SL Green Realty Corp

NYSE:SLG

Thank you, everyone, for joining us, and welcome to SL Green Realty Corp.'s First Quarter 2025 Earnings Results Conference Call. This conference call is being recorded.

At this time, the company would like to remind listeners that during the call, management may make forward-looking statements. You should not rely on forward-looking statements as predictors of future events as actual results and events may differ from any forward-looking statements that management may make today. All forward-looking statements made by management on this call are based on their assumptions and beliefs as of today.

Additional information regarding the risks, uncertainties and other factors that could cause such differences to appear or set forth in the Risk Factors and MD&A sections of the company's latest Form 10-K and other subsequent 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 Regulation G under the Securities Act. The GAAP financial measure most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on both the company's website at www.slgreen.com by selecting the press release regarding the company's first quarter 2025 earnings and in our supplemental information included in our current report on Form 8-K relating to our first quarter 2025 earnings.

Before turning the call over to Marc Holliday, Chairman and Chief Executive Officer of SL Green Realty Corp., I ask that those of you participating in the Q&A portion of the call to please limit your questions to 2 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 very much for joining us today. Given all that's transpired in the global markets since our last call, I was especially happy with our first quarter's earnings that we announced yesterday. In particular, and as a result of the hard work of the entire SL Green team the company's earnings for the quarter exceeded the Street's expectations and our own internal projections by a significant margin.

Our NOI was on top of our forecast. Our leasing results were well ahead and our profits generated by our debt-related businesses were very strong. This should come as no surprise to anyone given my commentary in December at our investor conference, which focused on an opportunity-rich commercial debt market. I highlighted that new originations, secondary market purchases, distressed opportunities, the new debt fund and our special servicing business was going to take center stage in 2025 and Q1 performance in this area is certainly an affirmation of that belief with much, much more to come.

We laid out our thesis in this point in the cycle for making equity-like returns in credit investments, something that has been our stock in trade for over a quarter of a century. No one has made more subordinate investments on Manhattan office buildings over that period of time than we have. Particularly in the early years of a recovery, our realized returns are typically far higher than the average returns we normally experience and we expect 2025 and 2026 to be no different.

The recent volatility in the credit markets benefits this business and our new debt fund and substantial liquidity gives us the ability to selectively identify investments with attractive returns and protect the downside. In just the past 9 months, we've closed on nearly $200 million worth of DPE investments with the more recent ones slated for the fund, and we are actively negotiating on a pipeline of over $1.2 billion of new debt investments.

To categorize our debt-related earnings as either nonrecurring one-off, noisy or confusing is, in my opinion, to miss the point. Our debt platform is a meaningful component of who we are. Our expertise and track record in this area is well established. Given the opportunity set in front of us, I do expect that our debt-related businesses will account for increasing profits to our shareholders, and I expect we are already at the higher end of our guidance range, a range where we will reassess next quarter, with an upward bias if we are successful in closing all of the business now in front of us. And that's not to say we aren't also concentrating on growing our equity portfolio.

In the first quarter, we closed on the acquisition of 500 Park. And weeks later, we signed a lease, bringing the building to 100% occupancy. Now we are designing an improvement program with elevated finishes and amenities to materially move the rents up as tenants renew and roll. Also in the first quarter, we bought out our partner in a 100 Park, acquiring a 50% position on attractive terms in a building that is now 97% leased. We've owned 100 Park for approximately 25 years, and it continues to be a solid performer for the company.

Finally, Summit One Vanderbilt was the #1 attended experience of its type in the first quarter according to a recently published report. In just over 3 years, the Summit has become one of the most sought-after experiential attractions in New York City. I know there was a question raised regarding the impact that reduced international tourism might have on Summit's attendance, and I would simply note that last week, we set a ticket presale record with over $0.5 million of advanced ticket revenues sold in 1 day.

In closing, I'd just like to say in uncertain times, SL Green shines. Thank you.

[Operator Instructions] And our first question comes from Alexander Goldfarb of Piper Sandler.

So 2 questions. First, Steve, can you just talk a little bit more about prebuilts. It's a topic that we're hearing from -- further from you guys from other landlords. Just curious how that has gone in winning tenants, what the economic rent potential is versus raw space and how that's been going versus the market in general?

Sure. I mean it's prebuilds or also known as build-to-suits where we do a custom build for a new tenant coming into the portfolio, have been around for a considerable amount of time. And I would say, broadly speaking, in order to be competitive in the market, if you're transacting with a tenant that's, call it, certainly 10,000 square feet or less, it's almost mandatory that the space be built or the landlord is willing to build the space for a variety of reasons, tenants want to take out the mystery of cost. They want to accelerate the decision -- or the timeline from decision to move in. And for us, having the expertise in-house with design and construction, and we're very well practiced at doing these pre-builds. I think it's a big competitive advantage to do the prebuild in a way that we execute in a very high design manner and do it throughout the portfolio on all price points of product.

And then the second question is, obviously, everyone is focused on tariffs and the impact on leasing. Everyone is trying to figure out their crystal balls. As you look back in time when the market has gone through selloffs like we are, is there some sort of lag and you're like after 3 months of a market sell off, you see the impact on leasing activity slowing down after 2 months. How do you -- how can we gain comfort? Obviously, you've done well year-to-date but how do we get comfort of how long the market remains disrupted in the stock market before there's a potential to start seeing discussions in your pipeline slow?

Well, that's an impossible answer as to how long it would take to have absolute clarity and prior disruptions, it's really what is the cause of the disruption as to -- is a function of how fast we see the impact in the marketplace. But I think what's most telling and give me a second sort of tell the story, if you go back in our pipeline 3 weeks ago, so pre-announcement of tariffs, we had 62 tenants in the pipeline versus today, we have 64 tenants in the pipeline. Of those 64 tenants, 44% of them have an expansion requirement as part of the deal that they're negotiating of the tenants that we replaced over the past 3 weeks. 18 tenants were replaced by 20 new tenants. And of those 18 that were replaced, 14 were replaced because leases were signed.

So I only lost 4 tenants, and those were done really because the tenant chose a different building or we elected a different tenant to replace that tenant for a space we're negotiating. So point being, we haven't seen a slowdown yet. We haven't seen any commentary from the marketplace, and we haven't seen any pullback from any decisions in our portfolio yet. And that, I think, over those 3 weeks, gives a very good indicator of where -- why we feel cautiously optimistic but time will tell.

Our next question comes from Nick Yulico of Scotiabank.

First question is, I was hoping you could just talk a little bit more about the trends you're seeing in the overall debt financing markets. And if you have a sense for -- I know the CMBS market was very strong heading into the tariff announcements, and I think now it's mostly on whole but any update on just sort of road map of how that could be functioning -- start functioning better again?

Yes. I think with the credit markets in general, we certainly can expect to see some turbulence as a result of the macro environment across the country but I expect New York City to mostly be immune from that. There is a flight to quality in moments like this, and New York City has demonstrated an ability to stand out from every other market. At the end of the day, capital needs to be put to work by investors. And our market is experiencing positive momentum as a result of a weaker U.S. dollar demand for tangible assets, the reopen CMBS market we've seen since the beginning of this year and prospect of rate relief. And all of that's paired with fundamental and sentiment recovery that we've seen that's really at a 5-year high.

Looking at the CMBS data, 2025 year-to-date, we've seen $6.9 billion of New York City office CMBS completed. That's versus 0 in 2023 and $300 million in 2024 during the same exact period. So -- and in addition to that, we've also already eclipsed the full 2024 levels. So on the balance sheet side, I'd say we saw recently the 5 Manhattan West deal get done at $1.25 billion. And we're going to be watching closely the transactions at 300, 590 Mad and 1345 Sixth in the coming weeks and use that to gauge how the markets are reacting from some of the macro news.

Yes. I would just add to that and distinguish -- what I think you're going to see in New York and the deals that Harry just mentioned, is going to be more pricing related. I mean, clearly, pricing is gapped out but that's not the same as what we experienced in '22 and '23, where there was just an absence of deals. There were no buyers. There's a lot of buyers. There's a lot of capital out there. And there's a lot of capital I want to put their money into CMBS. The risk premium that may demand that was going to be higher. And you'll see that, I think, in higher rates, the deal just got done this week at rates that probably are higher than what would have been done a month ago.

But there's a dramatic difference in market stability when you talk about buyers who want more premium versus lack of buyers. And I think as Harry said, in New York, you're going to see deals get done and there'll be some price discovery and hopefully that price discovery will compress as per Steve's comments, the market evidences itself that there's still great demand out there for office product. But there's no -- I wouldn't relate this to what we saw previously in prior years where there just was no activity.

All right. That's helpful. And then second question is just, I think, Marc, you said something about upward bias to guidance, and I wasn't sure if that was just predicated on getting more sort of investments done on the debt side. I want to be clear on that. And then maybe on the other side of that, in terms of your FFO guidance range, right now for the year, Matt, if there's any downside protection, we should think about if we're heading into a weaker economy or anything else, do you still feel good about the guidance range there?

Yes, going in reverse order, certainly comfortable with where we are right now. As we highlighted in December, the balance sheet is very insulated. We termed out all of our debt last year, we're hedged on at all but 3% or 4% of our floating rate debt. So rates can move around and the markets can fluctuate and we're insulated there. So we're certainly comfortable from the downside. The upside by us is Marc talked about investment opportunities. We have some other stuff we're working on that could result in upward revisions. But we typically don't revisit that in the first quarter. We get at least 6 months of activity behind us and reevaluate. But the prospects are good as we sit here now.

Yes. And not just debt related, I think that was part of your -- first part of your question. Is that all related to debt? No, we've got we've got like a lot in front of us right now, equity, debt, fee-oriented, leasing deals working on it. There's a lot of contributors. And my point was simply if we get it all done, and that's our goal is to get it all done, then we'll need to sit and revisit. But we'll -- that will be a topic for 3 months from now.

Our next question comes from Steve Sakwa of Evercore ISI.

Marc, I know at the Investor Day and on other calls, you've talked about wanting to try and secure a new high-quality development site in Midtown, I'm just curious given kind of what's going on in the macro and the uncertainty over tariffs and costs, how challenging is that to try and pencil out today and is that something you'd still be looking at, say, this year or maybe that's something more for next year?

I think it's completely de-linked, Steve. These development projects are 5- to 7-year journeys. And when you -- when we take a pen and pencil or computer to underwriting, we are -- this is not a question of 2 months ago, we were excited about development and 2 months later, we're not. And next month we are and next month we're not based on the stock market or tariffs. There is an enormous scarcity of high-quality office development sites that can be delivered over the next 4 or 5 years.

And any -- a city like New York that is the pivotal CBD in this country and is growing and is reaching all sorts of records on employment, on Wall Street profits, on bank earnings. There's a confidence we have in the long-term viability of this market, that we would absolutely welcome the prospect of developing a significant new site in core Midtown Manhattan in our market, in SL Green territory. That's for sure. And that hasn't changed, in my opinion or mine in the past 3 months.

My pricing -- it goes back to what I said earlier, on the bond question, my pricing change one way or the other? Maybe. Do I think rents have changed for that product? Absolutely not. In this building alone at One Vanderbilt, we have a constant flow of inquiries for expansion because we have great tenants here and elsewhere through the portfolio and notwithstanding what you're seeing in the market, there's still companies that are growing and taking advantage of this market and need more space. This isn't anecdotal. These are tenants who are ringing our doorbells and saying, we need to grow. And this isn't like modest growth. Some of these requirements are significant.

And the issue I have right now is not tariffs. The issue I have right now is delivering 1.5 million to 2 million square feet of brand-new Class A, One Vanderbilt like styled office space to the most sophisticated base of tenants in the country that want to grow. And I'm as committed to that today as I was in December.

Great. I guess, secondly, and I don't know how much you can comment on this. But just where are we kind of in the whole casino -- downstate casino license plan and is that something that you still expect, I guess, the state to kind of get concluded by the end of this year? Or might that process get delayed?

This is Brett. The process has been full speed ahead since, call it, December of last year, when the state for the first time in 4 years, reached out to all the bidders and said, we'd like you to start the environmental review process. That was new. We took it very seriously, a great sign, and we commenced immediately. We're an as-of-right project. There's 2 or 3 other reservoir projects that are out there also starting their environmental process.

We expect that given the amount of expenditure, the requests of the state to engaged professionals for that review that June 27 will be the on track day to submit the license for the state's review. We're looking at from there, end of September local approval process and hopefully, a year-end award of that license. The state has acted much differently this year than it has in all 4 prior years, and we're very ready for it. We're excited. We're eager. We've been ready for the past 2 or 3 years and can't wait to launch out there publicly and get going.

Our next question comes from Jana Galan of Bank of America Securities.

Going back to the active leasing pipeline. Your press release noted 1.1 million square feet. Would you say they're kind of following the typical leasing deal time line? Or is there evidence that corporate decision-making is pausing or is it just kind of the tightness in the market, there's more urgency and corporates are tuning out the macro uncertainty?

It's really a function of the types of tenants that we're negotiating with at a point in time. And I think there's certainly no sense of tenants feeling pressured to make accelerated decision and maybe there's -- they slow down a little bit because we're working on a bunch of big deals. But I don't think this is a material change in people's sentiment or their -- how they're conducting themselves or how their third-party consultants are conducting themselves. So I don't think there's really a lot of color commentary as to what we're seeing right now versus how it's been over the past several months.

Okay. And then on the fee rent and TIs came down in 1Q. Can you talk a little bit more about how you kind of see that through the course of the year and what tenants are accepting?

Yes, that's just really a function of the basket of individual transactions for the quarter. I think broadly speaking, concessions have been stable for really all through last year coming into this year. We haven't seen a material change. If anything, I would say there's a good chance that in certain submarkets like on Park Avenue and Sixth Avenue where you see real pockets of strength in the Midtown market, that you'll see some tightening of concessions. I don't know it's enough to really move the needle. But as certainly the face rents are going up.

And I think we've seen the rents go up on Park Avenue and I think the entire community is expecting Sixth Avenue rents to go up because there's been a tremendous amount of leasing and there's a number of large deals pending on Sixth Avenue. And that's going to drive face rents as we look into the rest of the year. So the natural extension after that is after rents go up, then they'll start to get pressure on trying to push concessions down. But I think it will be submarket by submarket, not broadly across all of the Manhattan market.

And our next question comes from John Kim of BMO Capital Markets.

I wanted to ask about a couple of your objectives for the year, which includes 2 million square feet of leasing and 93.2% year-end leased occupancy. So in the first quarter, you're ahead of the pace but occupancy did go down. And I'm wondering, just given all the uncertainty in the markets today, if you still feel comfortable with those targets?

We're comfortable. Our budget -- our living budget at the moment is in excess of 2 million feet, and that's as of like an hour ago. So that will go up and down. So that will go up and down. I feel pretty good about 2 million. We had a good start first quarter. We're already, I think, over 100,000 feet leased year to date -- well, April to-date, quarter-to-date. And Steve has already talked about the pipeline. So look, we're going to monitor it closely, as we always do, the pipeline to evaluate trends and sentiment and whatever.

But on the one hand, you've got geopolitical, on the other hand, you have tenants with real need for space. And that's not abating that we see yet. We did so much in the first quarter. We would hope to be at around 1 million feet for the second quarter. And we think by year-end, we could eclipse that 2 million feet and a lot of that's just driven by a return to office. You had years of people in a hybrid work model. Now this is a competitive environment. People are back, people are focused, people need space. And it's like we're just seeing that all over the market. And if ever there's a moment we don't, we'll be the first to tell you guys and our shareholders. But at the moment, we're feeling good about both the occupancy level and the volume.

Okay. Switching gears to 500 Park. I realized it wasn't a huge lease but you guided to 100% occupancy. And I'm wondering what that implies for the mark-to-market of that asset. And if there's any update on the 6.8% cap rate that you acquired it at?

Well, so on mark-to-market, I think we have to look at it in 2 ways. The lease we signed relative to both the in place and the current market. But more interesting to me is where those rents will be after we finish a $20 million-plus improvement program that we have commenced. We've selected our architect. We're going to be doing work in the Plaza, we're in the amenity, lobby, some other improvements, bringing sort of elevated hospitality to the building. And in that regard, we're projecting rents up off of today rents by at least $15 a foot on average for what I'll call the repositioning program. But if the question is specifically where was that lease relative to market.

So that way, I don't think had a mark-to-market calculation because it was filling vacant space at the time of acquisition. But I can tell you that the rent that we signed on that lease was $10 a foot higher than the prior sponsor was asking for the space the day before we acquired the building.

And where does the yield go to compared to the 6.8% that you bought it at?

We sit today at about 7.2%. That 6.8% you referenced from our investor conference is now 7.2%.

Our next question comes from Ronald Kamdem of Morgan Stanley.

Two quick ones for me. Just starting on the disposition targets of $1 billion just how you're thinking about sort of that? What are you seeing in the markets?

Yes. Look, the plan is on track, and we feel confident based on the meetings and negotiations we're having, I think it's important for everyone here to realize that our team has navigated through the past 5 years of COVID negative office bias and high interest rates. And through that period, we completed approximately $9 billion of gross sales at share at a blended cap rate of 4.3% and $1,400 a foot, just demonstrating that our portfolio is liquid and investable and even the toughest of markets that you can imagine.

So, yes, sure, there are challenges in front of us as a result of some macro conditions but it's far less than what we've experienced in the past 5 years. And so we're on track for the plan this year.

Great. And then my second question, just going back to that 1.1 million square feet of pipeline. Just a little color on how much of that is non-financial, right? And then the second piece of it, how much of that is outside of Park Avenue and Grand Central, which have been pretty strong?

Well, let's see, the easy one is the first part of your question, there's 0.25 million square feet of TAMI tenants in that pipeline, which I think is pretty notable because that's probably as much square footage as we've seen from that industry over the past couple of years within our portfolio. And certainly, TAMI, broadly speaking, in the market, has doubled the number of active tenant searches year-over-year.

And then as far as Grand Central, the majority of our portfolio sits within the Grand Central area. So it's safe to say that the majority of the pipeline is within the Grand Central market, which has proven to be one of the -- 1 or 2 most active submarkets over the past year.

Our next question comes from Blaine Heck of Wells Fargo.

Great. Just a follow-up on the last question. Can you give a little bit more color on the profile of the kind of most active TAMI tenants and whether that activity is driven by relocations from other markets? Or kind of organic growth from tech and media companies that already have a presence in the New York market?

All of them are relocations. And as best I recall, all of them are driven by growth. In that growth, some of those tenants are AI-related businesses. Then I don't know what other color I can give you on it. But yes, I mean, it's growth, it's relocation. They're household names, and we're seeing an AI name attached to a lot of these tenants.

Got it. That's helpful. And then maybe a different angle on tariffs and uncertainty. I guess, can you talk about the profile of potential capital partners that are showing interest in JV deals or even the debt fund at this point? And in particular, whether there's been any notable change in demand from foreign investors given the recent macro uncertainty and trade disagreements?

We haven't seen it yet. I would note countering what you just mentioned is the weaker U.S. dollar. One thing that we experienced in '23 and '24 was U.S. dollar moving against us for those 2 years. With the dollar getting weaker, it makes it much easier to have some of the conversations we're having. On the fundraising side for the fund, our group of investors are institutional both domestic and international representing almost every region across the world.

I guess the main point to make there, I think, if I understand your question is we have not seen a drop off in foreign investor demand for the debt fund or for product. Now with respect to the dispositions, the proof will be when we close them. And we just started the year, so we're in the process of doing that and hope to knock those off in the second half of the year, contract first half, closed second half, which is our usual rhythm to that.

But as we sit here, we look at the short list for the many different sales and JVs we're working on, I would still say a lot of the usual -- I don't want to say suspects, our usual relationships are still steadfastly on that list. So we'll -- more to come on that on the next call but we've not seen any drop-off of interest there.

Our next question comes from Omotayo Okusanya of Deutsche Bank.

On the Investor Day, there was a lot of emphasis around office to resi conversion and the opportunities and how more we're [Technical Difficulty].

Omotayo, we're not hearing you.

You've got to ask it again because you're breaking up.

Can you hear me?

Now, yes. Now, we can.

Okay. Sorry about that. So we're saying on the Investor Day, there was quite a lot of emphasis on the office to resi opportunity in New York and how Indian regulation was changing. Could you just give us an update in regards to that and how you're thinking about opportunities in your portfolio to do some of the potential more resi to -- office to resi conversions?

Yes. So I would say that as we sit here, 3.5, 4 months from our investor conference, I would say the volume of announced or planned deals is anywhere between consistent or ahead of where we were and what we showed back in December. There's a lot of conversion candidates, particularly downtown, where the prices of the bricks and mortar and land enable conversion on an economic basis. We're seeing it on Third Avenue, our own project, 750 Third, as well as the old Pfizer headquarters as well as...

675 Third and 767 Third, which are both recent trades for office to resi.

So I mean there's 4 deals in that Third Avenue market. And you can imagine how quickly a market for office can tighten when you take 4 very viable office buildings and take it off the market, which all 4 of those are essentially off the market now for office tenancy and that has a very firming effect, if you will. There's going to be a lot in Midtown South as well due to the zoning changes that were accomplished there as part of City of Yes. And I think it's a significant and one of those understated or not well-understood trends that will look back on 2 or 3 years when this market really firms up and you see occupancy levels drop to -- well, vacancy levels dropped to single digits.

A big part of that -- half of that is going to be net absorption and growing demand, half it's going to be resi conversion. So I think it's taken root. There's projects underway like ours. There's going to be thousands and thousands of units delivered. And I think ultimately, in excess of 25 million square feet of offices going resi. It will take time to complete and deliver but it's fairly instantaneous in terms of its exit out of the inventory of available space to lease.

Our next question comes from Seth Bergey of Citi.

Are you guys seeing any larger requirements for the remainder of One Madison? And you touched a little bit on the Summit picture but can you talk about the demand for Midtown South?

Yes, we've seen a marked change in tour activity and some early proposals that are on the table right now. I was sharing with Marc in a week or 2 ago that the number of qualified large prospects that have either toured or are in a diligence process focused on One Madison just over the past 30 days is probably more than what we saw all of last year. So -- and I don't want to get too far out over our skis but it certainly feels very promising at this moment compared to any time over the past 18 months.

And then just on the Summit kind of what percent of visits are international visitors. And then kind of can you talk a little bit about what the booking window looks like for that?

Question is, what percent is international? Look, I don't want to mislead. I don't have those stats at my hand right now. I think traditionally, it's about 2/3 tourism and 1/3 domestic. That's a very high domestic attendance level for -- when I say domestic, I'm talking tri-state area, like local. It's like a 1/3 local, it's like 2/3 tourism. Within that tourism break, I mean the preponderance is domestic. But when I go up there, it feels to me like almost 35%, 40% is foreign tourists. So I don't have good stats on it.

Does anyone else have here?

And a lot of repeats.

Yes, a lot of repeats for sure. It's an unusual in so much as people go back and back. It's only been over 3.5 years. We've had people come back 5, 6, 7 times because it's not an object. It's an experience. It's an attraction. It's a destination and it's thrilling. So for those that know it, you know what I'm talking about for those that don't, you should get there right away. In 2024, it was about closer to 50% foreign visitor. I'm just getting that stat sent to me right now. So a little higher than I said. But a good balance, and we see no drop off in any demand or change in composition through the first quarter.

Our next question comes from Vikram Malhotra of Mizuho.

Maybe just building up on the Summit question in New York. I guess just can you talk a little about -- a little bit about the opportunity in Paris, where you are a potential time line for execution?

A lot more to come on Paris between now and end of year, hopefully with some imagery that we'll be able to share with you as well, which I think everyone will find extremely exciting. But Rob Schiffer and I just came back from Paris about 2 weeks ago where we spent a lot of time with the developers there and the site and the construction. And our team, we have a big team that's already been assembled in Paris of engineers, designers expediters, et cetera, working on our taking things from conceptual to design development.

We expect to have possession of the floors for Summit Paris sometime in Q1 of '26, and we expect to be open to public sometime at the end of Q1 '27. So to me, that's right around the corner because there's so much to do. We're going to be putting a team and the staff together out there that will be managed and run by this amazing team we put together here in New York with obviously local senior people on the ground in Summit. We've started some of that hiring already. I can only tease you with the fact that the early artistry coming out of Kenzo Shop is staggeringly beautiful. And it's going to be in the spirit of what we have upstairs but very different, very unique, I think, a nod towards Parisian abstraction and I am really excited to be able to cut that ribbon in '27.

Great. And then just on the FAD, FAD guidance at the Investor Day kind of relative to 1Q. Can you just remind us sort of as we go through the year, I'm assuming there's more leasing you did that's converted to cash later in the year. Is there like a ramp-up as we go through the year or anything kind of onetime that we should model in for the rest of the year?

Yes, two components of FAD. Over the course of the year, as we highlighted in a recent presentation, physical occupancy or commenced occupancy, whatever you want to call it, economic occupancy is increasing every quarter throughout the course of the year such that we end up going from around 88%, 89% at the end of last year to over 92% at the end of this year. So that will help the revenue side.

On the cost side, obviously, as the space is built, the build-out costs go down. That said, typically, our capital spend accelerates into the end of the year. It's the lightest in the first quarter and heaviest in the fourth as the projects get completed towards the end of the year. So the FAD number for the first quarter was a solid one, better than our expectations. But for the full year, we're still seeing roughly in line with what we guided to in December.

Our next question comes from Peter Abramowitz of Jefferies.

Just wanted to ask quickly about 11 Madison. You have the expiration in September. Just wondering if there are any kind of comparable deals you could point to, to give us an idea of maybe you would expect in the refi market? And any comments on if you're considering doing something in CMBS market rather than a bank deal?

Yes, sure. I would sort of say this is an active negotiation and deal that we're working on now. So I'd prefer not to comment on it with more to come later this year. Obviously, we got our $5 billion plan done last year. We have a lot of reps now as to how to work with existing lenders and the market as to obtaining efficient financing for these assets. And I would say just stand by and we'll update you into the next call.

Thank you. This concludes our question-and-answer session. I'd like to turn it back to Marc Holliday for closing remarks.

Okay. Great. Well, I appreciate all the questions. And like I said, I want to just leave you with the notion that we're working very hard on all these different opportunities in front of us but also very cognizant of the state of the markets right now, and we're going to stay very nimble and be very reactive to both opportunities making sure we keep the buildings as leased as possible and get the occupancies up and Matt will continue to steward the balance sheet.

So I think we're in great shape at this moment in time, as really as good as I could have asked, and we look forward to speaking to you again in 3 months.

This concludes today's conference call. Thank you for participating, and you may now disconnect.