Michael J. Franco
President and Chief Financial Officer at Vornado Realty Trust
Thank you, Steve, and good morning, everyone. As expected, the financial results for the quarter were down from last year due to items that we previously forecasted. Third quarter comparable FFO as adjusted was $0.52 per share, compared to $0.66 per share for last year's third quarter. This decrease was primarily attributable to lower NOI from known move-outs, largely at 770 Broadway, 1290 Avenue of the Americas, and 280 Park Avenue, and higher net interest expense, both of which we have previously discussed. We have provided a quarter-over-quarter bridge in our earnings release and in our financial supplement. Our outlook for comparable FFO for 2024 hasn't changed in the past couple of quarters. That being said, with the pending lease at 770 Broadway, we already have approximately 75% of the aforementioned vacant space from the moveouts spoken for.
Now turning to leasing markets. The tide has clearly shifted in the New York Class A office market. Leasing activity is strong and gaining momentum, and availabilities are declining, particularly for large blocks of space. Manhattan's leasing volume during the first three quarters of 2024 totaled 23.1 million square feet, and it looks like full-year activity will surpass 30 million square feet for the first time in five years. Strong demand for Class A space near transit, coupled with limited quality blocks of space, is resulting in rents rising and concessions beginning to tick down.
Poor Midtown vacancy for the Better Buildings, as defined by CBRE, is down to around 10%, with Park Avenue around 7% and 6th Avenue at 9%. The headquarter deals are also back, with more mega transactions greater than 700,000 square feet signed this year than any year since 2019. During the third quarter, 10 leases of 100,000 square feet or greater were signed. With little availability in the new trophy product, tenants have been keenly focused on what remains available in recently redeveloped buildings, which have undergone extensive transformations. PENN 2 is perfectly positioned to capture this large tenant demand.
Turning now to our portfolio. In the third quarter, we leased approximately 740,000 square feet of office space across our three markets. In our New York business, we have now leased more than two million square feet in 68 transactions during the first nine months of 2024 at an average starting rent of $112 per square foot. And during the third quarter in our New York office portfolio, we completed 454,000 square feet of leasing across 18 transactions at starting rents of $92 per square foot.
We closed on a 297,000 square foot renewal with Google at 85 10th Avenue, solidifying this property as one of Midtown South's best and an important piece of Google's Meatpacking District campus, and reaffirming their long-term commitment to New York. We have a unique window into tech sector activity, given our leading position as landlord to the big four technology companies in New York, as well as many others. And as we indicated on our last call, tech sector demand is coming back strong in New York, and we have more in the works in our portfolio, particularly in PENN.
At PENN 1, we leased 70,000 square feet at an average starting rent of $119 per square foot, led by our 55,000 square foot new headquarters lease with Roivant Sciences. These are historic rents for this building and The PENN District, and validate our original redevelopment thesis. Since we commenced the transformation of PENN 1, we have now completed more than 1 million feet of leasing at $92 per square foot, with a significant mark-to-market increase.
We are well on our way to achieving our original aspirations as The PENN District campus continues to attract new tenants from across the city at ever-increasing rents. Our market-leading, amenity-rich offerings, coupled with our complete transformation of the entire neighborhood, has put our properties in the leasing bullseye for tenants seeking high-quality space.
Our reported New York office cash mark-to-market for the quarter was a negative 7%, but that's not the real story. This is because several of the leases signed at PENN 1 during the quarter are for space that has been vacant for more than nine months, and therefore is not considered, "second-generation relet space", used to calculate our reported mark-to-market statistics. Additionally, the quarter included a 297,000 square foot lease, 148,000 feet of share, where we exchanged a tenant improvement allowance for a reduction in rent. As indicated on page 17 of our financial supplement, if you were to include these leasing transactions in our cash mark-to-market statistics, the negative 7% would be a positive 17.9%.
Including the lease at 770 Broadway, which Steve mentioned, our New York pipeline is robust and consists of 2.8 million square feet of leases in various stages of negotiation. This includes multiple tenant headquarter deals at our transformed PENN 2. We currently project to finish 2024 with almost 3.8 million square feet leased across our portfolio, which would be our highest volume since 2014 and then our highest average starting rents ever.
Our current office occupancy is 87.5%, down from 89.3% last quarter, primarily due to the previously announced Meta expiration at 770 Broadway. The easiest money we can make is filling up our empties. As occupancy rises, our earnings will go up. With a pending full building master lease at 770, our office occupancy increases by 330 basis points to 90.8%. Depending on the timing of future lease transactions, our office occupancy will likely decrease in first quarter 2025 as the vacant space at PENN 2 is placed into service. We anticipate that this decrease will be temporary, and as PENN 2 stabilizes, we get to the 93s.
Turning to San Francisco, at 555 California, we closed a 46,000 square foot renewal and expansion deal with Wells Fargo during the quarter and currently have renewals out for another 283,000 square feet. Our leasing program at 555 is by far outpacing the entire market as leading financial services companies continue to be attracted to the property's premier quality and to our new 555 work-life amenity program, similar to what we've done in New York. While tenant concessions are up here too, every one of our renewal rentals has been positive mark-to-market or flat in an otherwise weak San Francisco office market, demonstrating the unique cache of this trophy property.
At theMART in Chicago, we closed on 15 leases during the quarter, totaling 239,000 square feet, headlined by an important expansion and renewal of Medline, a worldwide leader in the healthcare industry, for 161,000 square feet. Medline's enormous growth in Chicago is particularly noteworthy, and the transaction is a major bright spot for both us and the overall market. theMART continues to outperform the market and attract top-tier tenants, driven by our strong debt-free sponsorship and recent amenity additions, which have reaffirmed its leading position in the marketplace.
Turning to the capital markets now. While the financing markets remain challenging for office, we are beginning to see some encouraging signs. While banks remain out of the market, the CMBS market has reopened for Class A New York City office buildings, as evidenced by our recent $400 million financing on 731 Lex office at 5.04%, the lowest rate achieved for CMBS office financing post-COVID, and the $3.5 billion financing for Rock Center, and $750 million financing for 277 Park Avenue. And there are several billion dollars more in the pipeline. These financings show investors are once again constructive on office, and assets can get financed in sizes, albeit on conservative metrics and loan structures.
With short-term rates finally coming down, and the SOFR forward curve projected to come down significantly over the next year, both the financing markets and borrowing rates should continue to improve, and value should follow. The investment sales market is also beginning to perk up. There have been a number of older, obsolete buildings sold to residential converters, which will take supply out of the market. And the first Class A building sold this cycle, 799 Broadway, was recently put under contract at a 5% cap rate for $255 million, or $1,400 per square foot, which is strong pricing.
Our balance sheet is in excellent condition, with strong liquidity of $2.6 billion, including $1 billion of cash and restricted cash, and $1.6 billion undrawn under our $2.17 billion revolving credit facilities. We have taken care of all of our significant 2024 maturities, and are making good progress on our 2025 maturities.
Despite the success we've had recently in extending our loans with existing lenders or refinancing our loans in the midst of this more challenging environment, we do still have a handful of assets that are over-levered. Most of these assets do not contribute to our FFO right now and have little to no equity value. We will maintain our discipline, and unless these loans are restructured on terms that allow us to put the assets on sound footing, similar to what we previously negotiated at 280 Park and St. Regis Retail, we will not invest any more capital in these settings. The non-recourse nature of these loans provides us with this option.
With that, I'll turn it over to the operator for Q&A.
