Empire State Realty Trust Inc

NYSE:ESRT

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter 2024 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, SVP, Chief Counsel, Corporate and Secretary. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Empire State Realty Trust's Fourth Quarter 2024 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrtreit.com.



On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in applicable securities laws, including those related to market conditions, property operations, capital expenditures, income expense, financial results and proposed transactions and events. As a reminder, forward-looking statements represent management's current estimates. They are subject to risks and uncertainties, which may cause actual results to differ from those discussed today.



Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC.



During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website.



Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

Thank you, and welcome back to you, Heather. Congratulations on your new addition, and good afternoon to everyone. Yesterday, we reported ESRT's strong fourth quarter and 2024 results. We are happy to discuss today our continued leasing momentum, Observatory execution and our outlook for 2025.



In the fourth quarter, FFO came in above expectations. Our leasing team again put points on the board with approximately 380,000 square feet leased in the quarter. We now have achieved more than 3 years of consecutive quarterly leased percentage growth and positive New York City office rent spreads.



For the year, we leased 1.3 million square feet, up from 982,000 square feet in 2023. Our Manhattan office portfolio is over 94% leased, and that reflects the desirability of our top-of-tier modernized, amenitized, well-located, energy-efficient, sustainability leading portfolio.



Return to office is no longer a question as leasing momentum in the Manhattan market has told the story for itself. The need to provide a good workspace is a boon for ESRT. And the price gap between brand-new offices and our product has enabled us to raise the rents and reduce concessions.



TripAdvisor's #1 attraction in the world, the Observatory, continued its performance with year-over-year growth in fourth quarter and full year 2024 net operating income that exceeds 2019 levels. As this benchmark has been passed, we will no longer refer to our performance relative to 2019 results. Our focus remains to provide visitors with an unmatched customer experience to drive top line growth, manage expenses and continue to build exceptional brand awareness.



In 2024, the Empire State Building had over 485 billion global media impressions, an increase of 25% year-over-year and generated globally over $950 million in advertising value equivalency. We enter 2025 on our front foot. The leasing environment in New York City continues to benefit our product and price point. In fact, it has allowed us to increase rents and reduce free rent.



The office sector statistics illustrate the results of haves and have-nots. The haves are buildings like ours, which have been modernized, are well located near mass transit, are sustainability leaders, have great amenities and are owned by a financially stable landlord. Our product meets the demand of informed better credit tenants. While it may be bumpy with our reduced inventory of space to lease, we expect positive occupancy absorption again for the full year 2025.



Our Observatory deck remains the leader. Our average check size per visitor increased year-over-year, and we expect continued growth in 2025 as we introduce a new dynamic pricing model designed to monetize high demand times through the day. We are still below overall 2019 levels of volume and have room for upside as visitation levels improve. We continue to scour the market for additional transaction opportunities and are prepared to act when we see opportunities to enhance growth either through expansion or trade out of our existing portfolio.



The maintenance of a best-in-class balance sheet allows ESRT tremendous flexibility to lease and transact opportunistically and to create additional value for our shareholders. Our entire organization remains laser-focused on the company's 5 priorities: to lease space, sell tickets to the Observatory, manage our balance sheet, identify growth opportunities and achieve our sustainability goals. Tom, Christina and Steve will provide more detail on our progress and how we plan to accomplish these goals in 2025. Tom?

Thanks, Tony, and good afternoon, everyone. In 2024, our property team delivered another year of exceptional performance. We leased over 1.3 million square feet in our commercial portfolio, which was our highest annual volume since 2019. Our Manhattan office portfolio stands at 94.2% leased, an increase of 10 basis points compared to last quarter and up 160 basis points compared to a year ago and an increase of 670 basis points since fourth quarter of 2021.



For the 12th consecutive quarter, our office and retail portfolio achieved higher leased percentage and positive absorption. We had our 14th consecutive quarter with positive mark-to-market lease spreads in our Manhattan office portfolio, where our average net effective rent per square foot increased by 13% year-over-year.



We signed major office leases with quality tenants across our portfolio, including Burlington, Sal de Janeiro, Bloomsbury Publishing, AT Kearney and Ponterra. We enhanced the amenities at the Empire State Building with the opening of a multisports court for basketball and pickleball that converts to a 275-person presentation room, a new tenant lounge with full-service wet bar for hosting tenant events and golf simulator lounge.



We continue to deliver an exceptional tenant experience and superior service, which contributed to our impressive track record of tenant retention and expansions. In 2024, approximately 450,000 square feet of our annual lease volume came from early renewals with existing tenants where we proactively extended future lease expirations.



Since our IPO in 2013, we have signed 299 current tenant expansion leases totaling 3 million square feet compared to our current total portfolio size of 8.6 million square feet. Our multifamily portfolio with occupancy of 98.5% at year-end continues to excel, benefiting from robust market fundamentals, strategic property improvements and improved operations. This has proven to be a great exchange of existing properties for what we perceive to be better for ESRT's growth.



We finished the year strong. And in the fourth quarter, we leased a total of 379,000 square feet, including an 11-year 37,000 square foot expansion lease with Booking Holdings at the Empire State Building, which along with a 7-year 27,000 square foot lease extension more than doubles their footprint to 64,000 square feet. We were told that Booking Holdings consolidated their New York City offices into the Empire State Building because of their employees' experience and our partnership on sustainability.



We signed a 16-year 79,000 square foot expansion lease with an investment firm at One Grand Central Place, representing a 56% growth in that tenant's footprint, along with a 2-year lease extension of their existing space and brings their combined total to over 200,000 square feet of space expiring in 2041. That company has further expansion rights as part of their newly amended lease. We also signed a 16-year 39,000 square foot expansion lease with NYSERDA at 1333 Broadway, and we signed leases for 13 prebuilt office suites, which totaled 64,000 square feet.



In the fourth quarter, the average lease duration was 12.3 years, excluding early renewals and extensions and the new and renewal leases in our Manhattan office portfolio were signed with an average positive mark-to-market cash rent spread of 10.8%.



We're well positioned for strong performance in 2025, during which our Manhattan office portfolio faces modest lease expirations. We have only 186,000 square feet of known vacates and 64,000 square feet of undecided for 2025. We expect that we will see higher overall lease percentage in 2025, though our known vacates will be early in this year and could cause our lease percentage to dip temporarily at the start of the year.



We anticipate commencement of leases signed previously will lead to steady increased occupancy throughout 2025 to approximately 90% at the midpoint of our guidance range by year-end. We have signed 50,000 square feet of leases during the first quarter of 2025 and have a healthy pipeline with 130,000 square feet of leases in negotiation.



With increased occupancy, reduced availability and improvement in the market, we were able to increase rents and reduce concessions last year, and we will continue that trend and push harder on rents and reduce concessions in 2025.



Lastly, we have $62 million in incremental cash revenue from signed leases not yet commenced and free rent burn off, as shown on Page 10 of our supplemental that reflects our leasing success. And with that, I'll turn the call over to Christina. Christina?

Thanks, Tom. We continue to manage our balance sheet in a proactive manner with strong liquidity, no floating rate debt exposure, a well-laddered debt maturity schedule, no unaddressed debt maturity until December 2026 and the lowest leverage among all New York City focused REITs at 5.3x net debt to EBITDA as of year-end 2024.



Our tax-efficient capital recycling diversified ESRT into attractive multifamily assets in Manhattan and prime retail assets in Williamsburg, Brooklyn with better growth profiles and lower CapEx in the years ahead. Over the past 1.5 years, we established our presence and further scaled our footprint on the prime retail corridor of North Sixth Street in Williamsburg with $221 million of acquisitions executed and another $30 million acquisition expected to close in mid-2025.



In a market that has had relatively limited high-quality investment opportunities, we are very pleased to execute on these transactions. Our best-in-class balance sheet is primed to provide operating runway and flexibility to execute on attractive investment opportunities. We actively underwrite deals across all 3 sectors which we target: retail, multifamily and office with a focus on New York City.



Investment transaction volumes are still not back to historical levels. But in recent months, we have seen more transactions come to market from motivated sellers and debt default-driven transactions. We will continue to underwrite prudently and be patient to find the right deals, which have attractive upside and are additive to our New York City focused portfolio.



Steve will cover our outlook for 2025 in a moment, but I would like to discuss our longer-term growth objectives. We expect to drive solid cash flow growth beyond 2025, driven by strong execution in the following areas: near completion in our shift from noncore suburban assets towards high-quality New York City multifamily and retail assets with lower CapEx and higher growth prospects in the years ahead. Our healthy leasing pipeline with solid prospects for higher rents and reduced concessions on new deals due to strong tenant demand and limited availability of top-of-tier office supply in the market, favorable mark-to-market upside in the years ahead as leases roll, and we now show on Page 7 of the investor deck.



Continued performance of our Observatory business and potential NOI upside driven by our new dynamic pricing model and improved visitation. As a reminder, 2024 NOI exceeds pre-pandemic levels of NOI with approximately 74% of the visitors compared to 2019. Contractual growth expected from the Williamsburg retail acquisitions as NOI ramps up over time, driven by both lease-up and mark-to-market rent growth as leases roll over time.



Multifamily continues to perform well with solid occupancy and continued rent growth and adds to the resiliency of ESRT's cash flows. And finally, we are well positioned to do additional deals to enhance our cash flow growth profile in the years ahead. And with that, I'll turn to Steve to discuss our fourth quarter results and outlook for 2025.

Thanks, Christina. For the fourth quarter of 2024, we reported core FFO of $0.24 per diluted share. Results for the quarter included approximately $0.01 of nonrecurring items, mostly related to credits received against prior year utility expenses, which we recognized in other income. For the full year 2024, we reported core FFO of $0.95 per diluted share or $0.91 when adjusted for the $0.04 of nonrecurring items and lease termination income we recognized throughout the year.



Same-store property cash NOI was down 2.9% in the fourth quarter year-over-year, primarily due to less benefit by approximately $1.9 million from positive nonrecurring items recognized in 2023 and increased operating expenses. When adjusted for the nonrecurring items in each period, fourth quarter same-store property cash NOI was roughly flat on a year-over-year basis.



In our Observatory business, we generated net operating income of approximately $29 million in the fourth quarter and $100 million for the full year, which reached the high end of our guidance range for 2024 and reflects a 6% year-over-year growth rate. We generated FAD of approximately $3 million and $91 million for the fourth quarter and full year 2024 periods, respectively.



FAD was impacted in the fourth quarter from the timing of a $23.5 million disbursement of tenant improvement allowance related to leases signed in 2018 and 2021. Excluding the timing impact from this TI spend, fourth quarter and full year 2024 FAD was approximately $27 million and $114 million, respectively, resulting in adjusted FAD payout ratios of 36% and 33%, respectively.



I'll now move into our guidance for the upcoming year. In 2025, we expect core FFO will range from $0.86 to $0.89. This compares to 2024 adjusted core FFO of $0.91 after the aforementioned exclusion of $0.04 of nonrecurring items and lease termination income.



As previewed in our third quarter earnings call, certain items will contribute to the year-over-year decline. First, lower interest income by approximately $0.05 as $195 million of balance sheet cash was used towards retail acquisitions in the second half of 2024 and $220 million of cash will be used to pay down the balance drawn on our revolving credit facility and our Series A senior unsecured note in March 2025 and the assumption of an approximate 125 basis point reduction in the deposit rate applied to our cash.



Second, higher G&A by approximately $0.015, half of which is attributed to the accelerated recognition of noncash stock-based compensation expense of awards granted to employees that are nearing retirement eligibility and related cash bonus elections. The remaining increase is primarily attributed to increased noncash equity expense related to the 2024 NEO promotions and standard inflation-based payroll increases.



Other key assumptions that are factored into our 2025 guidance are as follows: adjusted same-store property cash net operating income growth, excluding lease termination fees and nonrecurring items recognized in 2024 to range from 0.5% to 4%. Within this range, we expect positive cash revenue growth, which assumes commercial occupancy of 89% to 91% by year-end 2025, up from 88.6% at year-end 2024 and driven by free rent amortization and manageable lease expirations in 2025.



On the expense side, we expect an approximate 2% to 4% increase in property operating expenses and real estate taxes, which will be partially offset by higher tenant reimbursement income.



While we do not guide to quarterly performance, we do expect a slight skew of same-store cash NOI to the back half of 2025 due to the expected timing of cash rent commencements on leases currently in their free rent period. Of note, we expect an increase in straight-line rent in 2025 by approximately $0.015 year-over-year as a portion of our pipeline of signed leases commences but remains in the free rent period. It will not contribute to same-store cash NOI but will contribute to GAAP rental growth.



We expect 2025 Observatory NOI to be approximately $97 million to $102 million. This NOI guidance assumes Observatory expenses of approximately $9 million to $10 million per quarter for 2025. Our guidance range accounts for uncertainty around tourism fluctuations and bad weather that could impact results in any given quarter. With that, we now turn the call back to the operator for the Q&A session. Operator?

[Operator Instructions]. Our first questions come from the line of Steve Sakwa with Evercore ISI.

Maybe, Tom, just going back to your comments on leasing. I'm just curious sort of the dynamics and the pull forward of activity and the discussions you're having with tenants. It seems like you're able to pull deals forward or maybe they're getting a bit anxious about renewals. So maybe just give a little more flavor about the leasing. And where ultimately do you think the portfolio settles out on a percent lease basis?

Sure. Well, I mean, first, Steve, we've had a really good run here for -- with positive absorption over the last 3 years. We've got a very good pipeline relative to our reduced inventory of available space. As I mentioned earlier, in the first quarter, we've already signed 50,000 square feet of leases, and we have about 20 leases in negotiation for another 130,000 square feet. We've got about 50 active proposals for several hundred thousand square feet. And as typical for us in the past, we're seeing interest from tenants from a variety of different industries.



Overall, I think that there's a recognition that there's a tightening of the market for the better buildings, which we are. We've had and continue to have strong leasing momentum due to our quality product and quality buildings. Work from home is definitely not a factor. We had the highest leasing volume in 2024 since 2019. We have low tenant move-outs this year. The amenities at Empire State Building show great. So I think there's a lot of positive momentum going into 2025.



As I look at availabilities out there, I think that clearly, the choices for tenants are fewer and fewer for the quality buildings, quality landlords that are modernized. Buildings that are modernized have good amenities and in good locations and are not hamstrung by some high leverage.

And just on the, I guess, lease percentage, Tom, like where do you think ultimately the portfolio settles out? Can it get to 95%, 96%?

Yes. As we look at our modest move-outs for the year, we only have about, for the portfolio, 200,000 square feet in New York City, about 185,000 square feet of known move-outs. Much of that will happen in the first half of the year. But we're setting ourselves up for coming off a base 94.2% leased in Manhattan. I can see easily us getting above 95% by year-end. There's no reason why we can't get 95% to 96%.



On the occupancy front, similarly, we're going to see steady increase in occupancy throughout the year based upon the leases that we've signed previously. And we've given the midpoint of our guidance is 90%, but I can certainly see that higher on an occupancy basis in our Manhattan office portfolio.

Okay. Great. And just one question around that...

I think it's helpful to note, Steve, when you look at these -- some of these renewals of these -- a bunch of these early renewals and extensions are with tenants who have expanded as well. So there is both the extreme success we have with retention and expansion of tenants, and that leads to early renewals and extensions.

I appreciate that, Tony. Just on the Observatory, I guess I was a little surprised that maybe that business was being projected to be sort of flattish, if you will, '25 over '24. And I realize you're not just going for pure volume that the experience is important. You've done a very good job raising pricing since you've gone to the time ticketing. But just maybe your thoughts around kind of the pricing that's moving forward and maybe where you see the upside. Is it more from pricing? Is it more from the visitors going up? Is it less bad weather days? I just would have thought maybe the NOI contribution would have been a little higher next year for '25?

Right. So Steve, it's very early in the year. The low end of our guidance contemplates several macro factors that are not unique to our Observatory. There's dollar strength. America as a brand for tourists in Europe is under some threat. We saw this before in the prior administration. We also have an issue of airline seat capacity between China and New York City. In 2019, there were 72 direct flights each week from China to New York City. Now there are 10, and it's remained at 10 for quite some time. And we thought we'd see that number rise in 2024, and it did not.



So when we look at it, we are confident in our ability to work with the attraction and for it to maintain its preeminent position. Our net revenue per customer towers over everyone else's in the marketplace. And it's just a matter for us. It's early in the year. And of course, we look forward to updates as we move forward through the year.

Our next questions come from the line of Nick Joseph with Citi.

It's Michael Griffin here with Nick. I appreciate, Christina, all your commentary just around the investment and potential acquisition opportunity set. And Tony, I know you've talked in the past about being an opportunistic omnivore, so to speak. But as you look at the -- what's out there, particularly in the office side, and obviously, we've seen some transactions start to come to market. I mean, does that look more appealing right now? Could you find a building that meets your kind of criteria to use the ESRT sort of special redevelopment sauce? And if you could kind of give us a sense of what kind of yields or IRRs you're underwriting to for prospective transactions, that would be great.

Well, first of all, let me touch on the second part. It's very important to note that, as we've said before, the new acquisition application of new dollars is different from the 1031 like-for-like replacements that we have done. So from that perspective, I think we probably, on a relative basis, have a higher expectation of benefit and return, #1.



#2, we just begin to see now movement on the office front. There's a fair amount of movement that has gone to -- of what we have seen has gone for resi conversion from office. There was a very nice asset on Park Avenue that was taken on by JPMorgan Chase for itself, 250, which we thought would have been very attractive for us, but it's adjacent to their property. I think they wanted to preserve their neighborhood for their views and what they wanted to do.



So from our perspective, it's early. We begin to see now in 2024, really in the fourth quarter, and we begin to see in the first quarter of 2025, more of these defaults by maturity. And the fact that as interest rates are up, the property ownership is under pressure. The biggest impact that's had on our business so far is in the haves and have-nots. And it's really made our product much more in demand and has allowed us to increase rents and decrease free rent as tenants become much more selective and really want to negotiate with building owners who are single service partners in the deal. They don't have to talk to the lender as well. And our great balance sheet is very helpful there.



In short, though, as we look at the office piece, we just haven't seen the volumes are significantly below where they were in 2019. If you take out the transfers that are not partial, there's a deal on Sixth Avenue right now where it's a partner being taken out by somebody, a fund that wants to get liquidity. It's only partial. It's not control. If you start to look at these various moves, there's really nothing that's attracted our attention yet. And we do remain very interested in residential, and we do remain very interested in retail. I hope that's helpful.

That is very helpful. I appreciate all the color there, Tony. And then maybe just one for Tom on the leasing side. It seems like the pipeline is pretty strong for 2025. Have you noticed if that kind of tenant that might be looking for space in the high 90s, low triple-digit sort of rent. Is there a big pool of those potential types of tenants looking at your more affordable price point, maybe moving down the price point curve, just given the demand we've seen for A buildings in the city?

Yes. We actually happen to be in negotiation with 2 tenants. One of them is a, I call it, a household name tenant that you would recognize that is looking at the Empire State Building and relocation and/or had looked at some of the newer Penn area product. And what we find is tenants like the value that we provide. The full suite of amenities, the sustainability partnership. And so we're seeing, yes, interest from tenants that could afford and have looked at much higher price point product and are choosing our buildings.

Our next questions come from the line of Blaine Heck with Wells Fargo.

Just a follow-up on the investment side. Given the kind of tougher time, Tony, you described in finding high-yielding office deals and retail and multifamily, which I'm sure are pretty tight on cap rates. I guess, where do you think stock buybacks rank in your preference for investment given where shares are trading at this point?

I would say that the -- while we always consider that, the Board always considers that, what we are now going to enter into a slightly different aspect of the, I'd say, shorter-term investment approach where we will look at a business we did very successfully prior to our IPO of offering preferred equity investment on transactions, and we'll probably roll that out in 2025 first half and see what we do there.



It's slightly different from the kind of mezz originations that a lot of people have done. So from our perspective, we still look at it as a way to put money to work and create more return for our investors rather than at this point, at least as we've discussed with the Board, any material shift or forward-looking statement on buybacks.

Great. That's interesting. And then shifting gears, can you guys just provide some color around CapEx in 2025? I know you guys don't guide specifically to AFFO, but given that this quarter saw some lumpiness, it'd be great to hear whether you expect some of that elevated CapEx spending to continue into '25 since you've done so much leasing in the past several quarters.

Yes. So thanks for the question, Blaine. I mentioned in the remarks as far as the elevated 4Q spend, that's a timing issue. So you need to sort of back that out when you're thinking about run rate, it's about $23.5 million there that comes down. And then also '24 was a relatively heavier year on leasing spend. So building CapEx, TIs and so we do expect that overall amount to decrease heading into '25, but a big piece of that decrease is from the exclusion of that onetime item I called out.

Our next questions come from the line of John Kim with BMO Capital Markets.

It's not a very big dollar amount, but your overall rents in the Williamsburg North 6 corridor went down on a rent per square foot basis by $6 versus last quarter. But I was wondering if you could just update us on what you think the mark-to-market is in that corridor and an update on the existing vacancy at 8991 North Sixth Street.

Sure. Thanks, John. The -- first of all, I would say going into our -- as we underwrote the properties on our acquisition, we forecast about a 30% overall mark-to-market increase within the embedded rent roll. And then obviously, the lease up of the vacant space that we have will add to the bottom line coming off no rent that we collect there.



But the -- as we have issued proposal and we see the growing momentum and interest on North Sixth Street, particularly as we've acquired property there, there's been even an increased level of interest. And I can see those mark-to-markets going higher.



Right out of the gate, we've got proposals with about a half dozen well-known brands that are interested in the one vacant space that we have. And so I'm very optimistic on a go-forward basis.

And I might add that when -- as we look at other transactions on North Sixth Street, and we see where one was recently done and where there's one underway, our price of entry looks very -- it was smart. I think, as I mentioned, we, unfortunately, by our actions, probably highlighted the opportunity set for a lot of other people. And we look forward to, based on the early indications that we have to a very successful outcome here.

Tony, you sort of alluded to it, but the $30 million acquisition that you're looking to close this year, any commentary on pricing and how you view opportunities to invest there versus multifamily?

I think that -- look, our process is always let's talk about things once they're done. So we do look to talk about that at the end of the second quarter. And I think it will just cement further and support what I've said.

Okay. I just had a quick question on some of your large tenants, Macy's and Kohl's in particular, that have announced corporate headcount reductions recently. Does that impact their usage of space or potentially does that lead them to put some of their space on the sublease market?

Macy's has subleased their space at 111 West 33rd. So that space is spoken for and really won't impact us in any way. Coastal has a remaining lease term and yet to be seen as to -- but they're out there for -- they've got quite a bit of term left.

Our next questions come from the line of Dylan Burzinski with Green Street.

I just wanted to touch on sort of the strong demand environment in New York. Obviously, your guys' portfolio is well leased. One of your peers mentioned on their earnings call that there's a potential building for possible net effective rent spikes. So just curious sort of how you guys are sort of viewing your ability to be able to continue to push net effective rent growth across the portfolio as you guys continue to push lease percentage within the portfolio that is already, call it, north of 90%.

Well, as I said earlier, and Tony has emphasized, we have raised our rents and reduced free rent concessions throughout last year, and we look to continue that into 2025. As I mentioned earlier, we had a 13% year-over-year increase in net effective rents. And we're setting up well for good net effective rent growth in the coming year based upon lower leasing costs, lower TIs. Much of the leasing that we've done has been for built -- previously built and paid for space. That's either second-generation prebuilt or spaces that were fully built out for prior tenants, and that's helping to keep a lid and reduce our go-forward tenant installation costs.



So the combination of lower concessions, lower TI and improvement in rents, I think sets us up well for continued improvement in net effective rents and, of course, just the overall good momentum in the market.

And I would just add to that, that, look, as tenants leave, we continue to -- when tenants do leave and even when we do renewals, we continue to see very good upward marks. So if we have a tenant who departs, we're very confident in the demand and that would add to additional up marks on the rents.



And as far as spike, look, we have continued, as Tom said, good volume, good interest. And we're doing some very high rent leases. Each lease we do each quarter, we now review on every transaction on everything we've got out there, lease discussions that go on too long. We've already had a handful from '24 where we upped the price because the lease proposal had gone out earlier in the year and where tenants actually accepted the higher price and have moved on with their transactions with us.

And I guess just maybe touching on sort of demand across tenant size requirements. Are you starting to see larger tenants sort of get more active in terms of coming to the market and actually wanting to lease space? Or is it still mostly that small to medium-sized user that is really active in the market today?

Well, in terms of tenants, I think coming to the market sooner, I think that we've seen that as evidenced by the 450,000 square feet of early renewals that we concluded this past year. And as I said earlier, there is a greater recognition by tenants that there is a shrinking pool and supply of quality product in quality buildings with good landlords. And so there is, I think, a greater sense of, say, anxiousness to execute on leases.



In terms of tenant size, we see interest from our prebuilds to full floors. There's clearly -- there's a lack of large block availabilities, particularly in the Grand Central area. Spaces that might otherwise be available are encumbered by a situation where the landlords cannot transact because the building is going through a recapitalization. And so we have our eyes going down in the future, trying to look at opportunities to create large blocks where we can take advantage of that short supply.

Yes. I would just underscore the demand in New York City is very strong. We happen to be diversified across tenant types and spaces, but that is reflective of overall strength across New York City. And the key commonality is it is migrating towards high-quality assets, what we -- you've heard us say as have. And those buildings, us and as well as some of the other public New York City owners, you're hearing in the comments, that's where they're seeing really good demand. And over time, there's a shortage of that space because it's not getting replenished as the space is getting leased up anytime soon.

And that's top of tier in every price range. There aren't that many tenants out there who can pay the $185 to $250 a square foot rents that new development today requires. And as those brand-new buildings and A buildings, as their rents move up, our rents move up as well because we remain the -- frankly, attractively priced, modernized, amenitized, well-located leaders in sustainability and great balance sheet landlord.



And as those prices go up, there are a lot of people who look at us and as we've seen and say, you know what, we want to stay here and grow here or we want to move here. So we're -- we feel like we're in a good position. We really do. And the market in New York is good. We're happy with that.

Thank you. We'll now turn the call back over to Tony Malkin, Chairman and CEO, for some closing remarks.

So again, thanks, everybody. We remain focused on our 5 priorities: lease space, sell tickets to the Observatory, manage the balance sheet, identify growth opportunities and achieve our sustainability goals, all for the purpose to create shareholder value. Those of you who keep track of that list will note that identify growth opportunities is a new fifth goal.



We will continue to take advantage of opportunities as they arise and are confident that our ability to execute and drive further value for shareholders going forward remains strong. So we thank everyone for your participation in today's call. We look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead and onward and upward.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.