SL Green Raises Guidance, But Rates Could Slow Asset Sales

SL Green, Manhattan’s largest office landlord, is riding the strongest office leasing market the city has seen in decades. But a sharp rise in borrowing costs is now threatening the timing of its $2.5 billion asset-sale plan for 2026, with some deals potentially slipping into 2027.

The operating picture, as laid out on the company’s third-quarter earnings call Thursday, is strong. Occupancy has climbed to 95%, and SL Green has signed 2 million square feet of leases so far this year. Tenants at its existing buildings are agreeing to rents roughly 15% higher than what those spaces previously charged.

The pressure is on the balance sheet. With nearly $4.3 billion of debt, the company says higher rates have become a drag on earnings. CEO Marc Holliday told analysts the company is dealing with a swing of about 150 basis points over the course of the year, on top of levels that were already elevated in January. “Higher rates impact all real estate businesses, and most every industry,” he said.

A surprise transaction cushioned the quarter. SL Green sold a 20% stake in its $200 million food and beverage business, collecting $40 million. That deal allowed the company to raise its 2026 guidance for funds from operations, a key measure of REIT cash flow, from $5.60 to $5.90 per share to a new range of $6.50 to $6.70 per share. The stock rose more than 6% late Thursday afternoon after the company also beat expectations on revenue and earnings.

The raise could have been larger. According to the company, guidance would have been 25 cents per share higher without rate-driven delays to deals and the resulting hit to cash flow. Before the year began, SL Green set a goal of selling 11 assets for a combined $2.5 billion. Six of those sales have been completed or announced, and some of the rest are now expected to close in 2027. “Things are taking longer,” Chief Financial Officer Matthew DiLiberto said.

Management pushed back when analysts pressed on whether plans had changed. Holliday pointed to $7 billion in refinancings, including a just-closed $2 billion mortgage at 245 Park Ave., and $1 billion in asset sales completed despite the tougher environment. “We’re not throwing in the towel on anything,” he said. Chief Investment Officer Harrison Sitomer said “nothing’s delayed” but acknowledged that two assets just coming to market will see “some pricing discovery” as rates bite. “Tolerance is being tested by both buyers and sellers,” he said.

The development pipeline continues to move. SL Green is in demolition at 346 Madison, its next ground-up office tower, and expects to enter the city’s rezoning process in December, with delivery targeted for 2031. At 750 Third Ave., the office-to-apartment conversion is in interior demolition, with most or all of the internal column strengthening done without incident, Holliday said. The company expects to close a $500 million construction loan and deliver in 2029, with some of the highest rents in Midtown East.

The one clear soft spot was the Summit observation deck business, which launched five years ago at One Vanderbilt and is expanding to Paris and Tokyo. Operating losses widened in the quarter because of the Paris build-out and slower-than-expected tourism to New York. DiLiberto said results are below initial expectations and that the company is offsetting revenue shortfalls with cost containment.