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'Trump bump' hits NY office market

The New York office market is seeing its own version of the "Trump bump" apparent in the public markets in recent weeks, according to SL Green Realty Corp. executives.

Bank stocks have been on a tear since Donald Trump won the presidential election, and an analyst during the Q&A segment of SL Green's Jan. 26 year-end earnings call asked whether the New York landlord had detected an echo of that optimism in office leasing activity among financial services tenants, historically the bread and butter of the city's office market.

CEO Marc Holliday did not point to specific lease deals but testified to an improved mood overall among the bankers, tenants and potential partners the company speaks with regularly "in the past month or two."

"I would say, clearly, the vibe, the confidence, the psychology has become much more enthusiastic, much more positive, much more optimistic in terms of what everyone perceives to be the opportunities for growth," the executive said. "And incentives, and lower taxes and possibly reform and regulation, and whatever else, is driving that enthusiasm. We definitely see it."

Steven Durels, director of leasing and real property, added that there has been an observable bump in property tour activity as well as proposal and lease negotiation activity since the election, particularly at 280 Park Ave. There also has been a pick-up of interest in 10 E. 53rd St., where the prospective tenant list has been similarly dominated by financial services players.

"It feels like [the financial services sector] is back in the market, they've got renewed enthusiasm, and we're hopeful that we're going to see more activity throughout the year," Durels said.

Durels later defended the executives' positive characterization against the testimony of brokers, reported by an analyst, that point to a more subdued market, burdened to a degree by concessions. Real estate owners have a more accurate view of the deal landscape at any given time, he said.

"In my travels, I think most brokers are fairly optimistic right now," Durels added. "I didn't get a lot of negativity back from them over the past 30, 45 days. We'll see how the year unfolds, but we're still feeling very strong."

An analyst later quizzed executives about the prospect of losing the benefits of 1031 "like kind" exchanges, should comprehensive tax reform materialize under the new administration. The tax code provision, widely used in real estate, allows sellers to off-load a property and buy a replacement property without generating a tax liability, and has been cited as a possible target of champions of tax reform.

Holliday said he is optimistic that 1031 exchanges will not be targeted in any tax reform scenario. But he said a loss of them would not be "all that impactful" to SL Green's operations.

"We have certainly demonstrated an ability to sell interests in assets, monetize assets, in ways other than 1031, but still comply with all regulations for not triggering current gains but rather deferring gains. ... And there's always other [avenues] that are available to us, such as dividending out the cash or timing the sales for when you have excess yield and depreciation, so that we can time these events to minimize or eliminate the tax burden, if any," he said.