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Paramount Group (NYSE:PGRE)
Q4 2019 Earnings Call
Feb 13, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group fourth-quarter 2019 earnings conference call. [Operator instructions] Please note that this conference call is being recorded today, February 13th, 2020.

I will now turn the call over to Rob Simone, director of business development and investor relations. 

Rob Simone -- Director of Business Development and Investor Relations

Thank you, operator, and good morning. By now, everyone should have access to our fourth-quarter 2019 earnings release and the supplemental information. Both can be found under the heading financial information, quarterly results in the investors section of the Paramount website at www.paramount-group.com.  Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth-quarter 2019 earnings release and our supplemental information. Hosting the call today, we have: Albert Behler, chairman, chief executive officer and president of the company; Wilbur Paes, executive vice president, chief financial officer, and treasurer; and Peter Brindley, executive vice president, leasing. Management will provide some opening remarks, and we will then open the call to questions. With that, I'll turn the call over to Albert. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Thank you, Rob, and good morning, everyone. We ended 2019 on a very strong note as our strategic initiatives continue to translate into results. Core FFO for the fourth quarter was $0.26 per share, bringing our full-year 2019 core FFO to $0.98 per share, $0.01 above the high end of our previous guidance range. Today, we are initiating 2020 core FFO per share guidance between $1 and $1.06 per share.

Wilbur will review both our financial results and our 2020 guidance in greater detail. In addition to the strong financial results we achieved in 2019, we executed on several operational and strategic initiatives. Let me recap some of these. We leased over 1.5 million square feet, our highest leasing year on record as a public company and twice the original goal we set at the beginning of the year.

This leasing served to reduce roughly 80% of our 2020 role in New York and San Francisco, and was done at weighted average starting rents of nearly $90 per square foot and for a weighted average term of almost nine years. Mark to markets on second generation space were robust at 14.8% cash and 17.1% GAAP. This would have been even higher at 15.6% cash and 18.1% GAAP, if you excluded the impact of the previous short-term renewal at 900 Third. We completed our $200 million share buyback program by repurchasing a total of 14.7 million shares over the last 18 months, representing about 6% of our public float.

We repurchased these shares at a weighted average price of $13.59 per share, which is not only significantly below NAV estimates, but also below current stock price levels. At these levels, we have an embedded gain of nearly $12 million, and are saving 5.9 million annually in dividends. More importantly, we funded our share repurchase program in a leverage-neutral manner using a portion of the proceeds generated from asset sales in Washington, D.C. We used the remaining proceeds from asset sales to complete over 1.3 billion of acquisitions in San Francisco, one of the nation's fastest growing markets with joint venture partners.

And we also refinanced our headquarters at 1633 Broadway by upsizing the debt to 1.25 billion and reducing the interest rate to 2.99% for a 10-year term, effectively borrowing additional 200 million at no incremental interest cost. As we head into 2020, our strategy remains unchanged, and our value proposition continues to be straightforward with the overarching premise being our leasing strength and disciplined focus on allocating shareholder capital. As we have demonstrated consistently over the past several years, we can recycle capital very effectively by repositioning it into higher growth opportunities or by taking advantage of extreme market dislocation in our share price.  That being said, let me spend a minute on each of our markets. We remain very constructive on the New York office market.

On our last conference call, I reason that we could see tech tenants begin to take more space in the market at unprecedented levels ranging between 3 and 4 million square feet. In the fourth quarter itself, approximately 2 million square feet of this potential requirement has been executed, all of which is positive absorption and great for the city. While I will let Peter comment on this in greater detail, the one thing that is clear to us that tech tenants are all over the city and seeking a product that fits their growing needs.  Looking back, we see that Paramount has captured its fair share of this demand. At the time of our IPO, TAMI tenants represented approximately 9% of our portfolio.

Today, that figure has more than doubled to 19% and continues to grow. As we see it, the evolution of the tenant makeup sustained office using job growth and low unemployment continue to be drivers of strong underlying fundamentals. The availability rate in Midtown remains healthy and average asking rental rates are trending upwards. This market backdrop should serve as tailwind as we work to lease the Barclays space at 1301 Sixth Avenue.

Our goal remains to lease at least half of the space before expiration at year end. We remain confident that given the quality and location of the building, the size of the block near the base of our building and the large and efficient floor plates, this space will prove very desirable in the market.  In San Francisco, demand remains robust as the market continues to be supply constrained. During the year, we leased nearly 1 million square feet in San Francisco with impressive cash mark to markets, nearly 25%. Not only was it a record year from a leasing volume perspective, but we achieved several milestones from an occupancy perspective as well.  We addressed upcoming role at One Front and 300 Mission, both of which are now 100% leased.  One Market Plaza is 98.4% leased, bringing our San Francisco same store portfolio to 99.3% leased, truly remarkable.

We are excited about the new opportunities we have in San Francisco, with the acquisition of 111 Sutter, 55 Second and Market Center. We have already begun executing on our business plans and will approach these opportunities in the same proactive manner as our previous acquisitions, thereby creating additional value for our shareholders. We are happy with our capital allocation strategy and our portfolio transformation. With only one asset in Washington, D.C., we are now essentially a bicoastal REIT with some of the very best assets in New York and San Francisco.

Our New York portfolio will represent approximately 70% of our NOI, with the remaining 30% coming from San Francisco, which, by the way, is up from about 8% at the time we went public.  In closing, while we continue to remain disciplined and opportunistic in managing the portfolio, our main focus will undoubtedly be to lease up the Barclays block, which remains our single biggest priority. With that, I will turn the call to Peter to give additional insights on our leasing. 

Peter Brindley -- Executive Vice President, Leasing

Thanks, Albert, and good morning. During the fourth quarter, we leased approximately 290,000 square feet, bringing our full-year 2019 total to more than 1.5 million square feet leased. Approximately one-third of this leasing production addressed immediate vacancy in the portfolio or space scheduled to expire during 2019. The balance of our leasing contributed to the reduction of our portfolio's near term lease roll, which is currently a manageable 7.4% expiring per annum through year-end 2024.

At quarter end, we were 96.1% leased on a same store basis, down 30 basis points year over year, driven largely by the Henri Bendel lease take back in January of 2019. Excluding this strategic lease termination, our same store leased occupancy would have been up 10 basis points year over year. Our current availabilities remain very well positioned relative to tenant demand, and we expect to build on our proven track record of attracting credit tenants across a diverse range of industry. Let's review our results by market, starting with New York.

Manhattan ended the year with the highest ever three-year leasing total on record. During this time, Manhattan realized a jump in leased occupancy of 17 million square feet from 366 million square feet to 383 million square feet, helping to offset the influx of new supply and maintain a stable availability rate during this period. Of equal importance is the ever increasing depth and diversity of the city's tenant base. During the past year, the tech sector accounted for 25% of the leasing activity in Manhattan, surpassing financial services for the first time ever as the largest driver of market demand in a given year.

The emergence of tech is yet another reminder that irrespective of industry, Manhattan remains a magnet for companies seeking the best and brightest. The Top 3 largest tech deals in the fourth quarter occurred in Midtown. However, we are seeing significant new tech demand across the city, ability to scale in dynamic locations, superior access to transportation, robust infrastructure and large floor plates are all hallmarks of what the tech sector is seeking in their real estate. Our portfolio is highly diversified, and we expect to capture our fair share of this tech demand that will undoubtedly continue to fuel absorption in our markets.

Turning to our New York results. Our same store portfolio was 95.5% leased at quarter end, down 50 basis points year over year. As mentioned, Henri Bendel had a significant impact on same store leased occupancy. If you were to exclude the former Henri Bendel lease termination at 712 Fifth Avenue, the New York portfolio's occupancy would have been 96.2% leased, up 20 basis points year over year.

During the fourth quarter, we leased approximately 124,000 square feet, bringing the full-year 2019 total to over 540,000 square feet. We achieved a weighted average lease term of approximately nine years with initial rents nearing $84 per square foot. Of the 540,000 square feet leased, 200,000 square feet served to eliminate 63% of our 2020 lease roll. With only 1.4% of leases expiring in 2020, we turn much of our attention to 2021 and 2022 expirations.  Looking ahead, the New York portfolio is very well positioned with approximately 6% expiring per annum through year-end 2024, which figure excludes the lease expiration of Barclays 500,000 square feet as reflected in our 2021 lease separation schedule.

Our New York properties are ideally located relative to current tenant demand. We have capitalized on this competitive advantage by successfully leasing to the most discerning of tenants quarter after quarter. We remain focused on the successful lease-up of our remaining availabilities, the largest of which is the Barclays block of space at 1301 Avenue of the Americas and perceive current market conditions to be a tailwind in our effort to lease the space. 1301 Avenue of the Americas is located in the heart of the Sixth Avenue submarket among Midtown's strongest performing submarkets, having realized more positive absorption than any other Midtown submarket in 2019 and boasting an availability rate of 9.5%, 180 basis points below the broader Midtown average.

We are finalizing our marketing center at 1301 in March of this year, and are confident in our current level of interest, which has been diverse in its makeup. Our goal remains to lease half of the Barclays space by year end, and we look forward to updating you on our progress. At 712 Fifth Avenue, we completed the lobby renovation in September 2019 and are thrilled with the result. During the fourth quarter, we completed six deals, totaling more than 51,000 square feet at rents among the highest in the market.

We are encouraged by the tour activity at the high end and are confident that 712 Fifth Avenue will continue to perform well. In San Francisco, leasing fundamentals continue to strengthen, and we continue to capitalize by securing long-term deals with best in class tenants. Net absorption in San Francisco remains positive. And average asking rents continue to increase, up 15.6% year over year for Class A product in the CBD.

Vacancy for Class A product in the CBD continues to decline, down 160 basis points year over year to 5%. It is our expectation that rents will increase further given robust demand and limited supply. Our same store portfolio in San Francisco was 99.3% leased at quarter end, up 130 basis points year over year. During the fourth quarter, we leased approximately 166,000 square feet.

For the full year, we leased just shy of 1 million square feet at a weighted average term of 8.6 years with initial rents nearing $95 per square foot. Not only did this leasing velocity increase occupancy, but it also contributed toward the reduction of 2020 lease role. During 2019, we eliminated approximately 86% of our 2020 lease roll, excluding the three properties we acquired during the year. The San Francisco portfolio is very well positioned with approximately 7.6% expiring per annum through year-end 2024.

At One Market Plaza, we completed two transactions during the quarter, bringing our occupancy to 98.4% leased. One Market continues to achieve among the highest rents in San Francisco. At One Front Street and 300 Mission Street, we are now 100% leased as a result of the long-term 265,000 square foot expansion with First Republic Bank at One Front, and the three deals totaling more than 262,000 square feet at 300 Mission, both of which were executed in the second quarter.  At 111 Sutter Street, we are now 86.3% leased, up from 70.3% when we acquired the property in February 2019. During the fourth quarter, we successfully completed two deals, totaling approximately 36,000 square feet at healthy double digit cash mark to markets.

The building is architecturally significant and appeals to creative tenants and traditional tenants alike. Lastly, in San Francisco, we are very excited by the opportunity we have at market center, a multi building office campus that is currently 95.6% leased with several key in place leases well below market. The building boasts unparalleled transportation access, desirable amenities, including a fitness center, efficient floor plates and spectacular view corridors in the heart of San Francisco's CBD, all of which support our team's effort to take advantage of the current and upcoming availabilities and create tremendous value in the process, much like what we have done in the recent past with our portfolio in San Francisco.  With that summary, I will turn the call over to Wilbur, who will discuss the financial results. 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Peter. We had another strong quarter of financial and operating performance. Our core FFO for the quarter was $0.26 per share, bringing our full-year 2019 core FFO results to $0.98 per share, $0.02 above the midpoint of our most recent guidance. Our same store cash NOI grew by 5.9% in the quarter, bringing full-year same store cash NOI growth to 7.3%, 30 basis points higher than the midpoint of our guidance.

The same store cash NOI growth in our New York portfolio was a healthy 5% and San Francisco grew by a robust 13.1%.  As expected, same store leased occupancy decreased by 30 basis points year over year from 96.4% to 96.1%. This decrease was driven by the early termination of the Henri Bendel space and lease expirations in the fourth quarter at 900 Third, which we had previously telegraphed. As highlighted earlier, we continued our strong leasing momentum and despite limited availability, we have been executing leases for significant space in both New York and San Francisco. In the quarter, we executed 20 leases covering 290,000 square feet of space at positive mark to markets of 1.1% cash and 10.1% GAAP.

The current quarter cash and GAAP  mark to markets were impacted by an 18,300 square foot lease in the mid-rise of 900 Third that was executed at market rents but was previously leased for a nine-month period at over $93.50 per square foot. Just to put that in perspective, the average in-place rents at 900 Third are roughly $70 per square foot. Excluding the impact of this lease, mark to markets would have been 4.4% cash and 15.9% GAAP.  Year to date, mark to markets were 14.8% cash and 17.1% GAAP and would have been even higher at 15.6% cash and 18.1% GAAP, if you excluded the lease at 900 Third. Turning to our balance sheet.

We ended the quarter with over 1.3 billion in liquidity. We refinanced 1633 Broadway in November. The financing was received with tremendous reception as evidenced by its execution. We essentially borrowed $200 million for nil, keeping our cash interest unchanged, pushing out maturities and lowering our weighted average cost of debt capital.

Our outstanding debt at quarter end was 3.75 billion at a weighted average interest rate of 3.37% and a weighted average maturity of six years. 87% of our debt is fixed and has a weighted average interest rate of 3.3%, and the remaining 13% is floating and has a weighted average interest rate of 3.6%. We have no debt maturing until the fourth quarter of 2021, and beyond that, our maturities are well laddered. Turning to our guidance.

Our outlook for 2020 remains solid. We expect to lease between 700,000 and 900,000 feet for the year. We expect same store leased occupancy to be between 96.6% and 97.2%. We expect same store cash NOI to grow between 3.8% and 4.8%, and we expect core FFO to be between $1 and $1.06 per share or $1.03 at the midpoint.  This represents an increase of $0.05 per share or 5.1% when compared to 2019.

The plusses are as follows. $0.06 from higher same store cash NOI growth, $0.04 in cash NOI from acquisitions net of dispositions, $0.02 resulting from lower weighted average shares outstanding due to the share repurchase in 2018 and 2019 and $0.01 from a reduction in general and administrative expenses. These plusses aggregating $0.13 are partially offset by the following. $0.03 of higher interest expense resulting from new debt on the assets acquired in San Francisco, $0.03 in lower straight-line rent and FAS 141 income primarily due to the burn off of free rent and $0.02 from lower lease termination income that is not projected to be received in 2020.

It is important to note that our current guidance assumes that Barclays will be in their space for the duration of their term, which ends on December 31st, 2020, and pay rent for the full year, which they are contractually obligated to. If we are successful in releasing a portion of the Barclays space sooner than their expiration, it will definitely be a great outcome for the company long term, but will certainly have an impact on our 2020 guidance, including same store and core FFO results. Lastly, we have also updated our investor deck, including our schedule of free rent and signed leases not commenced, which now sits at 51 million. This information can be found on our website at www.paramount-group.com.  With that, operator, please open the lines for questions. 

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from the line of Jason Green with Evercore ISI.  Please proceed with your question. 

Jason Green -- Evercore ISI -- Analyst

Good morning. On the potential early leasing of the Barclays space, can you provide a little more detail as to how that's contemplated in current guidance? And then, I also know you mentioned it would impact guidance if you were to get early leasing done, but I guess, are you able to quantify or be more specific as to how it could affect guidance if, say, half the space were to be leased midway through the year? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. Jason, in terms of the leasing guidance, we have contemplated that our goal is to lease 50% of the Barclays space in 2020. We have been very vocal about that. Albert has been very vocal about that.

Peter has been very vocal about that. So that's in the leasing guidance. As far as the earnings guidance goes, we have not projected, and it would be imprudent for us to do anything that takes away the contractual obligation that they are supposed to pay us during 2020. To answer your question in terms of quantification, everybody knows at this point we've published a schedule in our top tenants on Page 34 of our supplemental that says Barclays contributes roughly $32 million or $33 million to our NOI.

You can do that math by averaging and dividing that by 12 months to understand the implication of what that could do to earnings at any point in time. Of course, the goalpost is, assuming you got all 500,000 square feet, what would that do to our earnings and you'd lose, you know, three-thirds, assuming a deal is done on March 31st, for example. You lose three-quarters of that $33 million. There are so many permutations, which is why we did not try to dimension.

We are taking 250,000 square feet early, what that could mean for earnings, at what point in time, if and when we are successful, we will certainly dimension that to our investors. 

Jason Green -- Evercore ISI -- Analyst

Got it. And then, I guess, just on the acquisition front, just curious what you're seeing in New York City and San Francisco markets. And then, kind of comparing that to the reauthorization of the buyback program. Just how you're thinking about capital allocation as we go into fiscal year '20. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Yeah. This is Albert. We are not exclusive looking at either acquisitions or dispositions or buybacks. We are opportunistic looking at all these various options.

It's not an either/or decision. And we have been saying in the past that we look at both markets, New York and San Francisco, also for our mezzanine investment portfolio. So our acquisition team is always very active and very involved. And we watch these markets carefully.

New York might be getting more and more attractive. And we look at all these opportunities. We have a new 200 million buyback program authorized by the board, and we will use it when we feel that the time is right. 

Jason Green -- Evercore ISI -- Analyst

Got it. Thank you very much. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Sure. You're welcome. 

Operator

Our next question comes from the line of Blaine Heck with Wells Fargo.  Please proceed with your question. 

Blaine Heck -- Wells Fargo Securities -- Analyst

Thanks, good morning. So it seems as though maybe there's a little less interest in having a Fifth Avenue flagship, and there has been in the past, especially in light of Under Armour's comments that they might pull out of their GM building flagship space. So I guess, is there any kind of push on your part to get that Henri Bendel space leased and put the bed in the near term, or are you guys kind of pretty comfortable with waiting for the right tenant and the right rental rate there? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Blaine, as we had said, when we took the space back, this was a great opportunity. The rent that Henri Bendel was well below market. And the timing was not the best timing, as we had said at the time, too. The retail market is in a big changing mode, but this location is still one of the best locations in the world for retail.

And it might not be an Under Armour location, but we have at the highest levels, discussions with potential retailers. And it's not that we are sitting on the sidelines here. We are working on several deals, and it's too early to go into details. And you might recall, when we got the space back, I indicated that this is not something done overnight.

This is something that we have to work on, and it might take 24 months, but it's worth the effort to get the right tenant for that location. 

Blaine Heck -- Wells Fargo Securities -- Analyst

Got it. I appreciate the commentary. Sticking maybe with the retail, Peter, I think in the last quarter, you mentioned you guys were working with a tenant on the retail space in the cube at 1633, sorry if I missed it, but can you give any update on the discussion or negotiations there? And any sense of what sort of maybe financial impact we should expect from that? 

Peter Brindley -- Executive Vice President, Leasing

Blaine, we continue to make progress. We don't have anything just yet to announce. We do perceive the prospective tenant to be a tremendous amenity to the building. We have a little bit of work ahead of us in order to get to the finish line with this particular user that we identified, but we remain hopeful, and we look forward to updating you as we make progress. 

Blaine Heck -- Wells Fargo Securities -- Analyst

OK, that's helpful. And I'll round it out with a question for Wilbur. So your next major debt maturity is at 1301 late next year, 850 million coming due. Can you just talk about how you're thinking about addressing that debt given all the moving pieces with Barclays coming out of the building? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. So when we have refinanced that debt early on, Blaine, we had, by intent, had that maturity in 2021. So it dovetails against our ability to release up the Barclays space. So that debt will get refinanced in conjunction with the success we have there because that would be the best outcome for the financing. 

Blaine Heck -- Wells Fargo Securities -- Analyst

OK. And in the event that maybe the unfortunate event that you have any delay in retenanting that? Is there any kind of plan b? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, we have great flexibility. If you look at that debt, you have half a billion dollars that's fixed, and the large chunk of our floating rate debt is basically coming from that debt stack, which is 350 million. Obviously, we have a lot of capacity on the revolver. We have a lot of cash on balance sheet.

We have multiple avenues where we can tackle that. So -- but we're not concerned because we are fully of the view that we will have great success at the Barclays space. 

Blaine Heck -- Wells Fargo Securities -- Analyst

OK, great. Thanks, guys.

Albert Behler -- Chairman, Chief Executive Officer, and president

Thank you. 

Operator

Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch.  Please proceed with your question. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Great. I just want to dig a little deeper into New York. Peter, I think you said that tech tenants are looking all over the city. I just want to maybe get some more color on exactly what you're seeing, which submarkets, maybe they'll get more aggressive in.

And then, as you think about Barclays, can you just give more color on the exact conversations you're having? 

Peter Brindley -- Executive Vice President, Leasing

Sure. It's interesting. Manhattan tech accounted for 25% of market velocity across Manhattan, and Midtown specifically, it was 18%. We're seeing tech deals occur across the entire city.

Specifically, we're seeing in midtown, tech occur in various submarkets, predominantly on the west side. We're actually touring a tech user through 1301 this afternoon. So, we are seeing a healthy amount of demand from tech. I think what we're seeing now is they're looking for locations where they can scale in parts of town that have huge connectivity and transportation to the outer boroughs and other locations.

And so, that's what we're seeing tech users looking for. As you've heard from this team, we remain very positive and have a lot of conviction about tour activity and what we have to offer at 1301. There aren't many opportunities of this size that possess the attributes of our offering, ability to scale, significant branding opportunity, large floor plates and a central location as you can find. So we remain as optimistic as we were three months ago in our ability to ultimately transact here with the right tenant.

And so, we look forward to updating you on our progress there. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

So are there certain submarkets that maybe people aren't thinking about that are getting more tech interest like we've seen a little bit of a pickup on Third Avenue. Is there maybe something happening under the surface that isn't so easily recognizable when we just hear the headlines of big leases on the west side. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, Jamie, this activity, I mean, some of them are more opportunistic than others. You have seen that we have picked up a couple of technology tenants also at 1633 Broadway. And the good thing is those tenants are growing. And for example, we are 100% leased, as you know, at 1633 Broadway.

That might give us opportunities. And so, we see activities in all different market segments because rental rates are coming up across the board. And I think in this market, the brokerage community is showing those tenants, all the opportunities that they are on the island. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. And then, for Barclays, can you quantify, like, is it one large tenant? Is it several smaller tenants? Like, what does the pipeline look like of discussions you're having? 

Albert Behler -- Chairman, Chief Executive Officer, and president

I would say the pipeline currently would suggest that this would be two, maybe three tenants, not inconceivable that it could be one, ultimately, but I think just based on the activity level and the requirements that we're that we're considering, it's more than likely to be more than one, perhaps two or three. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

And you're talking about to get to your 50% leased goal? Or just to fill in, like you have enough conversations for the entire space? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, we -- and this is Albert again. We have discussions with a handful of different tenants there, and it's too early to say. Of course, one or two of the tenants might take more space. And then, we have also tenants who look at just one floor.

I think we put out a goal of 50%. That's a good goal. I don't want to go further than that at this point, Jamie. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. Makes sense. And then, Albert, you had said before, New York city might be getting more attractive on the investment side. Can you just provide more color on your thoughts on that and what you'd like to see to get more aggressive in New York? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, I think the cap rates have -- sorry, the interest rates have come down early in the year again, and we get more interest from -- on the investment side. So I think the -- since the leasing demand is picking up, and I mentioned it in my remarks, especially on the tech side, I think it's this market has been underappreciated for for quite some time, and I think we needed a catalyst to change this market momentum. And I think it might be happening in this year because momentum is positive. We talk to our investors outside of the United States, and they are still flush with a lot of low interest capital that they have available.

So, I think that will change the momentum. New York is a great market, and you have a lot of activity, as I mentioned in the remarks, again, from tech and others, and positive employment growth. So that will all work itself out to value increases. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. So, let's say, you guys sell out of D.C. and you do a joint venture at 1633, do you think the capital is more likely to go to San Francisco or New York? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, you're assuming two things that I don't want to go into at this -- on this call. So, it's too early to say. And I mean, Washington, D.C. We have one asset, and we will report whenever we have something to report. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. And then, my last question is, I saw a press release for One Steuart Lane, a condo project in San Francisco. Can you talk more about that? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Yeah, that's an asset that -- it was part of One Market Plaza when we bought it in 2007. It was the garage building and we formed a special fund that is managed by the public company. We went through a long permitting process in San Francisco. It's now a great development on the waterfront.

That's -- but the public company is just the manager of the asset and the development manager and we have very limited capital at risk in this asset. We think it will be a great opportunity, but it's not a major focus of PGRE. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Would you guys collect gains or any kind of profits on any condo sales? 

Albert Behler -- Chairman, Chief Executive Officer, and president

If it works out well, we will get promotes and we will get fees, of course, and that's part of our business. 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

All of which, by the way, Jamie, all of that fees that we would collect would be showing up in the public company's fee income. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

When do you think that starts to hit? Or is that even meaningful? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, it's too early to say. I mean, beyond the construction, we're up to the sixth floor. And if it's -- if it promotes, as Wilbur was saying, that will benefit the shareholders of PGRE. Only, that might be two years from now. 

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. Alright, thank you.

Albert Behler -- Chairman, Chief Executive Officer, and president

Sure, you're welcome. 

Operator

Our next question comes from the line of the Vikram Malhotra with Morgan Stanley.  Please proceed with your question. 

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks. So, I know you've talked a lot about the prospects at 1301. Just to kind of maybe broad -- two questions. One specific.

Can you please clarify or update us on what you're thinking on sort of mark to market at that space versus in-place? And then just around that space, is there anything different you may be doing? I know it's obviously different building different space, but just anything different you're doing relative to maybe two or three years ago when you had large vacancies in other parts of your portfolio? 

Peter Brindley -- Executive Vice President, Leasing

We expect a high single digit mark to market on the space. And in terms of blocking and tackling, it's really no different than what we have done, quite honestly, with other blocks of space, which we've had success leasing as you well know. Mentioning the marketing center in my remarks, we're finalizing a marketing center, which we think allows for us to curate marketing material and visuals that help a tenant, envision themselves in the space itself. And all of that is supportive and helpful as we tour and discuss deals with prospective tenants.

So, to answer your question, Vikram, we're not doing anything different. The blocking and tackling that we know very well remains the same, and we're working our way through a process. These larger deals take a little bit of time. And so, we're working through it. 

Albert Behler -- Chairman, Chief Executive Officer, and president

And maybe in addition, the space currently has an opportunity to access directly to the street, so there's a branding opportunity that we haven't focusing here on these calls. But we have a lot of flexibility there for a tenant who wants to get a branding recognition and that right on Sixth Avenue in a great location. 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Just to add, Vikram, I mean, the one big thing that would be different in this sense would be that when we dealt with the prior role with Deloitte & Touche, I presume was your reference, at that time, they were in the space till the last day. And so, we couldn't get back that space until they vacated for us to be able to market. Here, the big advantage we have is we know Barclays is moving out, they are happy to give back if we had a prospective tenant. So, we are able to engage much sooner with the market on this space.

So that I would say is probably one of the biggest differences. 

Vikram Malhotra -- Morgan Stanley -- Analyst

OK, great. And then, I know you don't want to discuss whether you're kind of looking to JV or sell piece of 1633 or any other buildings, but just curious, are you open, just given it's your largest asset, would you be open to someone coming in interested at the right price, would you be open to doing that? 

Albert Behler -- Chairman, Chief Executive Officer, and president

Well, Vikram, we always said that we want to develop and lease our assets to the full maturity and then capitalize on the improvements that we have done. So, we have done that in Washington, D.C., and that could be an opportunity here as well. 

Vikram Malhotra -- Morgan Stanley -- Analyst

OK. And then, just last one on -- you referenced, of now being the bicoastal REIT. Just curious kind of given how the West Coast has -- the interest has sort of spread. Obviously, it was first San Franciso many years ago.

Now, there's a lot of interest in L.A. and other markets. Are you solely focused on San Francisco opportunities, or would you be open to other West Coast sub-markets? 

Albert Behler -- Chairman, Chief Executive Officer, and president

It's a very good question. We have answered it also a couple of times. I said we would be open, most probably not at this point in the cycle to go to another market, but we are opportunistic, if you have an opportunity in a market that is growing significantly. We have the team.

We have the nimble, nimbleness within the culture of paramount. But really, currently, I think we want to focus on these two markets. There are lots of opportunities. And I think that's good for this time of where we are in the cycle. 

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. Thank you. 

Operator

Our next question will come from the line of Daniel Ismail with Green Street Advisors. Please proceed with your question. 

Daniel Ismail -- Green Street Advisors -- Analyst

Great. Thank you. Just given the amount of leasing you guys have done over the last few years, can you speak to the trend of densification in your markets? Do you think most tenants have already rightsized their space, or is there still more left to do? 

Peter Brindley -- Executive Vice President, Leasing

I would say, Daniel -- this is Peter. I would say that a lot of the rightsizing has occurred and worked its way through the system. Certainly, with law firms and TAMI tenants. I think at this point, I even heard most recently a comment from a broker that represents a number of law firms suggesting that they, in fact, undertook space.

So, I think we have seen a lot of that rightsizing work its way through the system as the densification trend has now been ongoing for the last, call it five years or so, give or take. I think it's a very good question. It's something that we've been thinking about, but I think that's really the way it's played out at this point. 

Albert Behler -- Chairman, Chief Executive Officer, and president

And you sometimes hear from tenants that they have overdone it, as Peter was indicating, and it's more now the look for qualified labor, and it's to please the millennial labor force as much as possible. So, some tenants are going a little bit more in the other direction and take more space to make it a happy and productive environment for their labor. So, I think it's something after the recession hit in 2009, '10 was maybe an overreaction in some of the some of the market participants, and you can see that it's going the other way. 

Daniel Ismail -- Green Street Advisors -- Analyst

Do you guys have an internal rule of thumb or know what you guys are currently signing new leases out in terms of square foot per employee? 

Peter Brindley -- Executive Vice President, Leasing

I think if you look at our portfolio, it's very diverse, so I think it's very hard to say. But 2 50 per square -- 250 per rentable square foot is the standard. I think it varies by industry, certainly, by market. It's hard to give you a single figure, given the diversity of our portfolio. 

Albert Behler -- Chairman, Chief Executive Officer, and president

I mean, if you look at, for example, 1633, you could get about 500 people per floor, with 50,000 square foot floors. And so,me of the tenants who took space, they realize they overdid it, and they feel like they should have taken a little bit more space, which is, I think, a good momentum for the landlords. 

Daniel Ismail -- Green Street Advisors -- Analyst

OK. That's helpful. And then, Peter, since I have you, can you maybe quantify your expectations for net effective rent growth in New York and San Francisco this year? 

Peter Brindley -- Executive Vice President, Leasing

I think net effective rent growth in San Francisco will be up. I think it's interesting. We talked about the velocity in Manhattan over the last three years. Availability has remained relatively stable.

So fundamentals are strong. And when you think about tech, who is a significant absorber of space, coming to Manhattan in a significant way and concessions having now stabilized, I think it's reasonable to think that in well-leased buildings or buildings that have been invested in properly in submarkets that are desirable, which our portfolio is certainly situated toward. I think you will see that effective rent growth a little bit this year, and how much remains to be seen, but we are bullish on what lies ahead, given some of the trends that are now taking hold. 

Daniel Ismail -- Green Street Advisors -- Analyst

OK. And just last one for me. Can you give us an update on where in place rents currently sit relative to the market, both in New York and San Francisco?  In place --

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Our in-place rents are below market, Danny. Is that what you're getting at? We obviously published that -- our in-place rents in our buildings. And you can see that building by building, in our supplemental on Page 31, you can also go and look at what we've done in San Francisco, per se, from the IPO, and how the average in-place rents in the building have grown as we have continued to have very high double digit mark to markets in San Francisco, and we see that trend continuing. 

Daniel Ismail -- Green Street Advisors -- Analyst

OK, great. Thanks, guys. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Thanks, Daniel.

Operator

Our next question comes from the line of Tom Catherwood with BTIG.  Please proceed with your question. 

Tom Catherwood -- BTIG -- Analyst

Excellent. Thank you very much. Peter, I'm sorry to beat on 1301 again, but just a quick one there. Are most of the tenants that you're engaging with comping that space to kind of similar second gen large block spaces, or are they comping it to newly redeveloped buildings or newly developed buildings? And what is the kind of rent gap between what you're looking for and what someone would have to get in a redeveloped or in building? 

Peter Brindley -- Executive Vice President, Leasing

Well, certainly, in new construction, they're looking at triple digit-type rent figures. We're asking in the upper 70s for our space, but we're being comped to other blocks of space of which there aren't many that have floor plates of this size. And I think ideal locations. A lot of the end users that we're communicating with care about location.

It's not an early about product, although product, this is a Class A building and is as well located as any building in the city. From a transportation perspective, so I think we're talking to end users that care not only about product but also location. So, there are a couple of blocks, but generally at higher price points, what we're finding relative to what we're offering, and we think the attributes, as we have now said a couple of times, of our offering are compelling and will resonate. 

Tom Catherwood -- BTIG -- Analyst

Got you. But just the thing is specifically obviously, there's not a big block left, but if we look at something that's newly redeveloped on Sixth Avenue, like 1271, there was still a substantial premium if a block were somewhat similar to what you have between what they needed to make that work and what you guys are looking for, correct? 

Peter Brindley -- Executive Vice President, Leasing

Yeah, that's right. That's right. 

Tom Catherwood -- BTIG -- Analyst

OK. All right. And then, Peter, you had also mentioned pulling forward from 2021 and 2022 leases. If I kind of do it back of the envelope, and I could be wrong here, but on the 800,000 square feet, it looks that you're guiding to, it looks like maybe 300 to 400,000 square feet of that could be those at year expirations being pulled forward.  A, is that fair? And b, how much line of sight do you have on that and what are the chances for that to trend higher throughout the year? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Sure. Tom, maybe I'll give you some color. Your math is fairly head on because if you look at the lease expirations taking place and then you try to solve to get to the midpoint of our same store leased occupant range, you would come up with a figure similar to that that says, pre-leasing and pulling forward is somewhere in the 400,000 plus square foot range. And obviously, as Peter and Albert mentioned, that includes the 250,000 square foot of pre-leasing on the Barclays space, which we're hoping to do.

And our team engages with tenants 12 to 24 months ahead. It's never an exact science, but our goal is always to derisk. If you look at 2019 being a record leasing year, majority of that came by derisking future years. It's no surprise that 1 million of that 1.5 million plus square feet came from San Francisco because the market there is so tight, the tenants are engaging sooner.

So, we have some line of sight, it depends by market. It depends on the building leased occupancy because higher leased occupied buildings generally will generate better leasing behavior. So, there's a lot of moving pieces, but that's consistently our goal. 

Tom Catherwood -- BTIG -- Analyst

Got you. So just to say it another way, it sounds like the 400,000-ish square feet for the out years is stuff that you feel highly confident on all stuff that you're already speaking on right now, is that fair to say? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

It is. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Yes.

Tom Catherwood -- BTIG -- Analyst

OK, OK. And then, final one for me, and this may be in the presentation. But Albert -- or sorry Wilbur, in the past, in 2Q and 3Q, you did the three deals over 300 Mission with Glassdoor, Autodesk and Maplebear. When do they start rolling into revenue? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

So those deals were only renewals and was an anomaly because the space did not come due until the end of the year. So, they'll start to come into 2020, but not necessarily fully stabilized in 2020. 

Tom Catherwood -- BTIG -- Analyst

So, is that kind of even across the year? Or do they -- is it kind of back-ended as they would hit their natural expirations? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

So, once the natural expiration comes out from the numbers at the end of 2019 and 2020, there'll be some free rent element to that, and that's when the cash will start to come in. So it's really hard to give you without going into really granular detail when each of these tenants start to contribute to cash NOI. But suffice it to say, I think, broadly speaking, we've given you all the building blocks, Tom, and to come up from a portfoliowide standpoint as to what's contributing to cash NOI in 2020. 

Tom Catherwood -- BTIG -- Analyst

Got it. So just -- it sounds like then there's not a big bump to cash NOI in 2020 from those? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, not necessarily from there, there will be a bump to cash NOI, as we mentioned in our schedule of free rent burn off, because if you look at San Francisco, San Francisco is contributing about 14 million to the free rent burn off in 2020. So, the bulk of it will come in 2020 with tail end coming toward 2021. 

Tom Catherwood -- BTIG -- Analyst

Understood. That's it for me. Thanks, everyone.

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Thank you. 

Operator

Our next question comes from the line of Omotayo Okusanya with Mizuho.  Please proceed with your question. 

Omotayo Okusanya -- Mizuho Securities -- Analyst

Yeah, good morning, everyone, and congrats on the solid guidance. I did join the call a little bit late, so I apologize if this has been asked before, but just curious about your thoughts about Prop 13. I know, again, your San Francisco portfolio is very new, so not like the revenue will impact, but just generally around the proposition and the possibility of the passing? 

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

So Omotayo, I mean, we're following it closely, Prop 13 is set for the ballot in November 2020. I think if you read the polls, I think it's fairly split, whether this does happen or not. So, we will continue to watch it closely. But as you said, relative to other major office landlords in San Francisco, for us, it will be the least implicative because our portfolio in San Francisco is fairly new. 

Omotayo Okusanya -- Mizuho Securities -- Analyst

Yeah. OK. That's helpful. And then, second of all, just around tech demand in New York City, again, some of the big leases that have kind of hit the news, it's all kind of around yards.

I'm just kind of curious about just tech demand in kind of core midtown kind of what are you seeing in regards to interest from that demand driver. 

Albert Behler -- Chairman, Chief Executive Officer, and president

I've mentioned it in my prepared remarks that we were -- I was indicating on the last call that we would potentially have about 3  to 4 million square feet, and in the last quarter, there were 3 million square feet nearly signed, over 2 million square feet signed in the last quarter already. So, we see a lot of activity, and then Peter can add to it in more detail.  We think this could be really a catalyst on the demand side for the island. 

Peter Brindley -- Executive Vice President, Leasing

We have an image of all of the tech users across Manhattan. And one thing is evident, which is they have chosen to locate all over the city. All over the island. And so, it's hard to, I think, say, or to put them in a basket at this point, very difficult to do that because, as I said, they have chosen to locate in a number of submarkets across the island. 

Omotayo Okusanya -- Mizuho Securities -- Analyst

But you see a lot of activity in kind of like your core Midtown location?

Peter Brindley -- Executive Vice President, Leasing

Yeah, we're seeing, like I said, we're seeing activity in Midtown and all over the city. 

Omotayo Okusanya -- Mizuho Securities -- Analyst

OK, alright. Thank you.

Albert Behler -- Chairman, Chief Executive Officer, and president

Sure. You're welcome. 

Operator

This concludes our question-and-answer session for today. I'd like to turn the call back to Albert Behler for closing remarks. 

Albert Behler -- Chairman, Chief Executive Officer, and president

Thank you all for joining us today. We look forward to giving you an update on our continuous progress when we report on our next quarter results in May. Goodbye.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Rob Simone -- Director of Business Development and Investor Relations

Albert Behler -- Chairman, Chief Executive Officer, and president

Peter Brindley -- Executive Vice President, Leasing

Wilbur Paes -- Executive Vice President, Chief Financial Officer, and Treasurer

Jason Green -- Evercore ISI -- Analyst

Blaine Heck -- Wells Fargo Securities -- Analyst

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

Tom Catherwood -- BTIG -- Analyst

Omotayo Okusanya -- Mizuho Securities -- Analyst

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