Marc Holliday - Chief Executive Officer, Director Andrew Mathias - President, Director Matt DiLiberto - Chief Financial Officer David Schonbraun - Co-Chief Investment Officer Steven Durels - Executive Vice President, Director of Leasing and Real Property.

Ross Nussbaum - UBS Nick Urico - UBS Michael Bilerman - Citi Manny Korchman - Citi Tony Paolone - JPMorgan Vincent Chao - Deutsche Bank John Kim - BMO Capital Markets Tayo Okusanya - Jefferies Jamie Feldman - Bank of America Merrill Lynch Alexander Goldfarb - Sandler O'Neill John Guinee - Stifel Jim Sullivan - Cowen Group Brendan Maiorana - Wells Fargo Jordan Sadler - KeyBanc Capital Markets Craig Mailman - KeyBanc Capital Markets Jed Reagan - Green Street Advisors.

Thank you, everybody, for joining us and welcome to the SL Green Realty Corp's third quarter 2015 earnings results conference call. This conference call is being recorded. At this time, the company would like to remind our listeners that during the call, management may make forward-looking statements.

Actual results may differ from forward-looking statements that management may make today. Additional information regarding the factors that could cause such differences appear in the MD&A section of the company's Form 10-K and other reports filed by the company with the Securities and Exchange Commission.

Also during today's conference call, the company may discuss non-GAAP financial measures as defined by the SEC Regulation G.

The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website at www.slgreen.com by selecting the Press Release regarding the company's third quarter 2015 earnings.

Before turning the call over to Marc Holliday, Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call please limit your questions to two per person. Thank you. I will now turn the call over to Marc Holliday. Please go ahead, Marc..

Thank you. Good afternoon and welcome. Just to confirm, you are dialed into the SL Green third quarter earnings call and what a quarter it was.

We had an enjoyable summer executing on nine different disposition transactions that were part of a designed and deliberate strategy to take advantage of favorable market conditions that exist currently, reduced structural complexity where it exists and reduced overall leverage and back fund the closing of the acquisition of Eleven Madison Avenue in $2.6 billion, iconic asset located on Madison Square Park and housing the U.S.

headquarters of CS and Sony. In total, these transactions aggregated to $1.7 billion of activity which upon closings will generate almost $680 million of net proceeds to the company and most importantly the Manhattan sales were transacted at an average cap rate of 3.3% on current cash NOI.

That's less than the 3.5% cap rate bogey we had set forth to shareholders in June. This should dispel, in my opinion, for now any notion that macro external forces have reduced or repressed the desire of international investors to covet prime Manhattan real estate assets.

And a list of very recent transactions that I will run through right now and this recent is defined as the last three or four months since the end of Q2, was the purchase of a substantial interest in the Trinity portfolio by Norges, a Norwegian investor, a recently announced deal in excess of $5 billion to acquire the Stuy Town residential complex in combination with Canadian Investor Ivanhoe Cambridge, Alliance's recapitalization of 114 Fifth Avenue, a German investor, 520 Fifth Avenue acquisition by a Chinese investor done not too long ago, 370 Lexington was purchased by a Japanese investor and in the list of dispositions I mentioned earlier, there were two specific transactions that involve foreign capital.

So clearly that market still seems to be, in our opinion, very much there, very much alive.

And while we were busy negotiating and documenting the terms of these dispositions, we also managed to take advantage of several value add opportunities such as our acquisition of the SoHo building at 110 Greene Street, the development assemblage of 187 Broadway and the development assemblage on the Upper East Side.

I hope our shareholders will join me in extending my compliments to the men and women on the SL Green team that worked with urgency throughout the summer to bring about this extraordinary result.

The net result is that we will meet our funding goals for the $3 billion of 2015 acquisitions, obviously inclusive of Eleven Madison upon the sale of just one more asset, 1745 Broadway which we have just introduced into the market and the completion of several pending refinancings.

Notwithstanding these achievements, we will continue to sell additional assets in order to accretively fund the significant pipeline of investment opportunities that we are currently working on.

When we look at asset sales of the kind that we are executing right now as being the absolute best form of equity capital to fund this opportunistic pipeline and in looking at how the cap rate, the resulting sale cap rates relate to our portfolio and the valuation of our portfolio, I am always interested by the fact that at $120 a share roughly, where our stock price trades today, that's an implied cap rate on Manhattan assets of 5.3% and to get right to it, if you were to value that same portfolio of Manhattan assets at a 4% cap rate, that would be $153 share and at a 3.5$ cap rate, that's $173 a share.

So that's not an opinion of NAV per se.

One way or the other, it's simply a straight math that results when you apply the kind of cap rates that we routinely see not just in the deal that we have executed on during the last three or four months, but really, if you look back over the last year or two, the kind of results we get when we put out prime stable Manhattan assets for recycling, these are the kind of results we get time and time again.

So however gets digested, we wanted to bring that to light. And I want to turn out to the leasing side and the leasing should not at all be overshadowed by the enormous volume of activity on the transactional side because the leasing results for the quarter were once again exceptionally strong and in line with our increased goals for the year.

We continue to achieve approximately 15% mark-to-market on new Manhattan office leases and in fact that number is higher for the same-store leases we have executed during just the first three weeks of October. So in total, we have leased 63,000 square feet in October in the first three weeks, some of which were same-store, some which were not.

And more importantly, we have a pipeline of leasing activity totaling 1.4 million square feet, which is substantially higher than each of the last three quarters. I would say each of the last three quarters averaged about 1 million square feet of pipeline.

We now sit at 1.4 million square feet of pipeline of which 750,000 square feet of leases are either in negotiation or out for signature. Most of that's in negotiation.

But as I have said before, the leases in negotiation have a very, very high probability traditionally of closing and we would hope to close most if not all of that 750,000 square feet, although not necessarily all by year-end, but that pipeline is growing, not shrinking.

So I am sure we will be asked to expand upon that activity during the Q&A portion of the call, but the takeaway I would hope is a vibrant leasing market that did not take a pause during the slower and more volatile summer months.

So with that, I am going to turn it over to Andrew Mathias, who I think is going to give you a little more insight into some of this activity, as well as the structured finance activities for the quarter..

Thanks Marc. Our big announcements this quarter were the sale of our fee position at 885 Third Avenue and our new student housing development at 33 Beekman. 885 brings to a close the last of the 2007, 2008 fee positions we purchased.

Our returns in this program were extraordinary, taking highly secure senior positions and assets, applying appropriate fixed rate long-term leverage and letting the positions appreciate.

885 will generate an IRR in excess of 10%, combined with over 17% IRR on 2 Herald and 15.5% IRR on 292 Madison, extraordinary returns for our shareholders on AAA risk type positions.

Don't think this business line has discontinued as we continue to actively look for additional opportunities to complement 635 Madison Avenue and 562 Fifth Avenue in our current fee portfolio.

At 33 Beekman, on Tuesday our team joined Pace University's senior management team to cut the ribbon on what we believe to be the tallest student housing project in the country at 382 feet. I am very proud of our construction team for delivering this ground up project on time and on budget, successfully navigating the many complexities of the site.

Pace is thrilled and Wednesday we announced a contract to sell the asset to a foreign buyer at a very compelling cap rate of 3.9%. In addition to an extraordinary return on our investment, with a projected property level IRR in excess of 40%, we expect to receive a promote on the deal in excess of $10 million when it closes early next year.

Needless to say, we are hard at work identifying new sites to continue this business line as well where we have had extraordinary profits in our student housing division. We expect more news on the sales fronts in the fourth quarter as we continue to take advantage of great market conditions in Manhattan.

On DPE, debt and preferred equity, net originations slowed down a bit this quarter as several repayments we anticipated rolled in over the course of the quarter.

That said, we have a very full some pipeline for fourth quarter and debt market dislocation, which shook things up a bit in August is giving us an extraordinary opportunity to maintain or in some cases even increase retained yield on positions in that pipeline that we would expect to close the year on target and with extraordinary profitability and high relative returns.

With that, I would like to turn it over to Matt..

Thanks, Andrew. Our third quarter results showcase the strong performance from both our real estate and debt and preferred equity portfolios as well as the successful execution of our publicly disseminated real estate disposition and reinvestment strategy.

Taking into consideration these results and looking ahead to the fourth quarter after just increasing guidance back in July we are again increasing our NAREIT defined FFO guidance range to $6.34 to $6.37 per share, putting us on track for almost 9% FFO growth year-over-year.

Looking through the third quarter results in the real estate portfolio, the effect of the acquisition of Eleven Madison on August 18 and 110 Greene Street at the end of July contribute to an increase in several line items on the income statement as well as cash NOI, partially offset by the sale of an 80% interests in 131-137 Spring Street on August, 4.

Excluding the effects of those transactions, our property operating results continue to see the benefit increasing portfolio occupancy in Manhattan which now stands at over 97% on a leased basis in the same-store portfolio and mark-to-markets in excess of our expectations, coupled with the continued containment on operating expenses.

Historically operating expenses are much higher in the third quarter than they are in the second and that is what we saw again this year with a much more modest increase than expected. All these factors have contributed to same-store NOI growth of 4.6% through the first nine months and put us on a path to end the year well ahead of our goal of 3.6%.

In the debt and preferred equity portfolio, our balance decreased to $1.5 billion and we received repayment totaling $262 million during the quarter, which was consistent with our expectations. As Andrew outlined, we have a significant pipeline of new originations for the fourth quarter at yields that exceed the 8.5% we expected to achieve in 2015.

This pipeline of activity which is weighted towards the back half of the quarter will bring our portfolio balance to between $1.7 billion and $1.8 billion by the end of the year with the overall portfolio yields remaining lower than 10%.

In other income, the FFO from our real estate and debt and preferred equity portfolios was complimented by $5 million reduction in the prior year tax obligations of our taxable REIT subsidiary.

This benefit comes as a result of an enormous amount of analysis by our tax professionals who reviewed the cost-sharing structure between our TRS and our operating partnership, including the reimbursement of corporate overhead by the TRS.

As you all know, we are very focused on creating efficiencies through tax structuring and strategy in everything we do. So kudos to our tax director Mike Barber for his efforts in this regard. Also included in other income during the quarter was the recognition of lease termination payments totaling about $4 million.

As we have said in the past, we don't view lease termination income as nonrecurring, since historically we have recognized some level of lease termination income virtually every quarter. This is simply the accelerated recognition of lease income that we otherwise would have received overtime.

On the expense side, given all of our investment activity during the quarter, highlighted by the acquisitions of Eleven Madison and 100 Greene, we recognized a significant amount of transaction costs, somewhat more than we anticipated.

As always, we are conservative in our view of transaction costs given that we are so active and that conservatism remains as we head into the fourth quarter with a full pipeline of activity ahead. All things considered, we are very pleased to be raising guidance for the second consecutive quarter. I think we are set up very nicely headed into 2016.

We are excited for the quarters ahead and we look forward to unveiling our 2016 earnings guidance in early December. In that regard, before I turn it back to Marc, I want to remind everyone that our 18th Annual Investor Conference is being held on December 7 here in New York City. It is hard to believe we have been holding this now for 18 years.

It is a full day event, choc full of information and maybe even a bit of entertainment. Invitations will be going out in the next couple of weeks, but if you would like more information in the meantime, please email us. The email address is in our press release, but it is SLG2015@slgreen.com. With that, back to Marc..

Okay. Thank you, Matt. And we are going to open it up for Q&A.

I just do want to echo Matt's sentiments that we certainly hope everyone listening in will be able to make it to the shareholder event in December and that's where we are going to really get into not so much a review of the past, but really a look forward to 2016 because we are extremely excited as we are sitting here now about the development opportunities, embedded growth within the portfolios and all the other things that we have lined up and we are going to be ready to talk to you about in 2016.

So look forward to seeing you in December. And with that, we will open it up to Q&A..

[Operator Instructions]. Our first question comes from Manny Korchman of Citi. Your line is open..

Can we switch back to any other?.

Our next question comes from Ross Nussbaum of UBS. Your line is open..

Ross, are you there?.

I am here.

Can you hear me?.

Yes..

Okay.

You can hear me now?.

Yes. Go ahead..

Okay. Thanks.

Can you talk a little bit about the structured finance book? In particular, it sounds like you are actually pretty bullish about potential originations here stemming from some of the turmoil in fixed income markets, but I am curious how you think about whether what's gone on with the fixed income market has been a bit of a canary in the coal mine and perhaps should use it as an opportunity to let some of the portfolio roll off and derisk that part of the business a little? And how do you balance those two views?.

Yes. I think it's more of an opportunity to get better risk-adjusted returns, which means either charging more for capital at a similar position in the capital structure or taking the opportunity to move more senior in the capital structure and charge same as we were previously getting for junior.

There was quite a bit of dislocation in the CMBS market in August and every time there is that kind of dislocation, we find extraordinary opportunities shaking out where you have capital structures that are short proceeds, because people get caught back in the CMBS market.

So I think it's less -- we view it as less time to pause and more time to take advantage but make sure that we are increasing our risk-adjusted returns at whatever portion of the capital structure we are lending at..

Okay. I am going to let Nick Urico ask our second question..

Yes, thanks. So I was hoping you could a little bit more about in New York City. Where do you think the overall market is right now for rent growth? There is debate whether it's 5%, whether it's lower than that, whether it's 10% for the best buildings.

Maybe if you could just talk a little bit about what you are seeing in the market for rent growth and how it's trended this year and how you think it might move into next year for the overall market? Thanks..

Well, you could slice and dice it 20 different ways depending on the quality of the building, the submarket, the base versus the towers, the various sizes of tenant requirements and then the profile of the requirement itself. I would say, generally speaking and let's focus on Midtown, because Midtown has been extremely active this year.

Rent growth this year has been strong across the board. We haven't really seen any let up in demand on whether it's the bottom or the top or on the more price sensitive, versus the high price point product.

I would say that overall, Midtown has got more opportunity for rent growth than does Midtown sell at least in the near term because there is more inventory available and the demand is going to follow where the supply is. And we see a lot velocity is deals in the pipeline for Midtown right now.

So to put a number on it, between now and 12 months from now, I would be very surprised if we didn't see at least 7% to 8% of rent growth..

All right. Thanks. That's helpful..

Thank you. Our next question comes from Manny Korchman of Citi. Your line is open..

All right. It's Michael Bilerman.

Can you hear me now?.

We got you, Michael. Yes..

All right. Two questions. One for me. Marc, in your opening comments, you talked about a pipeline of accretive and you called them opportunistic opportunities.

I am just wondering if can share or may perhaps Andrew can share what does that encompass in terms of sizing but also the types of deals that we should be expecting from this pipeline?.

Well, I think that -- I don't think we want to completely give it away. So we generically describe it as this kind of stuff we have been buying to some extent. So it's a mixture of high quality office and more opportunistic mixed-use, meaning either a resi-retail or office-retail products in the Midtown South market.

So I think it's a combination of those two types of profiles. That's just on the equity portion. I am not speaking to the structured finance pipeline, which Andrew spoke to separately, or can add more commentary to separately.

But I am just talking about fee opportunities that we are working on currently that is being set up with the right process and right pricing could result in some additional acquisitions over the next three to five months..

But I just add, Michael, if you look at 110 Greene and 187 Broadway, the two transactions we announced in the quarter, those are completely off market deals.

Never marketed, one-on-one negotiations and structured deals where we were able to deliver the seller equivalent or more net proceeds without them going and taking a full cash price from the market. We are still seeing those types of opportunities as we always have.

They are just longer lead time and they mature as they are ready without the pressure of a marketed process. So we still do have a lot of those types of deals in the pipeline..

Hi. It's Manny here with Michael.

If we look at 885 Third deal, can you just close in as to how they were structured and why there was such a big preferred equity component? And on the preferred, if you could just give us the term and the rate?.

Sure. I think the preferred equity term is five years. The rate will wind up being in the high-5% range. And I think our thinking there was the structure contains a lot of variability in 2020 and part of the motivation for selling the asset now was to have certainty as opposed to that variability of outcome in 2020.

So us providing the preferred would have allowed us to get a good cash return in the interim and not the first in line, depending on what happens with the asset in 2020..

Okay. Thanks..

Thank you. Our next question comes from Tony Paolone of JPMorgan. Your line is open..

Thanks. Good afternoon.

This week there was some concerns that have emerged around tech tenancy out on the West Coast and with TAMI having driven a lot of the growth in New York, can you give us some views on how you see that space, particularly as it relates to tenant credit and venture funding and how you guys think about that right now?.

Well, you have got to remember, Tony, I don't have the number in front of me. I am going to guess we have 5% or less exposure to pure tech tenant.

And certainly the type of TAMI tenants that you are talking about, which would be credit concern tenants, I think it's a very small portion of the portfolio and traditionally we have had very little loss in that segment, even when there were times of distress back in 2000 and 2001, et cetera.

So I think that the way we think about it is kind of the way we run the business, which is oriented towards companies that are largely investment grade, established, bigger companies. We have made some investments in the Midtown South area like 635, 646.

But even in that building, which has a fair amount of tech tenants, they are all very high-quality like Infor, Microsoft and Yelp. So I don't know that that doesn't raise any red flags for us on the credit side of things.

I think we have sold properties in the past where we felt there were some credit exposures to try and head off what may be coming down the pipe.

But I would simply say that just look at the supplemental with the disclosure of our tenant profile and you will see that regardless of how that market develops over time and there is always going to be ups and downs and what's essentially a cyclical and an emerging kind of industry, I don't see that having any impact, any material impact on the portfolio as it has in years past..

I think a very small fraction of the 5% of tech Mark referred to is at all reliant on venture funding, which I think maybe 1% almost. I mean 1% of the 5%, maybe, not even 20% of the 5%. I don't think venture funding is at all relevant to our tenancy whatsoever.

The tech tenants we have are large public tenants and we took a measure this quarter to sell the 36th Street asset, which had an exposure to venture funded type tenant..

Okay. Got you. Thank you.

My second question on One Vanderbilt, can you give us a sense as to how you think about depth of market for tenants at that price point? I think there is some other product going up at a fairly similarly high price point? And then you have sort of the alternative of the West Side or downtown at a much lower new construction price points.

So as you guys move forward with that project, how do you think about just the pot out there that you can go get at that price point?.

Yes. Tony, I think we are going to go through that in an extensive amount of detail in December.

And I would sort of urge you to wait till then to hear from Steve and some of the brokers we have working on deal will take you through the building, the special aspects of the way it's designed, the way it's monetized, the kind of tenants it will appeal, the way in which we are marketing, we will begin marketing that building, it really I think when you there is other buildings going up of a similar, is really almost none.

There is maybe 425 Park, although the majority of that is anchored and what's left is very small floor plates. So I actually don't know anything that is going up that will be delivering in 2020 that I would call competitive product in AAA location.

And the tenants that will be looking for large blocks of uses between 500,000 and a million square feet and over on the West Side really don't even enter our target market for the most part, because we see this building likely be tenanted by tenants ranging anywhere from 50,000 feet to 250,000 feet looking for very high-end, very highly monetized, very high design, very well located brand-new office space with views that are sort of unparalleled in Midtown, because of the height of the building.

So I don't think there is a lot of competition. That doesn't mean we don't have to think long and hard about who is that tenant base and how are we going to attack them. And that we will go into in great detail in December, but suffice it to say the reception to the building from the tenant community so far has been excellent.

And if anything, given that it's only 2015 and we are talking about occupancy in 2021, 2020 possession date for occupancy in the end of 2020, 2021, for tenants in that 50,000 to quarter million square feet range, it's a little early, which I would say is obvious. But I just wanted to state that.

But the reception generally has been excellent and I don't think the price points we have established for the building are going to be a resistance level for these types of tenants..

Okay. Got you. Thank you..

Thank you. Our next question comes from Vincent Chao of Deutsche Bank. Your line is open..

Hi. Good afternoon, everyone. I just wanted to go back to guidance for a second here. Understanding that there is a second quarter roll of raise here, but given the magnitude of the beat here in the quarter and some of the drivers there, I guess I would it would have rolled a bigger raise.

So I was just wondering if you could provide some more color on sort of what the key drivers of the upside here are? It does seem like you are tracking well ahead on the same-store front and leasing velocity sounds very strong as well relative to your expectations..

Yes. With only months left to go, I feel like our visibility for the end of the year is pretty solid at this point.

A lot of what we reported in the third quarter was expected off the balance and otherwise slightly ahead on a handful of things that put us in a position of generally increase sequentially two quarters and there is really outperformance and there has been. But by and large, the stuff that we saw in the third quarter was in line with expectations.

A lot of the leasing momentum that we have when I say we are excited about 2016, that's really going to have an impact in 2016 and beyond, not for the last two months, three months a year..

Okay. So the real estate tax what was contemplated, I guess. Okay. I guess just another question in terms of the total overall demand that you are seeing. We talked about the tech component of it.

I am just curious if there is any other shifts or changes that you have seen in sort of where the demand is coming from in New York?.

Financial services is really, what was missed in the last conversation was, it's not so much about where TAMI is, even though that was the big story for last year. The difference this year is that financial services has been the driver of leasing activity across the Manhattan market.

Certainly within our pipeline, we have got lease out 100,000 square feet of that is financial services related and in the term sheet stage, we have got almost 300,000 square feet of deals pending with financial service type tenants. So strong demand there. The other driver, healthcare continues to be a big push in Manhattan.

So does education, the administrative side of education. We are seeing some large leases come in the pipeline off of that as well..

Okay. Thanks..

Thank you. Our next question comes from John Kim of BMO Capital Markets. Your line is open..

Thank you. I had a couple of questions on retail. This period you signed a high rent deal at 125 Park Avenue.

Can you provide some color on the kind of tenant you signed there? Whether or not this was conversion space? And if it was conversion space, how many other opportunities do you have to convert officer lobby into retail?.

I guess at 125 Park, I think we signed two deals this quarter. Haworth, which is the showroom tenant on the ground and second floor and then we did convert a bunch of basement and storage space into retail, combined that with the unit on the first floor and signed a major fitness operator into the space to open a gym.

So I think that is very indicative of the work day in and day out our retail group is doing, diligence-ing the assets we own in addition to the asset we are purchasing to try to find areas where we can expand the retail footprint and convert lower revenue generating space into higher revenue generating space.

So there is a lot more of that opportunity in the portfolio..

Do you have an estimate as to how much that may be?.

We had put up a slide in December..

Right..

But that will have to be modified, because some of the leasing has taken place this year. But the slide in December that I recall, was something like $160 million of incremental NOI over the next five years, our share, that represents our share coming strictly from retail assets.

Now in that regard, there has been retail leasing, but we have added retail assets. So we will have to do that reconciliation for you in December. But suffice it to say, it's enormous.

I look at that number as coming from the retail which is not a segment of business we have a lot of capital devoted to like we do on the office sector, much more capital devoted there. So pound-for-pound, that kind of NOI lift over the next five years coming from that segment is enormous.

But I can't tell you at the moment the exact amount of NOI expectation we have from retail over the next five years. We will have that for you in December..

Okay. And then my second question on retail is the potential releasing spreads going forward. I am looking at slight 50 and your asking rents estimates. It looks like it actually went down for three or four retail buckets you have compared to the second quarter.

And I was wondering how much of this was due to the mix that have changed compared to maybe more conservative views on retail and maybe some softness on the retail market?.

John, it's Matt. It's more a mix in that portfolio. We sold some stuff based on occupied space. So depending on when space rolls in and rolls out, that could change. But certainly our view of retail has not changed..

We are not seeing rental declines in any of our retail assets..

The mark-to-market that was associated with the presentation I was referring to just earlier generated $160 million or so of incremental NOI, had a mark-to-market, as I recall of about 100%. So I don't know where how that compares to the supplemental..

That's all in the same [indiscernible]..

About 100%, right. So I think it's fair to say, on average there are some properties we have in well-built prime and the prime retail segment where rents may be marking 200%, 300%, 400% literally to market.

And then there is other aspects which are 20%, 30%, 40% but on average at least as of with December, it was about 100% and as Andrew said, we have not reduced retail rents I don't think anywhere in the portfolio. Did we reduce it anywhere? No.

So it has to be solely mix or the occupancy that is coming up in any given year some has higher mark-to-market, some lower. But again, I would look at it more portfolio basis, as opposed to any individual quarter or year. And on that basis that 100% embedded growth..

Okay. Thank you..

Thank you. Our next question comes from Tayo Okusanya of Jefferies. Your line is open..

Hi. Yes. Good afternoon, everyone. Good quarter. Matt, just a quick one for you.

When we do think about the sources and uses of funds over the next few quarters, again the slight gap you still have left to fully fund Eleven Madison, could you talk about how large that is? And whether you expect all that to come from the debt refinancing that you are talking about? And if that isn't indeed is the case, if you do end up with excess proceeds, is the idea to continue to delever going forward?.

So Mark talked about the incremental asset sales over and above 1745 as now being sources of capital or other accretive opportunities. Just speaking to, what we like to call the Eleven Madison rubric, the totality of the acquisition and sales that [indiscernible] into it.

Fund percentage is 45%, the sales have all been completed, consistent with our plan. So that leaves us with financings and refinancings that are in process that generate incremental capital to the program..

Great. And just to expand on that, in June we put up a presentation, which showed a funding plan for Eleven Madison, but also for $400 million of additional acquisitions. We are about $200 million of equity through that $400 million. So we will sell more assets likely beyond 1745 Broadway, as I mentioned earlier.

And those will go to fund those incremental acquisitions to fill out 200 and then possibly beyond that as well, because we will go beyond. But if the question is just to close out the Eleven Madison, I think what I said earlier was 1745 plus the refinancings closes out Eleven..

And as the delivering tile, obviously we closed Eleven Madison using our corporate liquidity and corporate facilities. So now with every sale that we consummate that will go down too as part of the [indiscernible] that will go back to repay those facilities taking a leverage write down..

But if you look at where we started the year and where we finished at the end of consummating all the transactions, all of our leverage ratio is based on 2015. EBITDA is right back in line and then in 2016 improves as we expect 2016 EBITDA to exceed 2015 EBITDA.

So we should have improvement in all those ratios, notwithstanding the enormous acquisition that we were able to achieve by ourselves without partner, without issuing any common equity and obviously as markets improve, the ATM becomes an option down the road, but clearly at the levels we had experienced, we have been relying solely on the asset sales and that's proven to be an excellent strategy, we think..

That's very helpful. Thanks for clarification..

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

Thank you. Just focusing on the leasing pipeline. Can you talk about how much of that pipeline is new versus renewal? And then also maybe break it out into the different sizes you are seeing? I think you mentioned there is a 200,000 square foot potential financial services users.

And then just thinking about the different corridors, are you seeing more demand for high-end Park Avenue, Sixth Avenue, Midtown South?.

Of the leases that are out, the majority of it is new deal. In the pipeline of deals that are being negotiated, it's probably sort of 50/50. As far as locations, the majority of deals that we are working on are all Midtown. It's kind of all spread downtown or Midtown South, but the majority of it is Midtown.

And what's interesting is that a good chunk of, I would say a very large percentage of the deals that we are working on, both in pipeline and/or leases that are out, are for spaces that aren't becoming available until 2017, whether those are early renewals or whether they are forward commitments for space were space that we know we were getting back in 2017.

So that's where a lot of our attention is right now. We have very good visibility, obviously, through the end of this year and for most of 2016. But we have got a deal roll in 2017 and the good news on that we have got some very large deals in the pipeline that are going to knock the pieces off the board..

Okay. And are you seeing any shift in terms of the different avenues or parts of Midtown in terms of where people want to be or what they are willing to pay? I know you signed a Bloomberg deal earlier this year on Third Avenue..

Park Avenue is good, the rents are up but the supply is way down. Park Avenue has got one of the lowest availability rates right now in town. Right around Grand Central is compared to a year ago. There has been a lot of leasing velocity in the Grand Central submarket.

But I really can't point you to say that the demand is focused on one avenue, one submarket or one size or type of tenant. Interesting to note that two years ago, we would have been talking about how Third Avenue had a lot of supply. Now all of a sudden, Third Avenue has returned to its historical norm as far as availability.

And if you take our building at 711 Third Avenue, where we have number of deals that we are negotiating, the rents there, which is probably our most commodity light building where you would think would be the sort of weakest as far as rent growth, we are seeing a good $10 increase on rents on a number of the deals that we are negotiating today versus where we would have been a year ago..

Okay. Great. Thank you..

Thank you. Our next question comes from Alexander Goldfarb of Sandler O'Neill. Your line is open..

Great. Thank you and good afternoon. First, Marc, just going back to 885 Third. If my math is right, it looks like your preferred equity is between the 60% and 90% LTV. And I think you sell that preferred--.

No. Not right. How did you get it? I don't want to -- just as part of efficiency. 90% LTV? How did you --.

What are you using for asset value?.

I was using in your press release, the $453 million and then deducting the mortgage and then deducting the --.

Alex, it's a fee position. It's not -- you have only got like half the equation..

Okay..

There is a leasehold behind the fee. We own the fee. We traded the fee. The fee is a partial interests of the overall value of that property. There is a leaseholder out there that would like to think they have sizable, sizable equity value behind the fee position.

It's actually of over $100 million of institutional debt and then there is over $100 million invested equity and whatever it's worth, its worth. But this is no 90% of value. This is like, I would equate it almost to a AAA bond.

Right? Does that make sense, Alex?.

It makes perfect sense..

That's why I wanted to sort of just closure it there. I don't want those 90% number flowing around. This is a very secure fee asset with a lot of subordinate equity below in the form of a long-term operating leasehold position owned by foreign entities and that are institutional in nature and I think they have a ton of equity value in that field..

Right. I guess the reason the fee position is traded for the price it is traded is that it has limited upside because there is a fixed price repurchase option..

Yes. So I would look at this more as a low leverage mortgage bond that we traded. I mean that's how the deal. This was a testament to Andrew. He structured three of these deals back in 2005, 2006, 2007.

292 Madison, Two Herald, 885, where we took kind of low LTV fee positions and gave out of the money purchase options that I think were generally 10 or 15 years forward. So two of those deals we fully resolved. We made very significant returns on Two Herald and 292.

Now this deal, upon closing fully resolved, we will have achieved essentially at 10% to 10.5% IRR on what I look at essentially as a AAA bond position..

Okay. That's helpful and that explains. I appreciate that.

The second question is, on the originations in the quarter, the 7.2%, is that just a reflection of going after some senior mortgages and therefore we should expect more of the 10% going forward? Or do you think that because you guys maybe going more senior, that 10% may come down more towards 9%?.

I would expect to hold positions to be more in the overall average of our book in the 9%, 10% range, it is reflective of the fact that we have put a mortgage on the books and haven't syndicated the senior portion of it yet..

There again, I would just like to raise the point, as you talk about 10%, for earnings purposes, we model 8.5% not 10%. In the world of that big difference. So we had been achieving 10%, because we have been outperforming our projections.

Our target, just so we are on the same page, is not 10% but the guidance in any case is 8.5% on a blended basis between whatever the profile book of mortgage is for the debt has been, as Andrew said and that's likely to continue.

And if it does, then we should meet or exceed 8.35%, hopefully 10%, but I just wouldn't of course view on using that as sort of your target..

Perfect. Thank you very much..

Thank you. As a reminder, please limit yourself to two questions. Our next question comes from John Guinee of Stifel. Your line is open..

Folks, John Guinee. Thank you. Two quick ones, which are going to sound like three. First, when you first announced the Eleven Madison, my recollection is, you gave a laundry list of assets that you were going to sell and forgive me for not being able to keep track.

But were any of that original laundry list not yet announced, i.e., didn't happen? Second just out of purely idle curiosity, who is the lender on a $1.4 billion 10-year loan? And then three, what's the magnitude of the advantage of the Federal Home Loan Bank of New York relationship?.

Okay. Let's take him off..

I believe that's three questions, John, right after the operator --.

Yes. But he asked them all at once. So maybe --.

I am not an accountant, though. So it only looked like two..

All right. So in terms of the first one, I don't think we put a list out there..

We didn't publish a list of assets. We published an aggregate sales volume..

Look, we had an internal list, I would say, that was all the assets we are selling and then some, because we were kind of that triangulating market, if you will, to try and figure out of a universe of assets, which is larger than what we sold where could we get the best executions and we think we hopefully achieved that. So the answer is, no list.

All the assets we sold were within the universe of what we intended to sell and we think we sold the ones that we could get the best execution on relative to our internal assessment value. That's one.

Two, the lender on the building?.

It's a three-handed CMBS deal with three major market banks.

They are doing -- they do a single asset deal, David?.

Part of it was put in a single asset and the rest were put into separate conduit deals..

Okay.

And the home loan bank award?.

Look, I think we have been running a captive insurance for over a decade now and as part of that, we have access to the Federal Home Loan Bank, which provides us a very efficient capital to finance some of our structured positions with.

So we are going to take advantage of it and it allows us to, instead of selling A-notes originating more senior positions and finance them and have higher retained yields. So I think we may do more of it later. But it's a big advantage to us on a go forward basis..

Thank you..

Thanks..

Thank you. Our next question comes from Jim Sullivan of Cowen Group. Your line is open..

Thank you. First of all, just to go back on the 885 and I know it's a very complicated structure that was put in place there. But Andrew, I think when you describe the pricing on the transaction, you talked about achieving a 10% IRR on the investment. As I recall, at the 2020 reset on the lease is an option that I think you referred to earlier.

And I thought that option was price to delever up and unlever the IRR of about 7.5%.

Do I have that right?.

It's 7% unlevered which levers up to 10%, yes. So it's north of 10% as a levered IRR..

Yes. We always on equity type deals, we only pinpoint unlevered returns. This type of investment where we don't have the operating position and it has a stated yield and a takeout in 2020, we look at strictly as a structured investment akin to something that would be almost in a DPE portfolio and we are looking at IRRs on cash out the door.

So a 10.5% IRR is equivalent to essentially like a 10.5% we would achieved on an investment DPE. This just happens to be not DPE. It happens to be a structured leasehold and levered by kind of a low advance rate first mortgage..

Well, the mortgage on the leasehold wasn't that at a pretty high coupon? Wasn't that over 6%, I want to say?.

Mortgage on our fee or the leasehold?.

On the lease..

We don't hold the lease. It was purchased by a group that put a mortgage on it. I don't honestly recall or know what the rate is on that leasehold mortgage. But that leasehold mortgage is junior to us..

Okay. And then the second question for me on the structured finance book. This is a modeling question, but the average weighted outstanding actually went down quarter-over-quarter. I think the coupon went down as well.

And yet the income went up and maybe in terms of helping us to model this going forward, what accounts for the higher yield on the lower balance and the lower coupon?.

It's Matt. When we receive repayment, there is an exit fee that hasn't been amortized in, that's the case where the positions that got repaid this quarter that will be reflected in income in the quarter of repayments..

And so I am thinking about it for Q4 we should assume a similar kind of premium level yield on the book?.

Well, the run rate yield would to be consistent with what we have shown on average or the last several quarters. The income stream will be affected by the lower balance that we are leading off the fourth quarter with.

That trend is upward as we originate more deals towards the middle to the back half of the quarter but the portfolio yield remains fairly consistent. I said we will end the year just north of 10%..

Okay. Very good. Thank you..

I think it's mostly a function of us not controlling the timing of repayments. So if we can anticipate them and try to model them coming in, but you don't know when exactly they are going to come in and some of the exit fees are variable in amount depending on timing of repayment..

Okay. Very good..

Thank you. Our next question comes from Brendan Maiorana of Wells Fargo. Your line is open..

Thanks. Steve, you alluded to 2017 expirations.

I was wondering if you could maybe handicap what's likely with Omnicom at 220 East 42nd, where you have got a big expiration in 2017?.

We are in term sheet discussion with them about retaining some but not all their space..

And it looks like rents are mid to low-40s.

How does that compare to market?.

There is going to be a massive mark-to-market in the building..

Whether it's with Omnicom or replacement tenant..

Sure, yes. And then just second question, occupancy level of 97%, I think it's kind of an all-time high. Your portfolio quality is higher than it's ever been as well.

But is 97% occupancy sustainable? Or should we expect that to migrate down a little bit over the next couple of quarters?.

We are telling our guys, it's not nearly enough. So I don't know. There is a lot of square footage between 97% and 100%..

Thanks for asking..

So the answer is no, there is pockets of vacancy we are not happy exist. We are attacking those, albeit diminishing and we have acquired new vacancies that's not in that same-store portfolio like Tower 46 and let's hear for the Fir Tree transaction. It seems we got a little loss today.

But that was a great inaugural deal with the Tower 46 building, good tenant, good terms.

We are happy to kick that building off successfully with that rent and we have got a lot of really good-looking prebuilts that basically are done, Steve?.

Two weeks..

Two weeks away from done and we hope and expect when those prebuilts are done that they will be a hot commodities in a very good building. So I think there is still upside within that portfolio, but the upside really isn't just leasing up a vacant space. We got a lot of development pipeline.

We have got vacant space pipeline in the growth portfolio and that's not in the same-store and we have got big, big mark-to-market in the office portfolio and then massively more so in the retail portfolio.

So I don't think we are suffering from a lack of areas to identify for where the growth is coming from which is why I think we are very, very optimistic about where we were headed for 2016..

All right. Well, look forward to those goals in December. Thanks..

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

Hi. It's Jordan Sadler here with Craig. I will ask the first one.

Did you guys have a look at Stuy Town this time around? Was that on your radar?.

Short answer, no. I think a project of that scale with the political complexities there and our sort of historical experience there did not make the top of the list..

Okay. That's fair. Craig has one..

Yes, guys.

On the decision to sell the Fifth Avenue retail, just thoughts there as you guys historically had kind of taken the opportunity to make the money on the lease and this one you guys blew out a little bit earlier, before you really did any work? Is it something specific about that site? Or I guess just general thoughts on that?.

I think it was more the -- we usually make the money on the lease but we can make the money we are going make on the lease without building and doing the lease, then it seemed like a good opportunity to take money off the table and take advantage of an extraordinary buy which rather the retail team made and not have to build..

Yes. 180 Maiden Lane is a good example of that same strategy. Most of what we buy we execute as in the case with 180 and these properties don't fit. Sometimes you get an offer that's so compelling. So on to the next. There is a lot of property out there to reposition..

Great. Thanks..

Thank you. Our next question comes from Jed Reagan of Green Street Advisors. Your line is open..

Good afternoon, guys.

Other than 1745 Broadway, can you give any color on other assets that are out in the market today and maybe bracket how much you think you might build and sell in the next six to nine months on the top of the 1745 and what you have already announced in the last couple of months? I mean is this another $1 billion kind of territory worth of stuff? Or maybe just some color there?.

Yes. I think we will cover it in December. Right now the focus for us for the past four or five months has been on executing a very deliberate plan that we put forth in June. We are at the tail-end of that.

We are now putting in place our new plan, if you will, for the next batch of investments that we have been mining and we think are coming to fruition and how best we are going to fund those and from which assets we are going to be selling or capital we are going to be raising in the form of JV equity, as to the capital raised in today's environment that we look at as an alternative to selling existing asset to JV-ing of new assets.

We liked very much what we bought this year. So we didn't JV any of that product, right. SoHo has came as JV but we didn't take any partners there or Eleven Madison or on 187 or the East Side portfolio.

Correct?. So we can only use that, the ability to access private equity partnership as a means of moderating what we sell or don't sell to fund those kinds of deals. So that hasn't been decided nor does it need to be at this point, but will be over the next three to five months as we execute on those opportunities..

Okay. That makes sense. And I guess sort of related to that. You guys made some bullish comments in the opening remarks about demand from overseas investors in Manhattan.

Just curious, are you seeing any select sovereign wealth buyers that are taking a step back or getting less aggressive? Or just any evidence that bidding tents might be fitting? So marginal buyer too is on the sidelines now?.

I don't think anything we can point to. Is there anybody? Isaac, David? No? Nothing we can point to, Jed..

Okay. Fair enough. Thanks..

Okay. Thanks..

Okay. Thank you, everyone. That is it for the queue. So for anyone who is left on, we appreciate you hanging in there. Hope that we can see you in December. And that's it. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a wonderful day..