SL Green To Fortify Office Portfolio Through Redevelopment

SL Green Realty Corp. (NYSE:SLG) is focusing on redevelopment efforts to fortify its office portfolio. In fact, the company recently outlined plans for the redevelopment of its One Madison Avenue office tower and intends to transform 460 West 34th Street after acquiring majority stake in the property.

Demolition and construction at One Madison Avenue are expected to begin in 2020 or 2021, after existing tenant leases expire. Specifically, the company will utilize its 218,000-square-foot available development rights to increase the building’s rentable square footage to around 1.5 million square feet. The nine-story building will be overhauled to create additional 18 column-free floors.

Further, revitalization of the existing podium, lobby, retail space will offer opportunities to capture demand in Manhattan’s most sought-after office district. In fact, the Class-A office tower occupies an entire block between 23rd and 24th street Park Avenue, next to Madison Square (NYSE:SQ) Park.

Also, debuting in Hudson Yards area, SL Green acquired majority interest in a 20-story Class-A office building — 460 West 34th Street. The transaction is anticipated to close in first-half 2019 and values the property at $440 million.

The property is located along the 10th Avenue between 33rd and 34th street. Through extensive redevelopment efforts, the building’s entrance will be repositioned from the 34th street to the 33rd street. Further, the property will be revitalized with new elevators, storefronts, windows and infrastructure.

Redesigning the property is a strategic move, making it a competitive alternative amid the new developments in the submarket. Further, management believes that the building’s close proximity to the new Penn Station transit center will appeal to prospective tenants.

While these transformative measures will incrementally add value to the company’s properties, such efforts are capital intensive and may hurt short-term margins. Further, any hike in interest rate can also dent its ability to finance these strategic projects.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have underperformed the industry it belongs to. During the period, the stock has declined 2.2% against the industry’s rally of 3.6%.




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