Empire State Realty Trust - Earnings Call - Q2 2025

Transcript

Speaker 5

Greetings and welcome to the Empire State Realty Trust Second Quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, Senior Vice President, Chief Counsel, Corporate, and Secretary. Thank you. You may begin.

Speaker 1

Good afternoon. Welcome to Empire State Realty Trust Second Quarter 2025 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 investor 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 law, 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 those forward-looking statements and 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, chain 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.

Speaker 0

Good afternoon, everyone. Yesterday, we reported ESRT's second quarter and year-to-date results. We delivered strong office leasing, and we had a more challenged quarter for the Observatory. Our progress in our core office portfolio reflects the value of our proposition, and Observatory performance was impacted by adverse weather and lower demand from past programs, which are predominantly international. On this call, the team will walk through our adjusted full-year outlook to reflect Observatory performance. ESRT is purpose-built for strength and agility across all cycles. Our long-term leases, high occupancy, diversified income streams, and flexible balance sheet are a solid foundation for consistent performance and strategic options. In New York City, demand for our top-of-tier office space remains robust. Our modernized, well-located, near-mass transit amenity-rich portfolio is supported by our sustainability leadership and strong financial position.

This clear differentiation leads the market, and we can thrive in any environment and continue to deliver long-term value. In the second quarter, our leasing team continued to put points on the board, with approximately 232,000 square feet leased, which includes 202,000 square feet of new Manhattan office leasing at double-digit positive mark-to-market leasing spreads. As we stated would happen in our last call, our Manhattan office portfolio is 93.8% leased, and we expect further leasing and occupancy gains for the full year. We achieved our 16th consecutive quarter of positive New York City office mark-to-market rent spreads. Our Observatory generated $24 million in NOI in the second quarter in the face of a visitation decline of 2.9%. Revenue per capita increased 2.3% year over year.

More than half of our visitors are domestic, and our international audience remains well-diversified, with no single region accounting for more than 10% of total visitation. The Observatory is resilient across all cycles, as shown on slide 18 of our latest investor presentation. Our best-in-class balance sheet continues to be a key strategic advantage for ESRT. It gives us the flexibility to lease space, maintain our portfolio to the highest standards, and act opportunistically to create long-term value for our shareholders. Sustainability continues to be a cornerstone of ESRT's business philosophy, and we are the leader in environmental stewardship and healthy building performance. Our sustainability work that we began in 2007 has always been focused on business outcomes, and we continue to engage actively with our tenants to help them achieve their own sustainability objectives.

Our entire organization remains laser-focused on the company's five priorities to lease space, sell tickets through the Observatory, manage our balance sheet, identify growth opportunities, and achieve our sustainability goals. Steve, Tom, and Christina will provide more detail on our progress and outlook for the balance of 2025. Steve?

Speaker 3

Thanks, Tony. For the second quarter of 2025, we reported core FFO of $0.22 per diluted share. Same-store property cash NOI was down 3% year over year after the exclusion of lease termination fees and approximately $2 million of non-recurring revenue items recognized in the second quarter of 2024. Operating expenses were up 8.8%, primarily due to increases in real estate taxes, cleaning-related payroll, and repair and maintenance work that included approximately $1.4 million of non-recurring repair work in the quarter. With the exclusion of the aforementioned repair work, operating expenses were up 6.7% year over year. These increases in operating expenses were partially offset by higher tenant reimbursement income. In our Observatory business, we generated approximately $24 million of net operating income in the second quarter, or a 4.3% decline year over year. Observatory expenses totaled $9.8 million, and revenue per capita continued to improve year over year.

Turning to our outlook for 2025, with visibility on the full first half of the year, we have revised our Observatory NOI guidance to a range of $90 million to $94 million. Last quarter, we acknowledged the headwinds the Observatory could face this year, including reduced tourism. During the first six months of 2025, the Observatory was impacted by bad weather, particularly on the weekends in May and June, and lower demand from our past program business, which is predominantly international. As a result, we revised our NOI guidance for the Observatory for our year-to-date results and a more conservative outlook for the remainder of 2025. During the first half of 2025, our NOI declined by 5.3% year over year. As a result of this adjustment, we now expect 2025 core FFO to range between $0.83 and $0.86 per share. All other components of our guidance are unchanged.

To reiterate my remarks from our last earnings call, we expect operating expenses and real estate taxes to fluctuate quarter over quarter, influenced by the timing of planned maintenance work, which is expected to be heavily concentrated in the third quarter, seasonal utility usage, and the timing of real estate tax abatements. Lastly, we expect Fed CapEx to trend lower in the second half of 2025. The building blocks I discussed in our last call with regard to TIs, leasing commissions, and building improvements remain intact. There will always be CapEx fluctuations quarter to quarter depending on the volume of new versus renewal leasing completed, where renewals typically have lower costs and the timing of related TI spend generally falls into later periods.

In Q2 2025, our leasing volume was heavily weighted towards new leases, which drove higher leasing commissions in the quarter, which are recognized immediately, and the TIs associated with these leases are expected to be recognized over the remainder of 2025 and into 2026. With that, I will now turn the call over to Tom. Tom?

Speaker 2

Hey, thanks, Steve, and good afternoon, everyone. We had another strong quarter with 232,000 square feet total leasing at 7% positive mark-to-market rent spreads in our commercial portfolio. That includes a 14-year, 40,000 square foot expansion lease with an investment firm at One Grand Central Place, a 12-year, 39,000 square foot new lease with Ellsberg Baker at the Empire State Building, an 11-year, 25,000 square foot new lease with Mott MacDonald at the Empire State Building, a 12-year, 24,000 square foot expansion lease with Slice Architects at 1359 Broadway, and we signed leases for 11 pre-built office suites, which total 77,000 square feet. In the second quarter, we signed 222,000 square feet of new and renewal leases in our Manhattan office portfolio, where we have only 93,000 square feet of remaining lease expirations to address for the balance of 2025.

Our Manhattan office portfolio stands at 93.8% leased, an increase of 80 basis points compared to last quarter, and an increase of 630 basis points since the fourth quarter of 2021. Occupancy is now 89.5%, an increase of 140 basis points compared to last quarter. We have a healthy pipeline of leasing activity, which includes approximately 160,000 square feet of leases in negotiation and a few hundred thousand square feet of proposals exchanged with tenants, tenant prospects in various industries, including finance, professional services, TAMI, and others. Our tour volume and leasing activity remain strong. We expect to further increase our lease percentage for our Manhattan office, and we remain on track with our full-year guidance increase in occupancy rate of 89% to 91% by year-end. In today's bifurcated office market of haves and have-nots, ESRT stands out as a clear have.

Demand is concentrated in high-quality assets and tenants prioritize buildings which are top-of-tier, modernized, well-located near mass transit, sustainability-focused, amenity-rich, and backed by a financially sound owner who will provide quality services and a high level of execution. ESRT's portfolio checks all these boxes. The supply of such top-of-tier office space in Manhattan continues to tighten, which creates a favorable supply-demand dynamic that allows ESRT to capture outsize value and market share. We have increased our asking rents, reduced concessions, and seek longer lease terms throughout our portfolio. We just completed our 16th consecutive quarter with positive mark-to-market lease spreads in our Manhattan office portfolio, where spreads were positive 12.1% in the second quarter. We continue to see stable trends in TI packages in the marketplace. During the first half of 2025, our leasing costs, including TIs and leasing commissions, were consistent with our full-year 2024 adjusted for term.

Our mix of new and renewal leasing will fluctuate from quarter to quarter, and new leases typically require higher leasing costs than renewals. In the second quarter, over 90% of our Manhattan office leasing was for new or expansion transactions, which demonstrates strong demand for our high-quality office space. Additionally, our net effect of rent increased by 2% over last quarter due to a longer average lease term of 10.1 years and higher starting rents compared to the prior quarter. We have $50 million in income after cash revenue from signed leases not commenced and free rent burnoff, as shown on page 19 of our supplemental, that reflects our leasing success. Our multifamily portfolio continues to excel, benefiting from robust market fundamentals, strategic property improvements, and improved operations. The portfolio was 99% occupied and achieved 8% year-over-year rent growth in the second quarter.

Lastly, these outstanding results are a testament to the exceptional work by our talented and seasoned leaders in the real estate group. This includes Ryan Cass, our Senior Vice President of Leasing; Pete Schoelen, Senior Vice President of Design and Construction; Mike Prenti, Senior Vice President of Property Management; and Dana Schneider, our Senior Vice President of Energy and Sustainability. These senior executives lead a dedicated team of professionals who consistently deliver top-notch service to our tenants and deliver excellent results. With that, thank you, and I'll turn it over to Christina.

Speaker 1

Thanks, Tom. I'd like to provide additional color on three key areas today: the performance of our Observatory, our recent retail acquisition, an overall commentary on Williamsburg, and the current dynamics of the investment market. Our iconic Empire State Building Observatory remains a resilient asset and a meaningful contributor to our overall business. With high operating margins and dynamic pricing that adjust with inflation, it is structurally advantaged within our portfolio. While first-half performance was hurt by external headwinds, including an unusually high number of bad weather days, particularly on weekends, and lower demand from our past program business, which is predominantly international, the Observatory remains a positive contributor to cash flow and earnings. Long-term fundamentals of this business continue to stand out. Importantly, we remain focused on the things we can control: the enhancement of our guest experience, the execution of targeted marketing campaigns, and driving operational efficiency.

Our distinct position as the iconic and authentic New York City experience, anchored by an iconic global landmark, sets us apart in a competitive market and positions the Observatory for sustained long-term growth as external conditions normalize. Our acquisitions and entry into the prime retail corridor on North 6th Street in Williamsburg, Brooklyn, over the past two years aggregate approximately $250 million. This reflects our disciplined and strategic approach to capital allocation and value creation, as this represented a redeployment of capital from our suburban asset disposition with lower growth and higher CapEx into North 6th Street retail with higher long-term growth prospects and lower CapEx. At the end of June, we closed on the previously announced acquisition of a prime retail asset on North 6th Street in Williamsburg for $31 million.

86-90 North 6th Street is approximately 15,000 square feet of ground retail space on the strategic corner of North 6th Street and White Avenue, adjacent to our existing holdings. We plan to redevelop and reposition the asset. We now own three key street corners on North 6th Street in one of the most dynamic and sought-after retail corridors in Williamsburg. This prime location benefits from high foot traffic, a strong local demographic, and growing interest from both national retailers and institutional investors. The increased presence of institutional capital in the area further validates our thesis and enhances the long-term value of our holdings. These acquisitions position us to capture outsized returns as the neighborhood continues to evolve and mature.

We continue to see increased activity in the investment and acquisitions market, with more transactions beginning to take place, especially as interest in New York City is strong, given favorable operating fundamentals, pricing expectations have adjusted, and institutional capital re-engages. We remain well-positioned to act with discipline and agility. We will continue to pursue opportunities where we see attractive pricing and clear potential to add value through our expertise in operating and repositioning assets. Our strong balance sheet gives us flexibility to be opportunistic. We manage our balance sheet proactively with strong liquidity, no floating rate debt exposure, a well-laddered debt maturity schedule, and no unaddressed maturity until December 2026. Our leverage remains low relative to our New York City-focused peers, with net debt to EBITDA 5.6 times as of quarter end.

This positions us well to support both our leasing initiatives and capital allocation priorities, and we are confident in our strategy and fundamentals and continue to execute with discipline across our platform. That concludes our prepared remarks. With that, I'll turn the call back to the operator to begin the Q&A session. Operator?

Speaker 5

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. Participants using speaker equipment may need to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.

Great, thanks. Good afternoon. Just starting on the Observatory, can you talk about the visitation trends you've seen thus far in July and how you came to the revised guidance targets for that asset? Do you feel as though this is now a relatively conservative range and there's more upside bias, or are there scenarios in which you think you could hit the low end or below? What would drive that?

Speaker 0

First of all, I'll let Christina talk to the point about the guidance and how we constructed that. I don't think that one should look to either end of the range. We look at the range, and we certainly look to outperform wherever we can. In the first quarter, we did discuss our unusually high number of bad weather days, and that was consistently on weekends. That phenomenon continued through the first two months of the second quarter. We had 21 bad weather days in Q2 2025 versus 8 in Q2 2024. When you have that many, and they're on weekends, and they tend to be consecutive, with an average visitor stay to New York City of 3 days, consecutive bad weather days mean we never see that visitor. We have seen a lower demand from our past program, as we've referenced.

That's a predominantly international visitor, and it's predominantly a budget-conscious visitor. When we look at what we have, we do know that historically 60% of our NOI comes in the second half. We're conscious of challenges for brand America. That said, New York City is a strong tourism market. We continue to pivot and focus on from where the tourists come to deliver better results. Christina, do you want to talk about how we composed our guidance?

Speaker 1

Sure. We provide a range that says if the first half experienced some slowdown due to a combination of weather and visitorship, especially from international, without any incremental information if that were to persist, this is roughly a range. As Tony mentioned, we focus on outperforming wherever we can and the factors that we can control, which is to provide a great experience and continue to target our audience. We are takers in the market, and some of it is the market environment, but we will obviously seek to outperform where we can.

Okay, great. That's very helpful. Maybe returning to Tony, I guess there was a pretty clear negative initial reaction to the Democratic primary results, but it seems as though the leasing commentary on this call has remained generally positive. I wanted to get your thoughts on your general view of any potential headwinds that could come from the results of the mayoral race and whether you've seen any signs of hesitation from prospective tenants to sign significant leases driven specifically by concern around those changes at City Hall.

Speaker 0

No. As Tom mentioned, business is strong. Our leasing activity remains strong, and we have a healthy pipeline of activity. We're always concerned about New York City's quality of life and opportunities for growth. At the same time, we don't do politics, we do policy, and we've worked with the success of New York City administrations. We'll work with the next. We just like to throw in our clear comment that the priority of every New York City mayor should be New York City's safe streets, schools, and businesses. Every New York City mayor needs to respect all of its residents. With that in mind, we don't see anything except for perhaps a slight pause in the transaction market of buying and selling of properties, and business is strong. Tom, you want to throw anything else in there?

Speaker 2

Blaine, there's good momentum in the market, and we're seeing strong demand for top-of-tier products and location services. We've seen no change in tenant behavior. As I've stated before and I'll state again, there's just a dwindling supply of good quality buildings and spaces from which tenants can choose. The demand is there, and we've seen no change in momentum or tenant behavior.

Speaker 0

Good quality buildings, good quality landlords, correct pricing for us. We're absolutely top of tier in our pricing range, and 16 consecutive quarters of mark-to-market growth. We feel very good. Is it possible that we are unusual? Maybe. We only tell you about what we see.

Okay, great. Thank you, guys.

Thank you.

Speaker 5

Thank you. Our next questions come from the line of Steve Sakwa with Evercore ISI. Please proceed with your questions.

Yeah, thanks. Good afternoon. Maybe to follow up on Blaine's question on leasing, I guess, Tom, at like 94% leased, do you sense the tenants, I don't know, the word panic is probably too strong a word, but do you sense that there's concern on their part about space and renewing deals, and are you sensing that tenants are coming to you a bit earlier in the process now that maybe the tide is shifting a little bit, and are you doing anything differently, I guess, on the leasing strategy?

Speaker 2

We are certainly focusing on leasing the vacant space that we have, and we've got a good pipeline of activity. We've got some 14 leases in negotiation for about 100,000 square feet of leases that includes pre-builts and full floors. In past quarters, we have done some early renewals, and we continue to focus on that. Didn't do any this quarter, but our team is focused on expirations in 2026 and 2027 to lock in tenants where we can. I think tenants are being advised by their brokers that they should move quickly because there will be continuing reduced supply of quality space. Again, quality defined by amenity-rich, modernized, good solid landlords, good location, sustainability leadership, and we check all of those boxes. I think that, again, there's really good momentum in the marketplace, and we just have not seen any slowdown or change.

Okay, thanks. Maybe just on the transaction market, I don't know, Tony or Christina, obviously your stock is trading at a fairly high implied cap rate. Maybe the multiples are somewhat elevated because of CapEx, but I guess how are you sort of thinking about making new investments? Have you changed sort of your hurdle rates, I guess, given where the stock is? I know share buybacks were fairly minimal in the quarter, but just how are you sort of weighing the buybacks versus new investment opportunities? I guess how wide is the landscape and deal flow today?

Speaker 0

I think we can, I'll take a stab at the beginning of that. We are still very much focused on what we can do with our existing portfolio to create growth, number one. Number two, we have a high standard for what we expect to see from new investment. We don't have a 1031 need out there immediately, though we do have a property on the market. From the perspective of what we see, we did see some very aggressive bidding on multifamily leading up to the last few weeks. It's been a little slower, and needless to say, there is a transaction out there for a company that's going through a process. We look at everything and see where we can do something that makes a value sense for us and our investors.

Speaker 5

Christina, anything you want to add?

Speaker 1

No, I think you covered it. We continue to look at the landscape, focus on New York City, recognize where the share price is, recognize buybacks, definitely still part of the equation. When we look at the market, we continue to have discipline and underwrite a lot of opportunities and make sure that we don't get caught up with chasing down. We want an appropriate return. As a reminder, we distinguish between capital recycling as well as the use of fresh balance sheet capital for new investments, which we'd want a higher return.

Great, that's it for me. Thank you.

Speaker 2

Thank you.

Speaker 5

Thank you. Our next questions come from the line of Seth Bergey with Citi. Please proceed with your questions.

Hi, thanks for taking my questions. Can you just talk about kind of the return expectations for the Brooklyn acquisition?

Speaker 1

Sure. As mentioned, it was a property that's located in a very strategic location, one of the key corners along North 6th Street. It's adjacent to our other assets. We viewed it as both a unique opportunity in and of itself, as well as adding to the value of our existing assets and overall to the street. It made a lot of sense. As we think about a redevelopment opportunity, we think of roughly sub 7%. Within a couple of years, we've already seen strong leasing interest, and we look forward to announcing more to the market when the time comes.

Great, thank you. Just for the second question, you kind of mentioned an increase in transaction activity. Is there any update on the marketing process for the suburban office asset, and any change in financing or the buyer pool or anything that would impact kind of pricing of that?

That asset remains on the market. We'll provide an update when it's relevant. We continue to have discussions. That's on that piece. I think overall, comment on the financing market, financing is available. There will be some look at what the asset is and sponsor and specific debt metrics that can be supported by the asset. I'd say financing is definitely available and out in the market. You can see from transactions that are in the marketplace, either closed or near closed, it has picked up. There is definitely institutional capital. New York City has moved from simply office-curious to actionable. That bodes well for the market. We continue to look for our spots. I think overall in the marketplace, we should expect to see it pick up in activity.

Great, thanks for taking my questions.

Speaker 2

Thank you.

Speaker 5

Thank you. Our next questions come from the line of Dylan Burzinski with Green Street. Please proceed with your questions.

Hey, guys, thanks for taking the question. It sounds like, you know, activity in New York office still continues to be very strong. I mean, are you seeing any change with regards to the amount of tech tenant demand within the market, or are things still being largely driven by sort of the traditional financial services and legal services type tenants?

Speaker 2

It's really broad-based, and that's the good thing about a portfolio. We've attracted tenants from a wide variety of industries. Right now, we've got activity with tenants in consumer goods, the FIRE sector, finance, legal, professional services, some nonprofits, some engineering services. We have a good amount of tech tenants in our portfolio, and I will not be surprised if we get some activity in the coming few months. It's pretty broad-based, candidly. Right now, we're seeing a heavier weight in certainly the FIRE sector and professional services.

Great, thanks, guys. That's all I have.

Speaker 5

Thank you. Our next questions come from the line of Jamie Feldman with Wells Fargo. Please proceed with your questions.

Great. I just wanted to get your thoughts on a potential investment pipeline. You know, a lot of private credit investments out there, a lot of talk around where they were priced at much lower interest rates. Here we are in a higher rate environment, but people want to recycle capital and start putting it to work. Can you talk more about what you may be seeing ahead in terms of real estate opportunities as people try to recycle capital and put it to work in fresh investments?

Speaker 2

That's interesting. Certainly, that was the opportunity that presented itself for us in Williamsburg and what allowed us to take advantage of that when we had our 1031 need. We are at the point of a second round of look at debt. Rents have been attractive for us. Rent growth has been attractive for us. One of the things that has created that attractiveness and that growth for us is, in fact, the fact that we are a have as opposed to a have not, and that includes a good balance sheet. We're on the market and able to do business, and we can lease without the requirement for a lender to be involved in the transaction. We have the capital to be able to make good. I think people before had a view of stay alive to '95, and now people in many instances have a view survive '95.

Excuse me, 2005. Sorry, I'm dating myself to the savings and loan crisis. Everyone's sort of laughing at me here in the room. It's how old I am. That said, there is a second round underway right now, and there are a lot of things which might have been kicked down the road in 2023 and 2024 that begin to show up in 2025. That may create more opportunity for us. Most of that we see is not necessarily a recycling. It's an exit from people who maybe the debt is the one who gets the money back as opposed to the owner. Tom?

There are actually... Go ahead. I'm sorry, could you repeat the question? In terms of geographic location, property type, the assets with that type of debt, are they even in your strike zone of where you'd want to invest? Can you think about what's out there?

We've gotten close. We'll see where we get. We definitely have made efforts, and we've made efforts and missed on retail and office and resi, and we will continue to make efforts. We have to be disciplined about what we do and the returns that we should see in order to commit capital.

Okay. Just as a follow-up, can you talk about the decision to add your son to the board? We get a decent amount of questions on that move, and just talk about the merits and how we should think about that.

Sure. Tom DeRosa, for personal reasons, chose not to stand for reelection earlier this year. We're grateful to Tom for his service. He was there for our formation, chaired our Audit Committee, and he gave a great contribution and commitment to Empire State Realty Trust. George Malkin has been an observer on the board and various board committees for more than two years. His qualifications are clear from his academic achievements, his business experience, and his success. He's already added value to Empire State Realty Trust through his participations, introductions to businesses and capital sources, and a deep understanding of long-term capital investment analysis and strategic growth. The fact of the matter is he is complementary to our board structure and our composition, and it's particularly relevant as we continue to execute on our strategies.

The board agreed unanimously to George's election, and I think that's all that we really need to say.

Okay, thank you for that. Do you anticipate him taking a more active role at the company or more just the board seat?

George is the President of Malkin Holdings. That is our family office. I have no plan to go anywhere, nor does Christina, nor do we have any plan to bring George on as an officer of this company.

Okay, great. Thank you very much.

Speaker 5

Thank you. Our next questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions.

Thank you. On 86-90 North 6th Street, how long do you think it'll take until you sign a lease there? I know you talked about a two-year period to get to sub 7% yield. Where do you see rents at that space and in your existing vacant space in Williamsburg versus the in-place rent of $141?

Speaker 2

Yeah, John, first of all, we're going to redevelop the entire building with a new facade, a new storefront, and create a spectacular ground floor retail presence there with two stores, one corner and one inline. With this acquisition, we now control four of the eight key corners on North 6th Street. We had underwritten a year of redevelopment and then some downtime for leasing. Even before we've begun a redevelopment, we've already got very strong tenant interest. I won't be surprised if we announce something well ahead of our projected timeframe for lease-up and ahead of our completion of the building redevelopment. We expect stabilization somewhere around 2027. It could be earlier based upon what I just said. Rents for the corner being north of $500 a foot and inline in the high $300s.

Can you just provide an update on where you see the mark-to-market on the Williamsburg retail portfolio?

Speaker 1

It's definitely roughly 25% to 30%, but we have a good amount of lease term. We focus on too much this few years out, but it's definitely there. That's why we see this investment, though, going in yields were core in nature with rents that are significantly below market and the area continuing to evolve and improve. They provide a lot of upside and defensive characteristics over the long term.

Okay. On your multifamily performance, it was up 14% year over year. I think you got some benefit from additional units from your Williamsburg acquisitions, I'm assuming. Can you just discuss the same store performance of that portfolio? You mentioned also pricing was competitive. Where would pricing be today for products you're looking at?

Sure. I'll start with the multifamily performance this quarter. Starting with the units we picked up at 86-90 North 6th Street, there's 11 units there, but we acquired that at the end of the quarter. There's really no contribution from those units yet to our NOI. What you're seeing in that outperformance is really the 8% growth of base rents and also a big decline in concessions year over year. That's what's driving that performance there.

On asset valuations, there were not a ton of transactions, but of those that have traded, we still see pretty strong valuations as well as institutional demand. Seeing around a 5% cap or a sub 5%, depending on the type of asset, is not completely uncommon, and people do show up. The fundamentals are very strong. There's not a lot of available product. With all the changes and what's going on in New York City, one outcome is lack of visibility that creates a lack of new supply. That backdrop is very favorable.

Just a quick follow-up. The number of units went up 11 units this quarter. I don't know if that was another reason.

From an NOI perspective, it's not because we acquired at the very end of the quarter. There was no contribution to NOI yet in 2Q.

Okay, got it. Thank you.

Yep.

Speaker 2

Thank you.

Speaker 5

Thank you. We have reached the end of our question and answer session. I would now like to turn the call back over to Anthony Malkin for any closing comments.

Speaker 2

State Realty Trust, we remain steadfast in our focus on our five strategic priorities: lease space, drive Empire State Building Observatory ticket sales, maintain a strong and flexible balance sheet, and identify and pursue growth opportunities while, of course, continuing to advance our sustainability goals, which really help differentiate us and attract tenants. Each of these pillars supports our overarching mission to create long-term value for our shareholders. We're well-positioned, capitalizing on opportunities as they emerge, and remain confident in our ability to execute with the discipline needed to deliver continued value in the quarters ahead. Thank you all 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. Onward and upward, folks. We'll get back to work here.

Speaker 5

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.