've re-leased about 15% of that space in advance of its expiration. And we have showings. We have had showings on the space. We have some proposals out on that space, as well.

So it is being marketed, as well..

So what is the square footage you will get back on January 1st as of now?.

It is roughly 140,000 square feet..

Okay. And that's the same thing.

You will need some time to get that space ready?.

Well, that space, we'll see how it goes. Some of the interest we have had actually is contemplating taking that space as is. Its a little bit of a more modern buildout and a very efficient buildout.

Those are 25,000 square foot floor plate column-free, so you can't get -- ING built out some very efficient space, so that’s attracted some tenants to consider taking it as-is. I would not really predict we would be demoing all that space..

Okay.

Do you have an update on the 1633 Broadway retail, and how leasing is going there?.

No, we don't have any update on that, Jamie, at this point. It looks really great. I don't know whether you have been out there, the Plaza is pretty much done. And we have showings, but nothing that we could report today..

Okay. All right. Great. Thank you..

Thank you. Have a good weekend..

Now our next question comes from the line of Vikram Malhotra of Morgan Stanley. Please proceed with your question..

Thank you.

So just on the FUND VIII, can you give us a sense of sort of the opportunities you are seeing and maybe a sense of how the cadence of deployment, from a modeling standpoint, any fees or associated revenues and just more broadly what opportunities you have seen?.

Yes, we have so far already invested around $225 million. And we are having a good pipeline in deals, and it ranges all the way from 650 basis points over the LIBOR curve to low double-digits.

And it very much depends on whether its preferred equity or whether it is mezzanine opportunities, but the pipeline is quite solid, and we think that the funds will be invested most probably over the next 18 to 24 months, but we don't have to rush. We have about three years investment period for the fund, but there is very good activity..

Okay.

And then just to clarify, recently some reports that you may be looking or lining up a mortgage on 1301? Is that -- are you considering that, or are there any other mortgages you may be -- or any other buildings you may be looking at?.

Yes. We are looking at that potentially, currently as we have mentioned on the call we evaluate the opportunities that we have to proactively refinance some of our debt. We are looking at Waterview and 900 3rd Avenue, as well.

And so 1301 might be an opportunity to maybe put some debt on that asset and free up Waterview and 900 3rd in the process, we are evaluating that at this moment..

fine, we can't find a larger user right now, let's get 25,000 done? Can you walk us through that process?.

You know, it is very much depending on each asset. Each asset is very different. In 1633 Broadway, the floor size is 50,000 square feet, so we imagine at this point that most of the floors will be at least one floor leased to a maximum one tenant, but you might break it up into two pieces, 1301 a little different.

So each property is a little different approach. I mean its very unusual, the Deloitte Touche floors, it's about 220,000 square feet in total, it would be very unusual to find one tenant who would just fit in appropriately and take the same space.

So, we are looking at all these opportunities and we can say at this point that floor-by-floor kind of leasing might be generating the highest return, but we are looking at each deal separately..

And in general is your pipeline weighted towards more of those smaller tenants, or is it more of an even mix between the larger users and smaller?.

It is a very good mix. We have all types of users. I mean, you heard we are also very active in the TAMI tenant market and they are smaller and larger tenants..

Great. Thank you very much..

Sure, you are welcome..

Our next question comes from the line of Mr. Tom Lesnick of Capital One Securities. Please proceed with your question..

Hi. Good afternoon. Just a couple quick ones from me kind of moving away from leasing for a second since that has been addressed so much. The option on 60 Wall Street is coming closer and closer.

What are your current thoughts on that? And yes, I guess just what are your current thoughts on that?.

Yes. At this point we are monitoring the situation, but there is nothing really definite that we could report at this point..

Okay. Fair enough. And then Wilbur, one quick one for you.

I noticed there is a little bit of volatility in the income tax expense line this quarter, so just wondering if there is anything kind of non-reoccurring in there, or if there was a tax credit or something just kind of buried in that line item?.

Sure. Tom, there actually was in our Washington, D.C. business prior to the IPO, they filed separate taxes for the unincorporated business tax returns, and now given we are a public company and we can do a combined tax return, we were able to record a $1.7 million tax benefit as a result, so that's why that number is popped up this quarter..

Very helpful. All right, guys. Thanks a lot. Thank you..

Thank you..

Our next question comes from the line of Mr. Rich Anderson from Mizuho. Please proceed with your question..

Deloitte, Commerzbank, ING and Assured, those four spaces, can you put in context what that equates to from an NOI perspective, once they are all addressed relative to that $86 million number that you mentioned earlier.

How much do you add to your pent up NOI opportunity even if its a few years from now?.

That is very hard to go into at this point, Rick, I hope you appreciate that we don't want to answer that in detail..

Okay.

But is it, could you say, it's much larger than the $86 million?.

The thing I will add, Rick, if you went back to our supplemental probably to the prior quarter you had the expiring square footage and the rents, because we had broken it out by segment and by quarter. I think you can come up assumptions on what you want to re-lease that space at, and come with numbers, but that's about as helpful as we can get..

Fair enough. I can do that I suppose. And then the second question is, I know you have mentioned the only way to lease space is to white box it and make it presentable and all that. And I get that. But certainly there are times when markets are so strong that you could give it back to them with the garbage can still full and someone would take it.

You've seen markets like that. You have seen New York like that I am sure, in your careers.

Is that correct? And is this just kind of a reflection of, not a bad market, but just a good but not great market?.

That is a very good question, Rich. It really depends on asset by asset and on space by space as Ted was pointing out. The ING space, for example, as being very efficiently built out and the Deloitte Touche space, for example, is a very old space, so you cannot expect that someone, a tenant would be shoe horned right in there.

Normally if you have a tenant who wants to take 100,000 square feet plus, he has quite some definite goals of how to lay things out. It would very unusual.

When you have a smaller tenants coming into an asset that rent say 5,000 to 10,000 square feet, its much easier to shoe horn them in existing space, and it really depends on the size of the tenant and the term of the lease and the quality of the tenant buildout, at this point..

Okay. Fair enough. And then lastly, I know you don't have any update on the retail space at 1633. But can you characterize the pace of traffic, or whatever.

I drive by that every day and I see the cube is prominently displayed now so I am curious, can you talk about the quality of the traffic and how it has changed over the past several months?.

Yes, Rich. That is a very good question. We definitely have good interest in the cube, and it is much easier to visualize at this point for potential tenants, but it is also that we have been very selective. We didn't want to rush, and we are very, very selective in what tenant we would like to consider for that location.

I mentioned before on these calls that this is our headquarter building with approximately 2.5 million square feet of office space. So we want to be very conscientious of keeping that space in Class A and trophy condition, and that is why we are so selective.

I think over time this will be to the benefit of the shareholders, because retail rents are still in the Broadway segment very solid and potentially even increasing. So we are not in a rush to make that decision..

Okay. Fair enough. Thanks very much..

Sure. You are welcome..

Our next question comes from the line of Vincent Chao of Deutsche Bank. Please proceed with your question..

Yes. Good evening, everyone. I want to go back to the comments. In terms of the market, not necessarily seeing the New York market getting any tougher, but just curious, it looks like the TIs and leasing commissions as a percentage of initial rent is a little higher than we have seen in the past few quarters.

And just curious if you could maybe provide some color on that, particularly in light of the fact it seems like there was a fair number of renewals this quarter?.

Vin, as Ted had highlighted earlier, wouldn't read too much into it given its a function really of term. The number we showed the quarter is a TI, I think it commissions for square feet per annum. And the terms were a little bit shorter which is why it was elevated slightly this quarter..

Yes. I would say overall the way we are seeing the market, we haven't seen concessions really change from where they have been at this time even last year. We are kind of in the same place..

Okay. And then just maybe moving on to the D.C, I know, it is a slow market right now and elections don't help that, but you seem confident that you'd be able to announce some leasing some time this year if I heard correctly.

I am just curious if you can provide some additional color on why you feel so confident in that? I mean, any other commentary or anecdotes you can provide in terms of what you are seeing there?.

If you look at the history of the company, going back when we went public in November of 2014, our portfolio in Washington was on average 80% leased, and the team has done a terrific job in a not so strong market to lease up to currently, with the exception of 2099, to 97%. So I will ask Ted to add to this.

We have been able to lease up our portfolio quite expeditiously. And I think that both for the quality of the assets and the locations and the team that's doing their job.

Ted?.

Yes. And you saw that we did some leasing in the first quarter in D.C., and we have been fairly diligent about looking at finding the right tenants for 2099. And I guess all I can just reiterate is that we feel confident that in the near future we will be able to announce some more deals at 2099. That's really our opportunity.

Our other buildings, we have a couple of small pieces of space left we all [Indiscernible] on as well. In a flat market I just think our assets continue to outperform that market based on their quality and location..

Okay. Thanks. Then just going back to the comment on the, trying to proactively take out some of the pending debt maturities, 900 3rd and Waterview.

The guidance you provided today, that does not assume any activity on that front, does it?.

Well, the guidance that we provided during the beginning of the year, we provided interest expense assumptions as well. And that is factored possibly, one or two refinancing during the year. As you know we completed 31 West this year, so it does factor a potential, another refinancing in this year..

On top of 31 West 52nd?.

That is correct..

Okay. Thank you..

Thank you, Vin..

Our next question comes from the line of Jed Reagan of Green Street Advisors. Please proceed sir..

I just want to make sure I understood this correctly.

But the nine to 12 months of downtime you quoted from when you can first start showing space, that was just an average for how much time it would take to just sign the lease, and then on top of that you would have whatever lag to when the lease started, or a free rent period or so forth, is that correct?.

That's an estimate of downtime. You know, again, that doesn't mean we are not marketing the space before. I mean with Deloitte space and Commerzbank space specifically, we knew Deloitte was going to move out of 1633 because they had moved their headquarters over to 30 Rock. That was known for a long time. That was a planned move.

Commerzbank had subleased all of their space so they weren't even in the -- they were the master tenant but they were not in the building, so we were marketing space beforehand, as well..

Okay..

It is much easier to market the space when it's a subtenant than having a tenant like Deloitte Touche still being in the space and using it 100%, so that is why I think the team was really successful in basically leasing 50% of the upcoming Commerzbank space..

Okay. I just wanted to make sure you weren't saying GAAP revenue would be recognized within nine to 12 months..

No..

Great. Okay. And then one last one for me.

What are your expectations for rent growth in your submarkets over the next year or so?.

So, I mean, New York has been fairly -- We have seen positive rent growth but low to mid-single digits and I think that's really, until we see availability start to creep down, that's generally what I think we will continue seeing in New York.

San Francisco, we thought the market would slow down actually a little more, but the market still seems to be double-digit year-over-year rent growth. I think it is still over 10% year over year.

So it continues to be a very supply-constrained market, and as long as that availability rate keeps ticking down, I think San Francisco at this point, there is just not a lot of space to lease to set new rent levels. But I think we will continue to see strong rent growth there. In D.C., probably another flat year given it is an election year.

I think that's kind of what our outlook is for the near term, anyway..

That low to mid-single digits in New York, that's been sort of steady with what you have seen over the course of this year?.

It is. It is. Yes..

Great. Thanks, guys..

Thank you..

Ladies and gentlemen, we have reached the end of our question-and-answer session. I will turn the call back over to Mr. Behler for any closing remarks..

Thank you all for joining us this evening. We look forward to updating you all on our continued progress when we report our third quarter results in October. Goodbye..

Ladies and gentlemen, this does conclude our teleconference for today. We thank you for your time and participation. And you may disconnect your lines at this time. Have a wonderful rest of the day..