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NEW YORK CITY-The “off again, on again” sale of SL Green Realty Corp.’s 485 Lexington Ave., which the REIT bought from TIAA-CREF in 2005 for $225 million, may soon be a reality, CEO Marc Holliday said in an earnings call Tuesday. Holliday said SL Green is “weighing offers” from interested buyers and the 926,122-square-foot office tower is likely to go under contract some time during the third quarter.

If the 485 Lexington asking price, reportedly north of $500 million, is met, it would mean “$450 million off our balance sheet in one fell swoop,” said Holliday. SL Green refinanced the property for that amount in January 2007, with the loan maturing in 2017.

One thing that the “intermittent” marketing of 485 Lexington has demonstrated is that “there continues to be a broad base of buyers, both foreign and domestic, looking for bargains in Manhattan,” said Andrew Mathias, president and chief investment officer. He noted that the sale of Worldwide Plaza, which closed last week, demonstrated that even in the current market, a well-organized investment group was willing to take on a leasing risk of 600,000 vacant square feet “and still write a check for $200 million.”

GlobeSt.com reported earlier this month that Deutsche Bank, which took back the 1.75-million-square-foot office tower at 825 Eighth Ave. from Macklowe Properties last year, was providing $470 million in financing on the $600-million deal. That leaves approximately $130 million to be put in by the investment group led by RCG Longview and George Comfort & Sons.

Holliday, Mathias and other key SL Green executives described the REIT’s strong second-quarter performance relative to other New York office landlords. The REIT recently raised $385.7 million of equity and has reduced its leverage by about $1 billion in recent months. Its Manhattan office occupancy rate stands unchanged at 96.2% from Q1, even as the citywide vacancy rate is in the double digits by most accounts.

Holliday noted that the REIT’s “watch list” of delinquent or bankrupt tenants includes only three with square footage of more than 25,000 square feet. Steve Durels, EVP and director of leasing and real property, said the combined square footage of all the tenants that have gotten some form of rent relief is only 132,000 in a Manhattan portfolio of more than 23 million square feet. “Our portfolio management strategy has paid off,” said Holliday.

That being said, the company’s quarterly revenues were off 13% compared to a year prior: $253 million, down from $290 million in Q2 2008. On the face of it, net income appears to be down even more drastically on a year-over-year basis: a 93.9% drop to $12.6 million for the quarter ended June 30, compared to $134.2 million for the same period in ’08. However, the company notes in a release that Q2 ’08 results included a gain on the $310-million sale of 1250 Broadway to Murray Hill Properties and incentive distributions of approximately $31.6 million.

Moreover, average tenant improvement allowances throughout the portfolio are up sharply: $53.68 per rentable square foot, compared to $17.70 at the same time last year. Noting that about 4.5% of Manhattan office inventory is sublease space that in many cases has been expensively built out, Holliday said, “You’re competing against turnkey space” in retaining tenants. But he said that in the current environment, there are two types of owners: those that can “shoulder the burden” of temporary increases in capital expenses, and those that can’t.

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