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iStar Inc (STAR)
Q3Â 2020 Earnings Call
Nov 3, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to iStar's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.
At this time for opening remarks and introduction, I would like to turn the conference over to Jason Fooks, Senior Vice President of Investor Relations and Marketing. Please go ahead, sir.
Jason Fooks -- Senior Vice President of Investor Relations and Marketing
Thank you, and good morning everyone. Thank you for joining us today to review iStar's third quarter 2020 earnings. With me today are Jay Sugarman Chairman and Chief Executive Officer; Marcos Alvarado, our President and Chief Investment Officer; and Jeremy Fox-Geen, our Chief Financial Officer.
This morning we published an earnings presentation highlighting our third quarter results and our call will refer to these slides which can be found on our website at iStar.com in the Investors section. There'll be a replay of the call, beginning at 1:00 PM Eastern Time today. The replay is accessible on our website or by dialing 1-866-207-1041 with the confirmation code of 7947936.
Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts will be forward-looking. iStar's actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. iStar disclaims any intent or obligation to update these forward-looking statements except as expressed and required by law.
Now I'd like to turn the call over to iStar's Chairman and CEO, Jay Sugarman. Jay?
Jay Sugarman -- Chairman and Chief Executive Officer
Thanks, Jason. We spent the third quarter, continuing to focus on our three core strategies, building our ground lease business, recapturing capital from legacy assets and strengthening our balance sheet. As a result, adjusted earnings were solid. We extended our debt maturities even further, and the legacy asset portfolio continue to shrink. But our primary goal remains highlighting the embedded value of iStar's ground lease platform and asset portfolio and positioning ourselves for expanded growth in the ground lease ecosystem.
Now as we mentioned on SAFE -- Safehold's earnings call, we are beginning to see some pickup in transaction activity in the real estate market, and a concurrent pickup in ground lease opportunities. Safehold and iStar are well positioned to continue providing innovative ground lease capital to building owners and we are finding new ways to meet our customers' needs, as we push further and deeper to reinvent the sector and increase the market's understanding of its potential. Safehold recently closed its first core multifamily transaction in Seattle. As part of the custom-tailored to SAFE STAR transaction, and we are working with new customers across the country, as we expand our capabilities.
With regards to the existing portfolio, we continue to see certain sectors struggling, with COVID having a major impact on operating performance. Theaters and hotels have been hard hit, and we put one of the few remaining entertainment retail loans in our portfolio on NPL status. Though we remain senior to significant equity and subordinated debt, I do not currently expect any principal loss in our position. On the other hand, we saw positive developments in our largest net lease exposure in the entertainment sector, Bowlero, as the company significantly bolstered their liquidity position and generated operating results that exceeded our expectations on both the revenue and EBITDA basis.
As a result, we executed a comprehensive amendment to two of our master leases to defer some rent in return for eliminating a sizable forward capital commitment that no longer fits with our ground lease focused strategy. The net benefit to our long-term master leases with Bowlero is a tenant in a much stronger position with growing momentum and what now appears to be the firepower to outrun even some of the more pessimistic COVID forecast.
And with that as a quick overview, let me turn it over to Jeremy now to go through the details. Jeremy?
Jeremy Fox-Geen -- Chief Financial Officer
Thank you, Jay, and good morning everyone. My comments will refer to the earnings deck we published this morning on our website. Turning to Slide 3, which highlights our performance this quarter against our strategy. Safehold continues to demonstrate strong performance, both in terms of the business and the value of our investment, which now represents a $1.2 billion unrealized gains. Since Q2, Safehold closed an additional $105 million of ground lease investments. We strengthened our balance sheet by refinancing $400 million of unsecured senior notes extending our debt maturity profile. And we continue to simplify our business by monetizing our legacy asset portfolio, with $21 million of dispositions reducing that portfolio to 13% of our total asset base.
Turn to Slide 4, with more on Safehold. Safehold saw an uptick in origination activity through the quarter, which bodes well for the future. With over $200 million of potential ground lease investments under signed letters of intent, in addition to the $105 million of closed transaction as just mentioned. Its portfolio of ground leases was $2.9 billion at quarter end and it continued to collect 100% of its ground rent, highlighting the safety of its cash flows during these stressed economic times. Since the third quarter of 2019, our investment in Safehold increased by $1.3 billion, which includes that $1.2 billion unrealized gain. During the first three quarters of the year, Safehold's stock has appreciated by 56%.
Slide 5 details how we've strengthened the balance sheet and improved our credit metrics. During the quarter, we refinanced $400 million of 5.25% senior unsecured notes due in 2022, and extended our weighted average corporate debt maturity profile to 4.5 years with no corporate debt maturing for just under two years. As at quarter end, we had $88 million of cash and $330 million available capacity on our revolver. Year-over-year, our unencumbered asset base increased by $1.1 billion to $4.6 billion, our unencumbered assets to unsecured debt ratio improved to 2.2 times. We are levered 1.2 times debt to adjusted equity based on safe market value. And we remain primarily an unsecured borrower. This unsecured debt represents 68% of our total debt.
In Slide 6, we provide an update on the legacy-asset portfolio. During the quarter, we sold $21 million of legacy assets taking total sales proceeds over the past year to $183 million. Over the past year, we've reduced our legacy assets by 14% with most of that reduction concentrated within our short-term legacy asset portfolio, which is down 25%, taking that balance to $285 million. In our long-term legacy portfolio, the entirety of our $69 million of sales with transactions in Asbury Park and Magnolia Green where we have seen continued steady sales through the COVID period.
Slide 7 shows our investment activity for the quarter. During the quarter, we had a total of $148 million of investment activity, including $8 million of open market purchases of SAFE stock, $117 million within our loan portfolio and our net lease joint venture and $9 million of development capex. In addition, we repurchased approximately $1.1 million -- 1.1 million shares of STAR stock during the quarter for $14 million.
On slide 8, you see our portfolio overview. Rent collections remained consistent with the prior quarter. SAFE, which represents 34% of our portfolio based on its market value collected 100% of its ground rents. Excluding Bowlero, we collected 98% of rent on our net lease portfolio consistent with the second quarter, and we received 92% of our interest payments due within our real estate finance portfolio. Unpaid interest is due to a single loan on a large entertainment and retail property, which we classified as a non-performing loan at the end of the third quarter. And we collected 80% of rent at our operating properties, which represents only 5% of our portfolio.
As Jay mentioned, Bowlero reached a comprehensive deal with all its capital providers to ensure sufficient flexibility to manage through the business disruption created by COVID. As part of that deal, we agreed to defer approximately 60% of the rents owed for nine months starting October 2020 for a total of $23 million. This deferred rent will accrue with interest and will be repaid over two years commencing January 2023. As part of the agreement, we terminated a $55 million forward commitment to purchase additional bowling centers.
Slide 9 details our results for the quarter. We reported a net loss for the quarter of $2.1million, which is a net loss of $0.03 per share. And adjusted earnings of $22.1 million or $0.29 per share. Year to date, we reported a net loss of $46.9 million, which is a net loss of $0.61 a share and adjusted earnings of $29.8 million or $0.39 per share. In Slide 10, we present our book value per share, which illustrates the value created through Safehold but not recognized in our reported financial statements. Including SAFE's market value as of September 30, our common equity value per share is $24.58 and when adjusted for depreciation, amortization and CECL allowance, our common equity value per share stands at $29.08. The current stock price represents a substantial discount to this value.
In conclusion, we saw consistent performance from our diversified portfolio and significant embedded unrealized gains from Safehold. Moreover, we've seen an uptick in Safehold's origination activity and pipeline, which should enable us to continue to scale the business. With that, let me hand it back to Jay.
Jay Sugarman -- Chairman and Chief Executive Officer
Thanks, Jeremy. Well with 2020 almost behind us, we're pleased with the growing value created in our Safehold platform and shareholdings has more than offset the negative impacts of COVID on other parts of the portfolio. As the numbers continue to show, iStar's embedded value is well above the current stock price, so we'll work to show more investors by the success of our ground lease strategy has created an attractive entry point in iStar with a compelling value proposition and significant upside.
Okay, operator, let's go, open it up for Q&A.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Jade Rahmani with KBW. Please go ahead.
Jade Rahmani -- KBW -- Analyst
Thank you very much. I'm just looking at the income statement, the other income line was up sharply to $25.6 million from last quarter's $10.3 million and a year ago, $18.3 million. Can you give any color on what drove that increase?
Jay Sugarman -- Chairman and Chief Executive Officer
Sure. We actually had a nice pop in one of our cold storage assets in terms of its value we were able to recognize. So that was, that was most of is it, Jade.
Jade Rahmani -- KBW -- Analyst
Is that recurring income or was that a one-time item?
Jay Sugarman -- Chairman and Chief Executive Officer
Well, it's a position that came out of our Preferred Freezer portfolio that we sold, and the company that acquired it and that we now have a small interest and it's done great. So they have been able to consistently increase the value of our position. But I can't say it's a recurring -- contractual recurring but we really like the position and think there is more upside there.
Jade Rahmani -- KBW -- Analyst
Could you quantify the size of that position maybe in terms of book value or some other metric?
Jay Sugarman -- Chairman and Chief Executive Officer
Yes, it's in right around the $16 million range right now.
Jade Rahmani -- KBW -- Analyst
Okay, great. The entertainment retail loan on NPL, what time horizon would you expect for recovery. And I believe you said you don't expect any principal loss because they are in the senior mortgage position.
Jay Sugarman -- Chairman and Chief Executive Officer
Well, I think we're restricted from talking about it during these negotiations, but you know what I would say is, yes, it is open and COVID is the primary cause of this temporary -- what we expect to be a temporary hit. So if you think COVID sort of runs its course in the next 12 months, I think that that's the period we need to get through and out the other side and as I mentioned I think it's more a situation where the equity in the subordinated capital need to decide exactly how they want to create that runway. But until they have a clean runway set up, we thought it was right to put it on NPL.
Jade Rahmani -- KBW -- Analyst
Any other concerns in the loan book? There is about $185 million of hotel loans, there is $84 million of land loans. There is $168 million of condo.
Jay Sugarman -- Chairman and Chief Executive Officer
Yeah. So I think the land book is actually doing better than we thought. So we feel good about that. I would say the hotels are the one place that, again, the COVID impact has been outsized and certainly outside the realm of typical ups and downs. So feeling OK about that, because again we think when COVID is past, those are good solid assets, but I think I said it last quarter. The longer COVID goes, the more variability comes into our projections.
So right now we're kind of anticipating six to 12 months of still pretty hard conditions out there and so we think our sponsors have the wherewithal to make it through there, but a little bit out of our hands right now in terms of COVID timing and just how long these sponsors can stand and continue to support these assets. But we haven't -- we haven't taken any additional reserves. So we still think we're in good shape. But I would keep our -- we're keeping our eyes on certainly the hospitality side.
Jade Rahmani -- KBW -- Analyst
Okay. Are there any loans that you might be interested in looking to monetize that's -- Commercial Mortgage Alert in July reported that there was a mezz loan on the New York hotel totaling around $50 million net I think in Brooklyn that iStar was looking to sell.
Jay Sugarman -- Chairman and Chief Executive Officer
Yeah. Again, we kind of like most of our positions, but there are plenty of places to trade one thing and get into something even better. We certainly continually explore that in our net lease book and our finance book but it's all fairly calibrated to, here is the price at which we can take capital from one sector and put it in another and make a lot more money. I think as Jeremy said we bought stock, we reinvested in some of our net lease asset areas, but mostly we're reinvesting into our ground lease business that we think is fantastic. So slowly but surely, we will try to get rid of a lot of the legacy assets and reinvest them into this ground lease ecosystem, but we're -- we have no real urgency to do that, no pressure to do that. I think we've moved out our liability structure very, very nicely.
So all these are almost purely discretionary decisions and if we get prices that we like, we will make that trade, and if we don't, we'll play on.
Jade Rahmani -- KBW -- Analyst
And just thinking about the capital position with $88 million of cash and over $400 million of liquidity, how are you thinking about iStar's capacity to make new investments.
Jay Sugarman -- Chairman and Chief Executive Officer
Yeah, we think capital is there to be invested and we certainly have a plan to put it to work over time. We also see significant capital flexibility in the rest of the balance sheet, if we wanted to create incremental capital we could do that. So our goal right now is to put that capital to work in areas that we think are most beneficial for shareholders and fit our strategy most closely and we're laying that plan out for 2021 as we speak.
Jade Rahmani -- KBW -- Analyst
And are you able to draw on the credit facility to fund additional investment in SAFE?
Jay Sugarman -- Chairman and Chief Executive Officer
Yes, yeah, dollars are fungible but that credit line is available to us right now in full.
Jade Rahmani -- KBW -- Analyst
Okay and just last question would be, if you could give any color on the core multifamily deal in Seattle, maybe, you mentioned the SAFE STAR nature of it, but also the $200 million that lies [Phonetic] what kind of transactions, you're seeing traction on? Marcos, you want to talk a little bit about Seattle and the pipeline?
Marcos Alvarado -- President and Chief Investment Officer
Hey, Jade. So the Seattle transaction with the Class A newly constructed super high-quality asset in sponsor where we were able to offer a one-stop capital solution as the assets loan matured. So it's a stabilized asset plus 90% occupancy, collections actually at 100%. So surprising in this volatile environment but where the asset is located across the street from Apple and Facebook it adds up a little bit as to why the asset performance is so strong, and so we were able to create a ground lease for SAFE that was great for SAFE and a high quality unlevered high return for stock.
On the SAFE pipeline side, as we said on the SAFE call a lot of positive traction over the last two months. We're seeing a lot of multifamily transaction primarily they are mostly new sales, surprisingly pretty close to pre-COVID values, and our product, both with new and repeat clients across the country we have scaled pretty dramatically. So we're excited about the prospects going forward for SAFE.
Jade Rahmani -- KBW -- Analyst
Thank you.
Operator
Our next question comes from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws -- Raymond James -- Analyst
Hi, good morning. Jay, I guess I'll touch on buybacks. I know you talked in the press release you had a comment about getting more market participants to recognize the value of the platform and on a mark-to-market basis, I think you guys bought back about 9% of the company last year and -- 9% last year in the first half, but on a mark-to-market basis the stock cheaper STAR today than then. Can you talk about your appetite to increase that stock repurchase to signal the value there, it looks like the leverage numbers you guys cited in the deck declined pretty substantially. So can you maybe talk about how you look at use of capital between buying back STAR investments in SAFE and potential increases in the dividend.
Jay Sugarman -- Chairman and Chief Executive Officer
Sure, Stephen, it's really two things. One, we have been a consistent buyers as you know, we do believe iStar's stock price is significantly undervalued and if we can capture some of that discount for remaining shareholders that's, that's always a good trade and when we've executed on pretty consistently. But I mentioned in the more investors and getting people to really see this, buying stock in and of itself hasn't really moved the stock. We've seen that pretty consistently.
It's an excellent investment for capturing some of that value. But I think the big way to unlock the real delta between where it's trading and what we think it's worth just to go tell this story. Now that it's getting simpler now that we've created a really strong balance sheet. If you've seen some of the positive things we've done over the last two years to really try to put a very simple story out there that frankly gets simpler every day and had COVID not step in here, I think we'd be telling a different tale but we probably need to go out and make people understand the components of value, where we're headed, how we're going to get there and why this gap and value really shouldn't exist.
And we think that's probably even more important than simply buying what we're allowed to buy in the marketplace is to really get more people to just look at what is and where we're going and I think if you understand the Safehold story, you'll get even more excited. So we've got work to do on that front. There is relatively concentrated shareholder base at iStar and we think there's a lot more people who would be interested if they understood the story. So once we come out of blackout here, I'd like to certainly think we're in a strong position to tell the story that lots of different kinds of investors will understand. But as I said, I think it's not only a compelling value proposition. But when you understand this ground lease reinvention that we have started and have really become the leader in, I think you'll see that there is a lot of upside even beyond where we are today at Safehold and that all translates back to STAR too.
So no one silver bullet, but we think between buying in this price securities and telling the story in a simpler cleaner way as time goes on, we'll definitely narrow that gap.
Stephen Laws -- Raymond James -- Analyst
Great, thanks for the comments on that, Jay. Switching to the short-term legacy assets, $285 million. Can you talk about the timing around resolutions there, clearly you know COVID I think extended everything for everyone and curious to get an update now that with six to seven months past and maybe get a reset on expectations of monetizations and asset resolutions around the short-term legacy portfolio.
Jay Sugarman -- Chairman and Chief Executive Officer
Yeah, I mean it's, some days are good days, Stephen some are for us, we've had a lot of those assets under contract and some people did fall out and whether they did it because they're just probing to see if we will sell at a lower price or whether they did it because they too have concerns about how long COVID is going to go. Yeah, we continue to make progress. Our team is doing a great job in terms of these assets are in a position where they can go to market. We put them on the market. We've seen good traction in that short term pool on a number of assets, but some of them have extended closing time frames that are conditioned on getting something from a municipality and what we've seen is COVID has really slowed down anything that needs to go through the government channels.
For a while they weren't even meeting, then they started to go to Zoom meetings. But it feels like it takes two or three meetings to get done what you need to get done in one council meeting. So we've got some time push back on a couple of those assets. But again, I think most trying to think almost all of them, we are either in market or getting ready to go to market, it's just the closing time frames and some of those will be pretty extended, can be as much as 12 months to 18 months on a few of them. So like what our team is doing there. I would say on the long-term stuff. We're actually pretty pleased where things have kind of shaken out and Magnolia continues to be a top seller in that market and Asbury, I would tell you the kind of sales has been quite good. I think we sold six units in October, which is really good for us.
But Asbury summer was very muted. Our hotels ran a fraction of their typical summer numbers although we had a couple of good, good weekends in there toward the end of the year. So a little bit of a mixed bag in terms of a muted summer across all of Asbury but the Asbury Ocean Club is doing really well, and we actually have a couple parcels of land that we think are headed for sale or pretty competitive bidding. So can't really tell you the future until we get this COVID thing under control. It really does make business much harder and I think it just puts psychologically a little bit of a cap on how much we can get done but again, if we can round -- I won't use that term. If we can solve this problem, by the summer of 2021 that's kind of how we're budgeting and thinking about moving forward.
Stephen Laws -- Raymond James -- Analyst
Great. And you touched on Asbury there, but the hotel exposure in the finance portfolio. Can you talk about any updates there and what you're seeing with those investments?
Jay Sugarman -- Chairman and Chief Executive Officer
Those are tough, yeah, they are almost a dual squeeze, which is demand has fallen off, lot of market supply was in the pipeline and is still coming online. So there is a period of pain here and we're starting to see the pundits call for three, four, five years before they get back to 2019 levels. And that's again a function of both I think the demand side, the Zoomification of business, and then the supply side, which you can't stop on a dime. So there is still stuff in the pipeline that's coming forward.
We rely on our sponsors, who are typically well capitalized to see the near-term issues or something they can get through and our basis in most cases is one we feel quite good about, but this is not going to be an easy period for the Hospitality world and in particular sectors I think they're going to have a long road to get back, but we have more of ours are kind of bread and butter hotels, and I think they stand probably the quickest recovery and so we're just -- we're hanging on with our sponsors to trying to help them get through this and get to the other side, because we think most of them will.
Stephen Laws -- Raymond James -- Analyst
Great. And lastly, Jay, more positive outlook, I guess on growth at SAFE and also kind of combined originations on a STAR SAFE financing. Can you talk about the pipeline there on new investments? Are you seeing any strength in certain regions or certain property types, you know, kind of, how is, how is that building now as we head into the end of the year. And is there any seasonality along that. Should we expect any deals that want to close before year-end or go into next year, whether that's for political or tax reasons or simply annual budgeting issues.
Jay Sugarman -- Chairman and Chief Executive Officer
I'll probably hand back to Marcos, but I think as we said we put a real push on multifamily post Labor Day, we felt like we had a really good solution for a lot of folks and we have continued to try to present more places for more customers. I think that's really the story of 2021 that's coming is our ability to now that we've done this for three years to be able to sit with a customer, say what do you need and then find a solution for them that is good for them and good for us and these kind of win-win solutions are why we're so excited about this business, because I think what we're actually doing is providing an entire -- for people to capitalize the ownership of buildings and it really looks to us like one plus one equals more than two. So we win, they win and ultimately I think the overall real estate market wins. But Marcos, I don't know if you have any more color for Steve.
Marcos Alvarado -- President and Chief Investment Officer
No, I'll just echo what you said, Jay, if you look at the SAFE pipeline, the majority of it is what I would call suburban higher growth business friendly demos and very selective on the urban I think you guys cover all the public multifamily REITs and you can see their same store and you look year-over-year the urban markets are pretty, pretty ugly. So I think there is a difficulty across the market, whether you're providing ground lease capital or equity capital in some of these end markets. So we've seen success in some of the higher growth, more stable markets.
On the net lease side, continuing the theme on the cold storage side, we made an investment there. We also made an investment in the past quarter in the life sciences space. So we're seeing that in the pipeline. So a lot of logistics, life science on the lease side.
Stephen Laws -- Raymond James -- Analyst
Great. Marcos, Jay, thanks very much for your comments. I appreciate it.
Jay Sugarman -- Chairman and Chief Executive Officer
Thanks Steve.
Operator
Our next question comes from Jade Rahmani with KBW. Please go ahead.
Jade Rahmani -- KBW -- Analyst
Thank you. I wanted to ask a bigger question -- bigger picture question just around New York and the office sector in general, I believe for SAFE's portfolio. New York is close to about 40%. Are you changing how you look at office deals, how you underwrite underwrite office deals? I think last quarter JLL CEO said, there was a 16% reduction in the typical lease term. And I think a lot of companies are deferring their decisions and we know that companies are evaluating strategies for supplementing their gateway market footprint with satellite offices in the Tri-State area for example in the suburban markets. So wanted to hear what your thoughts are in New York. And if you're changing how you underwrite office deals?
Jay Sugarman -- Chairman and Chief Executive Officer
Let me say really high level and then maybe Marcos can talk about some specific viewpoints but yeah, the tension between urban living and suburban living has been going on for a long time. It comes in little bit of cycles, we are clearly in a cycle where the benefits of living in a vibrant, active, walkable location like in New York are unfortunately not available. So we definitely see a little bit the pendulum swing the other way right now, but Jade as you know, we think about that business in decades.
These are 99-year instruments and if you ask us whether our view has changed on major cities in our country suddenly becoming obsolete, we don't believe that. And so in the near term because we are super senior and low in the capital stack, we don't have to quite make a call on what's happening to lease terms today and tomorrow. Well, we have to make a call on, are these cities capable of providing the kind of environment where a large percent of the population will want to live? And we still think that's the right thesis for a long-term business.
We're certainly not abandoning urban cities and would never abandon New York but this will go through cycles as well. Good leadership tends to make City shine and we're certainly hoping coming out of COVID, top-quality leaders can step in and really help make this COVID impact short and limit the pain as much as possible, but New York is going to go through some pain and we're seeing it in San Francisco, seeing it in LA. Policies will have to reflect that. And while a lot of people love living in the suburbs, I think lots people living in an urban environment. And I don't think that's necessarily changed in any systemic way. I think we do have to recognize some of those impacts.
And we do change our underwriting. So markets can tell you it's a fluid process and we certainly don't have our head in the sand. But we also again are trying to make long-term decisions not trying to pick what's going to happen in the next couple of quarters. So Marcos I don't know if you want to go into a little more detail on how our underwriting --
Marcos Alvarado -- President and Chief Investment Officer
No, I think you -- sorry, sorry, Jay, I think that the high level thesis is ultimately what drives our decisions, because we're not making three year bets and trying to time markets. So we still believe everything in -- every major markets on a more granular basis Jade. Our underwriting approach has always taken a mark-to-market what I would call more lender like conservative approach, and certainly on office markets, office assets depending on the market, our net effective rents in our underwriting can be down 20% to 25% on a mark-to-market basis. It doesn't mean that we don't think that those rents will ultimately recover and each asset in individual location and who its sponsor is and the quality of the asset and is it sitting in the haves bucket versus the have nots bucket as it relates to quality.
So there's a lot that goes into our into our calculus, but we are believers and I'll add just been personal tidbit. We have been back in the office in Labor Day abiding with the social distancing regulations and I can tell you I feel much more productive. I don't know if it is the kids not running around in the background or just us being able to kind of pop down the hall and talk to somebody. It just feels much more productive and much more efficient.
Jade Rahmani -- KBW -- Analyst
And if you thought that office rents in New York City were going to be down 20% and that it would take three to five years to get back to the prior period, what would be the impact to purchase price on the ground lease, the 35% ground lease?
Marcos Alvarado -- President and Chief Investment Officer
Yeah, not necessarily because there's a cost of capital component here and the assets that we invest in are pretty high quality and there are still people chasing yield across the world in the new world. So one could argue that cap rates are actually potentially down for the overall real estate market and we've seen some similar trends occur in Japan and Europe and potentially the US is in a similar sort of cycle of lower yields given what's going on in the -- in spending at the federal level. So it's hard to know, I will tell you we orient ourselves around a few things for placement cost, land value, coverage, percentage of CPV.
There is going to be a general comment, Jade every asset is different, but I would say our ground lease proceeding probably on the same asset down 10%, 15% from where they were before.
Jade Rahmani -- KBW -- Analyst
Okay. And if you thought that the average lease duration. I think something we work brought to light and the market was anachronistic nature of some office leases in hyper changing tech enabled world signing a 10 to 15 years lease with ever-growing. That is a big commitment for a company to make, if you thought the average lease duration was going to be down into the five to eight year range from 10 years previously. How would that impact your underwriting?
Marcos Alvarado -- President and Chief Investment Officer
You know I don't think it necessarily impact us as much to me that's a supply demand shift. Today, there is no demand and obviously if you're a company you're preserving your optionality before making a decision, which is why, to your point, references there is a ton of short-term lease renewals happening. People are just not solidifying, they are also waiting to see where they can get a bargain. Can they get into a building, they could have never gotten into. So I think this is a natural cyclicality that you see and I expect the demand to come back and when demand comes back and is in the landlord's favor you'll see lease terms, go back to being longer, your CTIs going lower, your CT rent going lower. But we're at the beginning of that and that could take a long period of time to recover.
Jade Rahmani -- KBW -- Analyst
Thank you. Appreciate your thoughts on that.
Operator
Thank you. [Operator Instructions] Mr. Fooks, we have no further questions.
Jason Fooks -- Senior Vice President of Investor Relations and Marketing
Okay, great. Thank you. And if anyone else on the call should have any additional questions with today's earnings release, please feel free to contact me directly. Stephanie, would you please give the conference call replay instructions once again? Thanks.
Operator
Thank you. Thank you. Ladies and gentlemen, this conference will be available for replay after 1:00 PM Eastern today through November 17 at midnight. You may access the AT&T executive replay system at any time by dialing 1-866-207-1041 and entering access code 7947936. Those numbers again are 1-866-207-1041 and entering access code 7947936.
[Operator Closing Remarks]
Duration: 43 minutes
Call participants:
Jason Fooks -- Senior Vice President of Investor Relations and Marketing
Jay Sugarman -- Chairman and Chief Executive Officer
Jeremy Fox-Geen -- Chief Financial Officer
Marcos Alvarado -- President and Chief Investment Officer
Jade Rahmani -- KBW -- Analyst
Stephen Laws -- Raymond James -- Analyst
