Marc Holliday - Chief Executive Officer Andrew Mathias - President Matthew DiLiberto - Chief Financial Officer David Schonbraun - Co-Chief Investment Officer Isaac Zion - Co-Chief Investment Officer

Ross Nussbaum - UBS Jamie Feldman - Bank of America Tayo Okusanya - Jefferies Alexander Goldfarb - Sandler O'Neill John Guinee - Stifel Manny Korchman - Citi Michael Bilerman - Citi Steve Sakwa - Evercore ISI Brendan Maiorana - Wells Fargo Vance Edelson - Morgan Stanley Craig Mailman - KeyBanc Jed Reagan - Green Street Advisors

Thank you, everybody, for joining us and welcome to the SL Green Realty Corp's second quarter 2015 earnings results conference call. This conference is being recorded. At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. Actual results may differ from the 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's Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed, and the reconciliation of the difference between each non-GAAP financial measure, and the comparable GAAP financial measures, can be found on the company's website at www.slgreen.com by selecting the Press Release regarding the company's second 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, everyone, and thank you for joining us today. We are pleased to take you through our second quarter results, which are certainly representative of an investment strategy that is paying off in the form of outsized gains in an operational approach that is producing sector-leading same-store performance. Accomplishments for the quarter are numerous, and they are highlighted by the following: accelerating FFO growth; outsized same-store cash NOI increase; over 1 million square feet of leasing executed in the quarter; strong occupancy gains; premium debt and preferred equity originations; and several large and strategically important acquisitions and dispositions. I think the best way to summarize our current thoughts on the market is to look at our things in the context of how they will drive our future growth, and build upon our portfolio of quality and liquidity. Our leasing efforts continue to benefit by having well-positioned and fully redeveloped properties in Manhattan's most desirable submarkets, against the backdrop of a strong local economy, producing record private sector job growth and robust demand for office space. Last year, New York City generated 54,000 new private sector jobs in the first six months en route to 104,000 private sector jobs added for the full calendar year 2014. So far in 2015, first half private sector job additions are at 62,000 jobs added, eclipsing last year's first half amount and setting the stage for the fifth consecutive year, in which private sector job growth would exceed 90,000 incrementally. These kinds of job growth statistics will produce approximately 4 million square feet of new demand annually around the city, which is the driving force behind a declining vacancy rate, which Cushman and Wakefield now pegs at 8.9% for Midtown and 6.2% for Midtown South. The city economy has grown rapidly, notwithstanding an only moderate recovery in the financial services sector, emphasizing New York's increasingly diversified business base. What's important here is not only by how much office using tenants are growing, but where they are growing. Midtown leasing has been exceptionally strong, reaching 10.5 million square feet of leasing and accounting for 94% of total Manhattan absorption in the first half. And no one in the city is better positioned to benefit from this dynamic market than us. We have leased over 1.3 million square feet through June. And for good measure, we have already signed leases for in excess of 250,000 square feet in the first 22 days of July. As importantly, the leasing is being done at rental levels that are representative of a resurging Midtown market, and we are routinely achieving double-digit mark-to-market increases off of expiring same-store lease expirations. With over 1.5 million square feet of office leases signed in Manhattan and another 1.1 million square feet in our current pipeline, by the way, an amount that is the highest in the last four quarters, we are raising our leasing guidance to 2.2 million square feet for the full calendar year, which is the self-imposed raising of the bar on the amount of leasing activity to be completed in just over the next five months. So these leasing results, the economy, the leasing backdrop, is clearly going to help drive the momentum behind the drivers of growth that we have. In great detail, step through back in December, and we repeat often to our tenant base and our shareholder base; stabilized office mark-to-market, we expect to be significant and we expect that to continue through the balance of the year. Our growth portfolio is leasing at a very fast clip, as evidenced by the fact that we had a dominant amount of new versus renewal leases in the second quarter. And the retail portfolio leasing continues to be strong, as evidenced by the Adidas lease we just signed, in combination with the other retail leases signed throughout the year. However, another means of driving growth and increasing quality portfolio away from the operational metrics is through our investment strategy and the strategic rationale, which is underpinned by our purchase of 11 Madison Avenue, which was also announced during the second quarter. 11 Madison achieves a number of things for the company, some of which we put up on the deck on our website. So for those that haven't seen it, I would encourage you to pull up the 11 Madison transaction summary. But some of the highlights therein is that, this represents for us another trophy asset added to SL Green's core portfolio. We are buying this property at substantially below in-place escalated rents, resulting in long-term embedded growth opportunities. And we are gaining more exposure to the desirable Midtown South submarket, something that we have made a primary objective of ours, and a stated objective of ours, over the years. We will now become the dominant owner in Midtown South with over 3.5 million square feet of properties, located immediately adjacent to Madison Square Park, which we think is one of the best areas in Midtown South, plus other properties scattered throughout. In terms of the economics of the deal, we think the deal is excellent in terms of the going-in cap rate of 4.6%, which is much higher than almost all recent comparable trades for buildings of this quality and scope, and even buildings of lesser quality and lesser duration. And to put that in perspective, our belief is that the money to be made on 11 Madison is as much about having bought it right and capitalizing it right, because we will be capitalizing it with 10 year fixed rate financing that will be sub-4% in cost. So we will have positive leverage going into this deal, with only somewhere around 55%, 60% financing, that will put our yields in excess of 5% cash on cost. And this is the kind of deal that, I believe, once all the tenants are fully installed, burnt through their free rent and all the TI and capital work is completed, that is squarely a 4% cap or less or less asset. If you apply that kind of cap rate on the stabilized NOI, that's a $3 billion asset, which is only $1,300 a foot, which is actually not only unprecedented by Manhattan standards, it's actually lower than many comparable midtown office trades that are priced between $1,500 and $1,800 a foot. And we think that, given the best market, the building is not only institutional quality, but basically rebuilt in terms of systems and redesigned specifically for the heavy use of somebody like Credit Suisse and Sony, which are very infrastructure-sensitive tenants, that this is an asset that will provide long-term earnings growth, near-term value accretion, and serve as a receiver for the sales and numerous sales that we will be either completing over the next four to six months or have already announced, backing all of that in a very tax-efficient manner into 11 Madison to serve as a receiver with all those attributes and the credit quality of long-term lease duration. So very happy with the way this is turning out. We obviously have more work ahead of us in terms of achieving the full amount of sales and refinancings that we have highlighted within the deck that I am referring to. But when I look at it as a transaction that sort of stands on its own just for those merits, add on top of that the fact that we expect to achieve anywhere between $0.15 near-term and $0.30 over three years of accretion, deriving from this series of integrated transactions. Then I think it certainly puts it in one of the top two or three transactions I think we've done here at the company. So very happy with how this is turning out, more work to do, we'll have an update for you on the next conference call. With that, let me turn it over to Andrew Mathias.

Thanks, Marc. In addition to the 11 Madison transaction, otherwise we had an incredibly productive quarter just completed, highlighted really by two sales that were part of a strategic plan for the company for the year, and then sort of became part of the 11 Madison funding plan as well. Tower 45 is an asset we marketed a little more than two years ago, and we were not satisfied with the offers we received at the time. We pulled it off the market, and Steve Durels and his team did an excellent job of leasing the building up. And the decision to put off that sale, and then subsequently the contract we announced within the last couple of weeks, earned us about $100 million above the offers we had received at the time of the earlier marketing. So at $830 a foot and a sub-3.25% cap rate, this sale is a very powerful endorsement for Midtown Manhattan office values. Moving on to 131 Spring Street. If one wants to see the power of the retail platform from the off-market acquisition to a redevelopment of the asset and conversion of a lot of space from stairwells, hallways and ancillary office space into prime retail space, reletting in terms of redoing both of the anchor retail leases of the property and then recapitalizing, 131 Spring is sort of the perfect case study for SL Green value creation. We created about $150 million of gross profit in the 2.5 years since we purchased the asset, with an unlevered IRR to the company of 30% and a strong potential for future outperformance, due to the incentivized JV, we entered into on the asset with our partner. Given the returns on this asset and our other investments in the market, we continue to focus heavily on the SoHo market and its growth potential, and we'll talk about that a little bit more, when we go through the acquisition of 110 Green Street. But I'd say SL Green's ability to buy assets right, capitalize them right and then take them to market and sell or recapitalize, taking profits, really both these assets show just how significant the embedded gains we have in a lot of our assets are. We have dozens more assets on our balance sheet that we're sitting on like these, where we can go out and demonstrate value and put up enormous returns to shareholders. And we look forward to doing more of that in the months to come, as we continue through our aggressive sales program this year. On the acquisition side, we were also excited to announce agreements to acquire two classic SL Green deals, both off-market, both incredibly well located and both with enormous upside potential. 110 Greene is a great blend for us of huge retail upside and current office and residential space in an irreplaceable asset on one of the most desirable blocks in SoHo. This building sits a few short blocks from 131 Spring, where I just took you through our results there, and we have very high expectations for investment in this property. We think we're going to be able to do some very creative things. Given that we purchased the building next door 102 Greene within the last 12 months, and we're exploring synergies already there. It gives us quite a lot of flexibility in terms of adding value. And 187 Broadway is on a stretch of Broadway we're very familiar with, having completed our retail and dormitory building at 180 Broadway, which is directly across the street from 187. On 187, we have a lot of flexibility in terms of uses for this property. And our basis gives us a lot of flexibility in what we decide to do here. We're still studying all the various uses, we have maximum flexibility in terms of zoning and we look forward to updating our shareholders, as our business plan for this asset really crystallizes. We're taking a lot of meetings with third parties in terms of the best way to maximize the value in site. Moving on to the structured finance book, we saw another strong quarter with $302 million of gross originations and a current balance on our book of $1.7 billion. Spreads continue to hold up, as volatility and CMBS has really kept a lid on overaggressive senior lending, which has kept mezzanine spreads and mezzanine advance rates stable and very comfortable for us. Our pipeline for the second half of the year is very healthy, and we'll continue to use the capital markets to optimize our returns on those interests we decide to retain. I would just in closing say, it's been an incredibly busy summer around here. And I'd like to acknowledge the efforts of our investment and retail teams, and leasing and management and underwriting teams in putting together really a stunning series of transactions on the acquisition and disposition side that we believe set us up for enormous future growth and profits. So with that, I'll turn it over to Matt.

Thanks, Andrew. As evidenced in our reported results for the first two quarters, our operating fundamentals are very strong, as is Manhattan market backdrop. In light of that performance and our view of the months to come, we have increased our FFO guidance range for 2015 to $6.30 to $6.34 a share, a meaningful increase of $0.05 over the midpoint of our previous guidance range and putting us on track for growth in FFO of over 8% versus last year. In our real estate portfolio, the velocity of leasing at rents that are at the upper-end of our expectations, will contribute to earnings in 2015 or even more meaningful for growth in the years to come. During the first six months of the year, our Manhattan office leasing volume has been brisk. A pat on the back to Steve and his team, but at SL Green, we reward outperformance by moving the goal posts, hence the increased target of 2.2 million square feet. On the retail side of the business, we leased almost 90,000 square feet in the first six months at an over 80% mark-to-market and the pipeline remains robust. And not to be outdone, our suburban leasing volume has also far outpaced our expectations, with over 400,000 square feet leased in the first six months. All of this activity drove meaningful increases in same-store leased occupancy in the second quarter, with the Manhattan portfolio near an all-time high at 97% and the suburban portfolio north of 84%. Occupancy increase is driving the revenue line, coupled with seasonably lower operating expenses in the second quarter, after a brutal first quarter, improved our operating margins and allowed us to achieve same-store cash NOI growth of almost 5% in the quarter. This puts us well on pace to achieve our full year same-store cash NOI growth target of at least 3.6%, sitting at 4% for just the first six months. In the category of other income, we recognized lease termination income of $7.7 million in the second quarter, including $5.8 million at 919 Third Avenue, bringing our total for the year to $8.8 million. What we have recognized so far in 2015 is consistent with what was included in our initial FFO guidance range, and is also very close to the average lease termination income that we have recorded over the last several years, which is obviously the basis for what we include in guidance. We include lease termination income in our guidance, because it is a very consistent, recurring income stream, and has been for many years, simply the accelerated recognition of lease income that we otherwise would have received overtime. More importantly, like at 919 Third, the tenant who paid the termination fee is often vacating space that we are re-leasing. So we're actually increasing the income we're recognizing on that same space. We often see people looking to carve out lease termination income as non-recurring, we see that as misleading, inaccurate and understating FFO, because that income stream is so consistent. One additional comment on the termination income that we recognized at 919 Third in response to some questions that we received. No, this amount was not included in our calculation of same-store cash NOI growth of 4.9% for the quarter and 4% for the year-to-date, because it is structured to be paid out over a period of several years. In the debt and preferred equity portfolio, we continue to outpace our expectations with regard to the volume of originations and the yields at which we're originating new product. To accomplish this, we have not relaxed our underwriting standards, gone out further on the risk curve or even left the New York City marketplace. Specific to yield, recall that our initial FFO guidance assumes yields on new originations of 8.5%. For the first six months, the weighted average yield on our over $400 million of net originations was north of 10%. In addition, the pace of repayments has been slower than we anticipated, all of which is contributing directly to FFO. Finally, we had the effect on FFO of our real estate investment activity. Our real estate transaction volume for 2015 is on track to be one of the highest for any one year in the company's history. Clearly, 11 Madison is the highlight of this activity. As we have outlined in the thorough presentation on our website as well as in 8-K, hopefully everyone has studied, the acquisition of 11 Madison at a 4.6% cap, which will be funded primarily with $1.4 billion of long-term fixed rate sub-4% debt and up to 11 asset sales or recapitalization at an average cap rate below 3.5%, is highly accretive in the years to come. It is also contributory to FFO in 2015, albeit to a lesser extent, given the timing of closing. More broadly, the totality of our acquisitions and dispositions for the year versus the very modest activity we include in our initial guidance is contributory to FFO, based upon the price at which we are acquiring new assets, the NOI of those assets, the form of consideration paid and the timing of the acquisitions as compared to our dispositions. We're not just upgrading the portfolio, we're doing it accretively. That's a lot of good news for the bottomline coming from virtually all aspects of our business. But there is one significant offset that actually kept a lid on what would have otherwise been an even larger upward guidance revision. That can be summarized in two words, transaction costs. Recall that our initial 2015 FFO guidance included transaction cost of approximately $4 million. You can see in our financials that we've actually exceeded that amount just the first six months. And the 11 Madison deal among others hasn't even closed. In total, we now project third-party cost to execute our investment activity that we'll need to run through NAREIT's defined FFO. For this year it will be $7 million to $8 million higher than our initial estimates, but limiting the upward guidance revision by that amount. Now, spending a couple of minutes on the balance sheet. Our investment grade strategy is in full effect. Now we're fully investment grade by all three rating agencies. And we remain focused on the pillars of a strong credit profile, which include among other things, liquidity, leverage, debt maturities and interest rate exposure. Specific to leverage, we have reduced leverage dramatically over a period of several years, which in part drove the new investment-grade ratings. And we continue to see a trend towards further reducing balance sheet leverage, inclusive of the 11 Madison acquisition. Looking out through 2016, giving consideration to the benefits of our upcoming acquisitions and dispositions as well as enormous EBITDA growth over that period of time, we see debt to EBITDA even lower in 2016, sub-8% than we would have been in 2015, even before the 11 Madison acquisition. That's coupled with an improvement in all other credit metrics, as a result of this significant EBITDA growth and a balanced funding strategy. With that, I'll turn it back over to Mark.

Well, thank you for that summary. I think it really does a good job in highlighting what almost sounds like an annual December Investor Meeting, only it's not. It's actually just 90 days worth of effort. And we got to keep reminding ourselves that of just how much you can do in 90 days. And hopefully, we can do that more in the coming third quarter, because we are very passionate about executing on all fronts and continuing to have sector-leading operational results. So with that said, let's open it up for what I hope are just a bunch of accolades and attaboys, but I suspect there might be some questions. We'll take some questions.

[Operator Instructions] Our first question comes from Ross Nussbaum with UBS.

Can you guys maybe expand a little bit more on the timing of the dispositions that you plan to finance all of the investment activity you've just walked through? Is it your anticipation that you're going to have announcements on the dispositions or the recapitalizations before yearend or is this something that's going to linger into the first half of 2016?

I guess, maybe I'll at least take a shot at this. I heard the first part of the question. The dispositions, which we put in this investment summary will be hopefully tied up, buttoned up, by end of year, but that isn't necessarily the source for 11, because 11 is being funded and closed in August. So there is the funding of 11, which is pretty much in place as we speak. And then there is the sort of the balance of the strategy to use that in a way to monetize everything that we are looking to do and/or do some refinancings and some JVs, which will help drive the accretion going forward and result in a set of ratios. As Matt referred to earlier, not even back to where they were, but much better going forward, which is where we want to be. So does that answer it or is there more to that?

No, I think that's helpful. And I think the follow-up is just as we think about your 1 Vanderbilt development and as you start to do the demolition on that site, and we start thinking about financing for that development. How should we be thinking about the sources of capital for that development project, as we think ahead over the next 12 or 18 months as well?

Well, I think what we've been saying is a combination of construction loan and JV equity, that is something we would be leaning towards, but not necessarily committed to, because there is other options on the table that we're evaluating. And that the timing of such in all cases is probably late 2016, early 2017, because that's when the money spend starts. So that really hasn't changed. That is still the path we've been on, the path we are on, the path I expect we will stay on, unless we come back to you and tell you there is a change of plan.

Our next question comes from Jamie Feldman with Bank of America.

I guess just to start with, Matt, on the guidance. So just to confirm, it sounded like there is $7 million to $8 million of transaction costs in the back half of the year that were not by your guidance. Is there anything else in these numbers we should be thinking about that would have been a drag?

No, I mean, all the results are positive on virtually every business line. But for all these costs, which we're forced to run through, we'd be pushing guidance up over $6.40, yes. If we were having this conversation five years ago, before they changed the rules, we wouldn't be talking about transaction cost hitting FFO. Unfortunately, a change that we have to guide to what they tell us to and that holds us back.

And then in terms of the leasing guidance, I think you said $2.2 million is the new number. I think you originally gave $1.8 million. So can you just talk to what's changed since then and even since last quarter, in terms of the type of demand you're seeing and the size of tenants?

Well, first what changed obviously is two things. One is the velocity of leasing is much more rapid than we originally projected. Secondly, we had a couple of very large deals in the quarter that were unbudgeted, primarily Bloomberg and the deal on 36 Street. But the pipeline as we look forward is very full. As Marc said, we're at 278,000 square feet signed in the first three weeks of July. And my guess is by this time next week, I'll have another 40,000 square feet in the can as well. So if we combine that, we look forward as to where we're going on pipeline. The tenant demand is strong and we map that out and get to a bigger number and feel very strong about where the market is headed and the sustainability of the market.

And I guess just on that, do you have a yearend occupancy assumption baked into the guidance?

Yes, we were 96.5% to 97%.

Our next question comes from Tayo Okusanya with Jefferies.

Just one or two from me. And then just still struggling to fully understand the increase in guidance for the year. And I'm trying to understand how much of that really is higher-term fees, how much of it is operational improvement, offset by some of these higher expenses you were talking about, as it relates to our deal activity?

So none of it is related to higher-term fees. The term fees we recognize so far this year are exactly in line with what we expected for the year. They happened a little earlier in the year, but we layer in every year into our guidance an expectation of roughly $8 million of lease termination income. No different this year. It's about what we recognized. So, the increases, as I said, are kind of universal. They are across the board there in Manhattan leasing, a little bit of burbs, debt and preferred equity portfolio, expense containment. The only real offset, acquisition and disposition activity is accretive. The only real offset is increased costs -- transaction costs.

And then how much of it is just being driven by 11 Madison or additional acquisitions versus what was initially in guidance?

The acquisition and disposition activity is nominal. It's a couple of pennies.

So a lot of it really is the operational improvement.

Yes.

And then the second thing, I know you just kind of touch briefly on 187 Broadway and kind of what the alternate plans could be for that site. Is there any sense even at this point what some of the potential opportunities could be?

Well, I mean, we're viewing it as a redevelopment. There are three buildings on the site, two on Day Street and one on Broadway. And the Broadway front, which obviously is very valuable retail, the Day Street as it sits today is an office building. And we can redevelop some or all of the site. And that's really where sort of the analysis is coming in. But the zoning would allow office, residential or another kind of use like a dorm use. So the primary value driver we see is the retail, but like we did at 180 Broadway, we'll look at maximizing the value upstairs as well.

And then just one more from Matt. Just other income $18 million this quarter seemed a little high. What else kind of went in there this quarter that wasn't in there last quarter?

The real big number there is 919 Third Avenue's lease termination income. It's a consolidated JV, so the full amount, that's over $11 million goes in there even though we only recognize $5.5 million of that.

So the whole $11 million went into the number because of the consolidation?

Yes.

Our next question comes from Alexander Goldfarb with Sandler O'Neill.

Just want to go back to the leasing, so you raised the number for the year to like $2.2 million. You've done I think you said $1.5 million. And that includes in the second quarter you did 840,000 square feet. So I mean, it sounds like just leasing is a lot stronger than you guys anticipate or Steve, the two, the 36th Street and the Bloomberg were really outsized deals, so if you take those out sort of on a quarterly run rate basis, the $2.2 million looks more reasonable. I mean, it just seems like you're going to exceed your $2.2 million target for the year. So just want to better understand what we should expect from the third and fourth quarter on leasing.

That's that new target.

Well, it's a combination of both, right? I mean, we are not exceeding -- we're setting a new target for ourselves based upon the performance to date. Yes, there were two big deals, but the velocity overall either way, we would reset the target, because the demand has been so strong, the leasing velocity has been so successful, and the pipeline so full that that's -- we step back, we evaluate it, and that's how we come to a bigger number.

Yes, I wouldn't -- to be 400,000 feet on a 28 million square feet portfolio, think that's pretty good shooting. The market is strong and the vacancy rate is dropping, and that's creating more competition from tenants, and there are tenants who are going earlier. And so the trajectory is positive. But I think when you step back and look at not just leasing, but I think the 16 different metrics we put on that table every December, plus or minus, and where we are, I think it's we're pretty much on target. We are setting a higher bar. We may not reach that $2.2 million. It will really depend on how the fourth quarter shapes up because the third quarter is looking very good. If the fourth quarter remains strong, we should get to the $2.2 million. If it's a little less strong, you could easily have a couple of deals trip from December to January. And then everyone is going to write, oh, my God, leasing is slowing, and then we have a big January first quarter. So I wouldn't read too much into that, unless I would follow our guidance there more than anything. But it seems to us like an achievable number based on where we are today. But that means we'll have to have a pretty strong fourth quarter.

And then the second question is probably for Matt. As you guys look at the mortgage on 280 Park, I think it matures in June of next year, although it looks to be pre-payable. Is your sense that you will be fully stabilized on that building ahead of the maturity, and therefore you would be refi-ing it on a fully stabilized number? Or do you think that there is a way that you could refi it ahead of stabilizing where you'd still get a really good, really good economics on a refi, despite being ahead of getting the building stabilized?

So I mean, as I said, the building, it is rapidly approaching stabilization. But as to the maturity itself, we have started conversations with our partner. Our maturity schedule is very modest. So it's the next big thing in line, and we'll start conversations and finance if and when it's appropriate.

But do you think it's this year or should we plan on that for next year for modeling purposes?

I think we start the process this year. Whether we close it this year or next, we'll have to see how the process goes. And yes, whether we want to incur a prepayment premium, obviously, right, this matures next year, there is an open period late first quarter, early second. You know, it's a discussion for us to have with our partner.

The next question comes from John Guinee with Stifel.

A few quick questions. First, I couldn't help but notice that you sold an asset in New Jersey. And given that a lot of the sudden interest in what New Jersey office real estate is worth, can you kind of walk through the underwriting that the buyer made to justify $200 a foot? And kind of the quality of the asset, et cetera?

Sure. John, its David Schonbraun. It's an asset that we loaned to the partner for a couple of years. We worked on a complete redevelopment and repositioning of the asset and have stabilized it. I think that market has started to recover, which is why we sold it. I think, given where rates are right now, I think they can kind of finance it and comfortably expect kind of low-double-digit returns, which is what they were looking for in the deal. And I think there is a market for well-leased suburban assets. And I think we have to get it to kind of close to full or fuller occupancy to kind of hit t4hat market. But once you have an asset that is now well-leased and put away, and long-term financeable, I think there's a strong market for it, and that's why you are seeing such a high per-foot for it.

And then second, I guess, Andrew, you sold Tower 45 for about $840 a foot. By our numbers, Manhattan only SL Green portfolio at $115 a share is basically a $795 a square foot portfolio. Where did Tower 45 fit in, in the overall quality continuum at SL Green?

Well, I mean, I think the important metric in addition to per-foot on that sale, which I went through in my remarks, was sub-3.25% cap. And I would say we consider Tower 45 probably a B+/A- asset, where the majority of our portfolio, the vast majority, is in Class A assets. But just in terms of nominal rents, the in-place rents in Tower 45 were low 60's, Isaac?

Yes.

In the low 60's. So you can look at those rents versus the average rents in other buildings. And we'll generally evaluate buildings on a rent-to-rent basis, and let gross rents be the arbiter of what's sort of highly desirable by location or by quality of building or otherwise. So it's sort of in the lower middle pack of the buildings we own.

Our next question comes from Manny Korchman with Citi.

It's Michael Bilerman here with Manny. Marc, I was wondering if you could maybe address some of the investor feedback that was raised after you left Madison, and the stuff you went through on the call and the booklet is helpful. But some of the concerns that were raised by investors was you're going to have a very large asset. So a big part of the balance sheet that while you are able to trade out accretively versus what you are selling today, does have some flat leases. And so it's a large part of the balance sheet that's not going to have as much growth in, call it years three to 10. The second being while it's being a receiver for assets you are selling, there is an element of you could've sold those assets and paid a special dividend, even paid 80% in stock so you don't lever up when you do that. And I recognize the deal was a necessity for that, but I think people like being able to take advantage of the sales. And the last part was competing with others that had sovereign capital, and being able to beat them out using wholly-owned, effectively SL-grade equity versus sovereign capital, which arguably would come at pretty cheap cost. And so maybe you can just address some of those.

So I think three points, at least as I heard, so I'll try and do all of those. The first is large asset that's a big part of the balance sheet that doesn't have a lot of near-term growth. I think there is a presumption made. I'm not sure why it's made or where it comes from that we have no ability to kind of after we acquire this property, as I said earlier in my remarks, get through the period of stabilization, because there is a period to finish doing the work and install the tenant. And at which point, I think we will get to evaluation that's much higher than our basis, just for basically getting through the period of having that income stream identified and putting the big financing in place. I wouldn't presume and I wouldn't know why anyone would presume we couldn't re-JV that asset in 6, 12, 18, or 24 months. So when you talk about a large asset lying around the balance sheet for decades, this is SL Green. So I'm not sure you want to make sure you dialed into the right call. We tend to not just sort of buy and hold and sit on assets in perpetuity. We tend to try and buy right, capitalize right, execute, and when the moment is there, monetize our JV. This asset, it will be closed in a series of ticks that will give us complete flexibility in a private REIT or in a JV or in a partnership or otherwise, or in a tick format to bring in any partners we choose to or not choose to sort of add any time. So I think as it relates to looking out in the future, we haven't made any -- we haven't given any guidance on the future, what we've beyond the three years that are in the book. So what we have said is that the accretion this deal will generate over the next three years varies between $0.15 roughly in 2016, and I think $0.30 since 2018. So I wouldn't look beyond that, because that's why we are out there I would say talking about now. If and when we ever feel this asset or any other asset, I wouldn't -- I mean 11 Madison is not unique when it comes to maximizing values and reaching stabilization. If we feel we hit that with this asset, then I think it's safe to assume we probably look to monetize it in a way to create a gain. Of course, I think any asset we've ever sold in the Company in 17 years has resulted in a gain. So I don't see why this would be different. I think this, if anything would be even more so because I think it's a very good buy. And we wouldn't allow this or any other asset to take down the growth profile of the company over the next, whatever period of time you were talking about, 5, 10, 15 years, because we do the exact opposite of that. I think as you have seen, because I think we sell more than any other -- certainly in New York, where even maybe office REIT, in terms of volume of sale to kind of illuminate value and monetize and harvest. So I would kind of look at this asset as sort of on a three to five year period, and then we'll always readjust from there. As you talk about the second points of lever up, again, I don't want to Matt to repeat his commentary, but if you look at what's on the web and/or replay Matt's commentary, he talks about after the buys and the sells, the debt ratios are improved. So there is no lever up unless you're talking about an interim --

No, I wasn't --

Several months to it.

Yes, I wasn't saying lever up. I was just saying that you talked about being a receiver of --

Mike, I heard lever up. I heard you say lever up, so that's what I was responding to. There is no lever up here. I mean, if you measure it month by month, my guess is the ratios are up for August/September, but then, I don't know, when the deals start to close October, November, December, that, combined with the FFO projections we have for next year lead us to a place where we believe debt-to-EBITDA will be lower than where we started. And leverage ratios will be lower than where we started. So again, I don't want to -- and obviously credit quality is way up, because when you compare what we're selling to what we're buying, at least in our eyes, then the shareholders are bidding on this management team. So if we feel the credit quality is up, then people can differ, but I wouldn't know how. The building is rock solid, the market is the best, and the credit is impeccable. So we feel it's a credit upgrade, a leverage improvement, and accretion over a three year period and complete flexibility after three years to figure out ways to make money on the asset in a capital markets kind of way. So honestly, I forget the third point. I didn't write it down. I only wrote down those two. So if you remember it, ask again. If not, I forgot it.

Hey, it's Manny Korchman here.

We're on sovereign capital. So when you say we beat Sovereign, there were four or five bidders at the end of the process. It was a mixture of domestic and sovereign, REIT and non-REIT. I don't know what kind of particular insight you have into that bidding array, but we think we know the bidding array, and it was a mixture, everybody was pretty much on top of the number. If the presumption is we had to bid more to get it, that presumption is wrong. We were all, at least as we understand it, right about the same number. And it was a matter of when you narrow a field down to four or five people, and it's already been through a round or two, you've got to select a winner. And I think the feather in our cap is amongst some of the very best and biggest names in the industry, SL Green was awarded the deal in part, because we had pre-existing relationships with both ends of the seller, because it was a partnership. We actually had financed this building, if you recall back in 2004 maybe? 2004. So we financed the acquisition for the Sapir family way back when. We've been on sort of tracking this asset for three years plus in an acquisition sense. The moment was here. We acted quickly. I think the relationships were solid. The trust and credibility was there. And when somebody gets -- you get that call, you have to go to contract in a five-day period, I'm not sure every other sovereign bidder is fleet enough of foot where they can necessarily match up to our ability to do speed of execution, which I think is how we won the deal. So in terms of price, I don't believe price was the deciding factor at the end.

This is Manny Korchman. A quick one for Steve.

Yes, I'm sorry. We've got to speed it along, guys. It was like a multipronged question and we are going to end the call at 3:00. We've got nine other people in the queue. Do me a favor, call me and/or Matt or Andrew and we'll nail it.

Our next question comes from Steve Sakwa with Evercore ISI.

Marc, just one question. If you were to sort of look at 11 Madison and look at the growth profile over the next, you want to pick five years or 10 years, I think there is a presumption that the assets got great credit, but flat growth. So if you were to compare the cash NOI growth of this asset, say over 10 years and compare it to the current SL Green portfolio, what does that difference look like?

Boy, that is over the next -- we haven't taken it out 10 years, because the amount of assumption compared to the whole portfolio, you'd have to bake in on the growth profile as we looked at this over like three and five years and it was highly accretive to the assets we are selling.

Maybe just say, three to five, what about three to five years? Is the NOI growth -- ?

Well, three to five is highly accretive.

Steve, you've got to look at 3.3% cap rate on the assets sold. So there's got to be 130 basis points of NOI accretion in those assets in order to reach the level that 11 Madison is throwing off day one. And that's really been more of our focus.

I mean, look, Steve, you can make an argument that if we sold on a basis exactly as we bought, and it wasn't accretive and I've got nothing more than a credit upgrade, you can justify it on that basis. And that's something we've been, if you look at the portfolio, and you, I think appreciate this more than most, because you've been there with us since day one, if you look back 17 years to what the portfolio looked like then and to what it is today, both in scale and quality and institutional nature, you get there in part by being optimistic, and in part by value-add, but in part it's rotating assets. I mean, you have to rotate assets to increase quality. This is a serious, serious office building. 2.3 million feet, right on Madison Square Park with bulletproof credit. And as I said earlier, the proof will just be in the pudding down the road we think we bought it well and will have the ability to monetize value out of this asset going forward. Value isn't only about repositioning. I mean I think we do that about as good as anybody else. And we put a couple of sales on the board just now, and we always do improve that, but sometimes you can make a good buy. And I think we did here. I think we made a good buy. And I think we'll monetize value. So I don't know if I see this as a 10, 15, 20-year hold, and we didn't compare it to the portfolio in that sense. We looked at it as achieving a lot of strategic goals for us in terms of quality and durability of cash flow and presence in that market, which is sort of, I mean, it's an unmatched presence now of 3.5 million square feet on two blocks of Midtown South with buildings that can cater to large tenants, where most buildings in Midtown South can't. And having not just tenants like Credit Suisse and Sony, but Yelp and others that are growing tenants, and they may grow in that building and they may grow hopefully elsewhere in our portfolio. And there's a whole host of other strategic elements to this deal, the connectivity to 1 Madison; the fact now that we have Credits Suisse, not just half of their presence in the market but all of their presence, which I think gives us a better opportunity to have a productive relationship with CS, controlling both ends of that. There's all sorts of stuff there. So 10 years, don't know; three to five years, highly accretive. I would assume at the end of that three to five-year period, if we haven't figured out a way to further the growth trajectory, then there would be an opportunity to JV and monetize significant value.

Our next question comes from Brendan Maiorana with Wells Fargo.

A quick one for Matt. So your operating margins, they look like they were the strongest that we've seen in several years. And was there anything particular that drove strong margin in the quarter or is it simply a function of being 97% occupancy in Manhattan?

Two things. One, we have an outstanding management team that is always operating its portfolio at the utmost efficiency, and looking at every way to make it more efficient, whether its utilities, fixed-price contracts, whatever the case may be. And then you have just truly seasonality. And this is kind of the opposite conversation to what we were having in the first quarter. And people say, well, your margins look like they deteriorated, what's going on? I said, well, its seasonality. Same thing happened in the second quarter, and gets you in total ahead on a margin basis. But that is in large part due to our operations team as much as just seasonality.

Our next question comes from Vance Edelson with Morgan Stanley.

So first just expanding on something you mentioned in response to in Michael's question. I think it was around the start of the year that you mentioned getting multiple calls every day from private bidders, foreign and domestic. So any change in the interest level in Manhattan assets the past few months, especially as you look to sell these assets by year-end? And the flipside to that is the demand strength strong enough that it also presents more meaningful competition when you look to acquire or is that still far outweighed by the relationships and the speed of execution?

Well, I mean, I think the market has accelerated, and the demand, we're setting new pricing levels in the sales that we are making, and in some of the comparable sales in the market. So there are just additional foreign capital and domestic capital that are out there, aggressively competing on deals. And acquisitions, as we've said a lot of times before, and as the announcements we made other than 11 Madison bear out, most of our acquisitions are off-market. They are structured deals. They are win-win deals for the sellers and for us as a buyer. And where we do compete on a deal like 11 Madison, we have to use creativity in terms of capitalization, speed, and flexibility on the contract in order to beat out the competition. And the competition is fierce, but most of our work is fortunately done on an off-market basis with sellers. That's what it insulates us a bit from the market.

And then just quickly, the yield on debt and preferred equity investments is slowly trending lower, and you've guided toward the high-single digits eventually. Is there any update as we move closer to a rising rate environment. The longer-term rates aren't expected to move as quickly. So is there any impact there? And do you think a higher mezz mix or anything else is going to help support yields at all?

Well, I think we're trending ahead of our guidance. We haven't modified our guidance. So we are protecting against further tightening. But our management team again is doing a superior job in terms of being fleet of foot in the capital markets and delivering sort of above-market yields in our portfolio. So we don't expect that to change. It's a competitive business, but we have an incredible market share in New York. We are the first call for many, many buyers, and people who are looking to recapitalize assets. And fortunately, that has not changed.

So we are, operator, running out of time here. I know everyone has other earnings and calls, and we have a lot to do this quarter as well, as you know. So we are going to take two more, hopefully quick ones and then we will wrap it up.

Our next question comes from Craig Mailman with KeyBanc.

I just wanted to follow-up on 11 Madison. Just curious here how Midtown South kind of played into your thinking strategically as you guys kind of look to reposition the portfolio? I guess asked another way, would you have done that deal in Midtown, same credit, same quality same yield or was Midtown South that much a draw to do an acquisition of that size?

Yes. I think we look at it more as in-place rents versus market rents, and that's sort of a function of its location in Midtown South, where you have some extraordinary market rents. I think my answer at least would be likely yes, we would do that deal in Midtown if the property was of equivalent quality and if you had the same discount to market rents with the in-place rents.

Our next question comes from Jed Reagan with Green Street Advisors.

It looks like retail rents across Manhattan continue to move up, and vacancy rates have also been moving up even in some of the prime retail areas. I'm just curious if you are seeing tenants pushing back on the retail rents? And if you are feeling some of that vacancy impacting pricing power in your portfolio on the retail side?

I think in terms of the availabilities we have, we have great activity, as evidenced by the Adidas lease we press released in the last day or two. And we have avoided a lot of the corridors where there is vacancy. So we don't have a lot of space available in those where we are seeing the effect of the competition. I haven't heard much or seen evidence of rents backing up much, because I think generally landlords are pretty patient, and are willing to wait out vacancy in order to take advantage of tenant demand. And I still think overall, the trend is towards tightening of retail. And retailers come around. They get their heads around paying higher rents because, ultimately, the location sort of wins at the end of the day. So it hasn't impacted our portfolio much. End of Q&A

Is that it, operator? Thank you very much, everyone. For those that are still with us, appreciate you taking the time listening in. And we look forward to speaking again in three months.

Ladies and gentlemen, this does conclude today's presentation.