Vornado Realty Trust (VNO) Q1 2021 Earnings Call Transcript

Vornado Realty Trust (VNO 1.01%)
Q1 2021 Earnings Call
May 04, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Vornado Realty Trust first-quarter 2021 earnings call. My name is Vanessa, and I will be your operator for today's call. This call is being recorded for replay purposes. [Operator instructions] I will now turn the call over to Ms.

Cathy Creswell, director of investor relations. Please go ahead.

Cathy Creswell -- Director of Investor Relations

Thank you. Welcome to Vornado Realty Trust first-quarter earnings call. Yesterday afternoon, we issued our first-quarter earnings release and filed our quarterly report on Form 10-Q with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package are available on our website, www.vno.com, under the investor relations section.

In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-Q and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2020, for more information regarding these risks and uncertainties.

The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are: Steven Roth, chairman and executive officer; and Michael Franco, president and chief financial officer. Our senior team is also present and available for questions.

I will now turn the call over to Steven Roth.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Thank you, Cathy, and good morning to everyone. I hope all of you continue to be safe and healthy and that you're all vaccinated or on your way to being vaccinated. We are full speed ahead on the Penn District and are confident of its success. Farley as well along, we delivered half of Facebook 730,000 square feet on January 1, and we will deliver the second half on June 1, just one month from that.

At PENN1, we will deliver the 34th Street lobby in July, the building's enormous amenity package in October and the 33rd Street lobby at year end. And PENN2 and the Long Island Railroad concourse developments are now under full-scale construction. This transformation will take over a couple of years to complete. The decision to permanently close the Hotel Pennsylvania will allow us to get this site ready for development in less than two years from now, which is perfect timing for the next phase of our Penn District mega project.

I believe that the Hotel Penn site will be the best development site in town. Notwithstanding that we will be delivering for tenants the most robust and unique amenitized offering in the city, with the aided convenience of being directly on top of New York's main transportation hub, our strategy here is to price PENN1 and PENN2 below our neighbors to the West under their price umbrella. Since we are coming off $60 rents, this will be an outstanding outcome. Over time, as we continue to remake the Penn District, I fully expect rents will aggressively rise to the premium that they deserve.

Over the summer and into the early fall, we will be reopening and returning to normal. All of our tenants are telling us that they are anxious to bring their employees back to the office, and we are anxious to welcome them back. We remain strong in our belief that working from the office will be the preferred mode of work for companies and their employees post pandemic. The kitchen table may be a place for some, but I continue to believe the urban office is the workplace of the future.

As I have said, I believe we will come out of this difficult year in an economic boom, fueled by a tsunami of government stimulus, of which New York is a very major beneficiary. The financial sector is now booming. Tech is now booming. Health care is now booming.

Retailers like Walmart, Target and Home Depot are now booming, and there is enormous pent-up demand from consumers eager to travel, meaning tourists returning to New York and spend on all manner of goods and services. This is beginning to happen all across the country. Importantly, the major tech companies are telling us that they intend to continue growing their office footprints in New York's deep and diverse talent pool is unrivaled anywhere. As you can tell, we are very bullish on New York.

Finally, a word about ESG. We filed our 2020 ESG report on Form 8-K on April 12. We continue to demonstrate our leadership here, and we're proud of the many awards and recognitions we have received. This is an important topic that we believe in.

Please do take a look at this important report. Now over to Michael for comment on our numbers and our businesses.

Michael Franco -- President and Chief Financial Officer

Thank you, Steve. Good morning, everyone. I too hope you're all safe and healthy and look forward to seeing you again in person soon. Let me start with our first quarter financial results, and I'll end with a few comments on the leasing and capital markets.

First quarter comparable FFO as adjusted was $0.65 per share compared to $0.77 for last year's first quarter. A decrease of $0.12, primarily due to the effects of the COVID shutdown. One change you will note is that the Hotel Pennsylvania results removed to non-comparable given our decision to permanently close the hotel. The decrease this quarter is reconciled for you in our earnings release on Page 4 and in our financial supplement on Page 6 and was driven by the following items: $0.04 of our variable businesses, trade shows, signage, garages and BMS still being offline, $0.07 from tenant vacancies and bad debts, primarily the JCPenney and New York and Company lease rejections last year; $0.03 from Penn District space taken out of service; $0.03 from Macy's lease cancellation income in last year's first quarter, partially offset by $0.05 from G&A and interest savings.

These items are not new news and are right in line with our statements over the past few quarters. Most of these are temporary, and the income will return over time. Furthermore, the first quarter results are consistent with the sequential fourth quarter run rate we discussed last quarter, adjusted for the accelerated vesting of equity awards, for retirement age executives in the first quarter. With respect to rent collections in the first quarter, overall rent collections were 96%, a continued improvement from the prior quarters.

We collected 97% of office rents and 90% of retail rents. April collections ran at the same level. While the aggregate headline same-store cash NOI numbers for the first quarter are negative on their face, excluding the variable businesses, our core New York office business actually was positive 3.9%. Blending in Chicago and San Francisco, our office business overall was a positive 1.9%.

The big takeaway here is that our core office business, representing over 80% of the company is continuing to hold on its own in this challenging environment, protected by long-term leases with credit tenants. And while the retail same-store numbers are down, overall retail NOI is flat quarter over quarter, again, consistent with our recent guidance. Finally, we have planned to see us for significant growth as the pandemic recedes and the city returns to normal level of activity. In addition to the savings we will realize from the previously announced overhead reduction program, we expect significant growth from the return of our variable businesses.

From the Farley Buildings fully coming online in 2022, followed by the delivery of PENN1 and PENN2, and reduced interest costs as we roll over our debt. One of the analysts even predicted the Vornado will have the highest growth rate in our sector over the next several years. Now turning to leasing markets. We are seeing improved conditions in the office leasing market with the pace of activity up nicely in the past 60 days.

The phones are ringing, tour volume is up, proposals are coming in and leases are being signed with the flight to quality trend accelerating. According to the brokerage houses, leasing volume is certainly up versus 2020 numbers. The first quarter had the most activity of any since the fourth quarter of 2019, with most of the actions occurring in Midtown. At the same time, we are realistic and recognize that availability across all submarkets remains high.

But an encouraging sign, sublease space has recently come down some. Almost 600,000 square feet of sublease space has been removed from the market by occupiers who plan to reoccupy the space. Moreover, a substantial portion of the sublease inventory is challenged space, either physically, by way of the over tenant having poor credit quality or turn constrained, roughly a one-fourths of the sublease space in the market today has less than three years of term. During the first quarter, we completed 12 office leases totaling 208,000 square feet.

The two largest leases of the quarter were both new to our portfolio. Young Adult Institute for 74,000 square feet at 825 7th Avenue for the new state-of-the-art schooling facility; and FuboTV Inc. a new world content streaming platform coming off their successful IPO launch for 55,000 square feet in the base of 1290 Avenue of the Americas. Both of these leases represented expansions from their prior locations.

We are currently negotiating paper on 300,000 square feet, of which 200,000 square feet is with new tenants. And in addition, we have a growing pipeline of 1.4 million square feet, which is up meaningfully from recent quarters. Last year, we completed the two largest leases in the year, Facebook and NYU. The current sweet spot for deal making in the market is with small to mid-sized firms looking to relocate into new or redeveloped assets.

Remember, all of our space is redeveloped, only the Penn District, which is under redevelopment. This dynamic matches up well with our current vacancy, where our largest available blocks are only 180,000 square feet at 330 West 34th Street and 117,000 square feet at share at 85 Tenth Avenue. As a reminder, our office expirations in 2021 and 2022 are very modest, with less than 5% of our space rolling each year and a portion of this in PENN1. Our leasing team is now in full stride in the Penn District with multiple presentations, tours and meetings each day with brokers and tenants across all industry types.

Using our new Penn District Experience center to showcase PENN1, PENN2 and our grand plans for the Penn District really brings everything to life. The reception to our vision for the district and our best market differentiated project offerings has been nothing short of phenomenon. Turning now to Chicago and San Francisco. In Chicago, we are also seeing more activity at the market.

During the first quarter, we completed 85,000 square feet of leases including a 45,000 square foot office renewal, along with 18 showroom transactions totaling 40,000 square feet, of which 15 were renewals. We currently have a 90,000 square foot renewal lease in negotiation. And a pipeline of 500,000 square feet showing real interest in the property. Importantly, we will be restarting the trade show business in October this year with the NeoCon show, beginning to bring back that income stream.

In San Francisco, 555 California continues to be in a league of its own coming off the heels of our recent large renewals with both Bank of America and Goldman Sachs. In April, we executed a lease renewal with KKR in the triple digits for its 50,000 square feet in the tower. Our occupancy here is 98% with minimal expirations until 2023. Turning to retail now.

Retail leasing in New York City is beginning to come out of a period of inactivity to a phase of retailers who are succeeding and even thriving are now looking for opportunities. All current leasing activity is very price driven. The tourists driven higher rent markets of Fifth Avenue and Times Square have seen the least activity as retailers remain on pause until there is greater visibility and when the 60-plus million tourists will return. During the quarter, we completed 11 retail leases for 46,000 square feet.

These included two long-term renewals at 1290 Avenue of the Americas, including a lease with JPMorgan Chase for a flagship branch, and a seven-year extension with the luxury retailer Tods at 650 Madison Avenue. Our leasing also included another six leases assigned at the Farley concourse, where demand remains strong, and we are in negotiations with tenants to fill the balance of the concourse space. Overall, we are upbeat about the future of our markets, our leading position in them and our prospects for creating value. Turning to the capital markets now.

First, let me congratulate Jan LaChapelle on her promotion to Executive Vice President, Head of Capital Markets. The real estate financing markets continue to improve with both the CMBS marketwide open and banks beginning to lend again a high quality office. Spreads in all-in coupons are at very attractive levels as evidenced by our recent strong refinancings of One Park and 909 Third Avenue, both of which were at significantly reduced rates. The unsecured market for real estate companies also continues to be very strong, and it is likely that we may shift over time to a more balanced approach between unsecured and secured debt.

Finally, our current liquidity is a strong $3.94 billion, including $1.76 billion of cash and restricted cash and $2.18 billion undrawn under our $2.75 billion revolving credit facilities. With that, I'll turn it over to the operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] And we have our first question from Steve Sakwa with Evercore ISI.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. Michael, I was wondering if you could just spend a little detail there. Maybe talk about the terms that you're seeing in terms of TI, free rent, and then length of lease that tenants are sort of looking for today in the market?

Michael Franco -- President and Chief Financial Officer

You want to take that one?

Steven Roth -- Chairman and Chief Executive Officer

Steve, can you just repeat, you cut out for about 10 seconds?

Steve Sakwa -- Evercore ISI -- Analyst

Sorry. I guess the question was really around lease term, TIs, leasing commissions, free rent, how are you seeing some of the impact, not just in face rents, but some of the concessionary items? And then what are tenants looking for from a length of lease term?

Steven Roth -- Chairman and Chief Executive Officer

I mean the first thing I'll tell you is lease term, we're seeing a lot of long-term lease commitments, 10 years, 15 years. We actually completed a lease this quarter for 30 years with the school at 825 7th. So we're seeing lease terms long. We're seeing commitments for sure.

We've seen no change in that as we go quarter to quarter. TIs are elevated and free rents are elevated net effectives were off, but I think they stabilized at this point. But right now, if you want to lease space in the market, you have to give the TIs to fill the space, and that's what we're doing. But they have stabilized over the past, I'd say, two to three months, for sure.

Steve Sakwa -- Evercore ISI -- Analyst

OK. And maybe as a follow up, I don't know if this is for Michael or somebody else. I know there's been some discussion around the refinancing of 555 California, and there was an article recently about a north of $1 billion new mortgage there. To the extent that you did refinance at that level, how do you think about the excess proceeds? And what would that be used for?

Steve Roth -- Chairman of the Board and Chief Executive Officer

It's Steve. I don't think we're going to comment on that other than just to tell you that, generally speaking, where there is smoke, there is fire. We won't comment on anything about that transaction at the current time.

Operator

We have our next question from Manny Korchman with Citi. Please proceed.

Manny Korchman -- Citi -- Analyst

Hey everyone. Good morning. Just wondering sort of how progressive conversations are with tenants are at Penn, both for the large blocks available at the current Penn buildings as well as PENN15 and if that drove your decision to take the hotel off-line and move forward with the larger redevelopment there?

Glen Weiss -- Vornado Realty Trust -- Analyst

It's Glen. So I'll tell you, we're in this experience center down at PENN1 multiple times a day, showing all the projects. I will tell you the action at PENN1 from a leasing standpoint is absolutely on fire. We do not have any real large blocks there.

But in the tower, we have some single and two-floor deals happening at rents that are at or underwriting. So we're performing very well there. The reception has been excellent. We are also beginning to showcase PENN2 into the market also daily a lot of great presentations and incoming, but we're going to go slow with PENN2.

We just started up on the physical construction and as this thing keeps going on a construction standpoint and the tenants can see it physically, it will just get better and better in terms of the incomings and people's reception. And yes, on PENN15, we are beginning to show people our plans. The announcement of knocking on the Hotel Penn has brought a lot of incoming calls and emails. We're starting to talk to folks about PENN15, as well as we get into it.

Manny Korchman -- Citi -- Analyst

And I don't know if this one's for you or for Michael. But if we think about the occupancy trajectory through the rest of the year here, do you anticipate that this is sort of the bottom for New York City office occupancy or vacancy? Or do you think there's a little bit more to come from a net absorption perspective?

Michael Franco -- President and Chief Financial Officer

I don't have the exact numbers in front of me, Manny. Manny, I can't tell you it may move around a little bit here or there. I think we're pretty close to the bottom. Again, I'm not going to play or tick a little bit, but I think we're basically there.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Manny, anecdotally, I would tell you that Glen told me that several of the brokerage houses have told their folks and their clients to get into the market now that this is the bottom. And that they expect a turn from a tenant market to landlord's market to happen over the next six months. So that's anecdotal information, but it's important information.

Manny Korchman -- Citi -- Analyst

Thanks everyone.

Operator

Thank you. Our next question comes from John Kim with BMO Capital Markets. Please proceed.

John Kim -- BMO Capital Markets -- Analyst

Thank you. The announcements and the news flow of New York City reopening is very fluid and even this morning Goldman Sachs announced plans to come back next month. Are there any more details that you could share as far as what's happening in your portfolio today as far as more details on lease proposals? What do you expect to be signed as far as leases in the second and third quarter? And potentially also traffic in your Street retail portfolio?

Glen Weiss -- Vornado Realty Trust -- Analyst

I will take the office, it's Glen. Michael remarked in this script, in his opening remarks, our pipeline is robust. We have over 300,000 feet of leases in negotiation. We have another 1.4 million feet of deals that are in discussion.

I'll tell you, things are picking up a lot, not a little. So tenants are coming out of the woodwork. Many are looking for new space to better quality products. So we're seeing a huge uptick in office leasing activity as we sit here right now.

In terms of the utilization of the building, that's also upticking week to week. On a percentage basis, we're now in the teens at all the buildings. Most of our tenants are telling us returning starting in June through Labor Day. But certainly, the narrative is unwinding quickly.

We're feeling it, we're seeing it, and we're hearing it.

Haim Chera -- Executive Vice President, Head of Retail

In retail, we're seeing a major uptick in conversations that's primarily due to the fact that the survivors of the pandemic in retail have actually been thriving. New York City is probably the last on the list to be opportunistic because the rest of the country has been booming, the New York City is suffering from the lack of our 60 million tourists being in the street. But the smart retailers are now in the market, being opportunistic. And I don't think New York retail has ever offered a better value than its offering today in terms of the prime spaces at better rent.

John Kim -- BMO Capital Markets -- Analyst

That's very helpful. My second question is on the tracking stock that Steve, you mentioned in the Chairman's letter, are there any more details you could share at this time as far as the timing, whether or not you plan to raise capital through it? And will you be stripping out the financials of the Penn redevelopments from Vornado going forward?

Steve Roth -- Chairman of the Board and Chief Executive Officer

I really don't think it's appropriate to comment on this. We're working very hard on it. It's a very, very exciting project that we're very excited about. I mean, we're targeting, hopefully, year-end.

Other than that, I don't think it would be premature to get into any details. But I'll give you a little bit of what our thinking is. And by the way, attracting stock is something that has been used very successfully by folks like John Malone at Liberty and his sidekick Greg Maffei and Barry Diller and for example. And generally, what it's used is when you have a business inside of your core, which is different, and which has a different rate of growth and different characteristics.

And so we feel that the Penn District mega project that we have is different than our core assets. And so we feel that investors would benefit enormously by being able to invest in the Penn District and its characteristics. By the way, we do remember it's a development company for better or for worse and our core assets. So the differentiating aspects of the Penn District is at what we consider to be the epicenter of the new New York.

It's directly on top of the major transportation hub, which means all of the subways at all of the railroads, all of them come into that hub. And that's an extraordinary statement because you can get in and out of Penn station no matter where you are in the New York City region on one ride. The most important part of it is -- and by the way, it's enormous. When you look at the number of assets and the scale of the assets and the number of blocks that we accomplish is pretty much enormous.

The most interesting part of it, I think from my point of view, and Glen's point of view is it's a cluster of buildings that are interconnected generally underground. So what that means is that a tenant who has a 300,000 square foot required, and I have written about this, who goes into a 500,000 square-foot building is locked in, there's no place to go. But a 300,000 square foot tenant in our five million growing to 10 million growing to 15 million square foot complex has enormous opportunities to grow should they want in the same building or in adjacent buildings. So I believe that a strategy, which involves a cluster of buildings in a campus, which also will allow for an enormous series of amenities that somebody who has even a giant million foot building can't afford to do makes us totally unique.

We're seeing very much the same thing down in Northern Virginia, where our SpinCo, JBG Smith, has this enormous concentration of buildings and land, etc., in the Crystal City Complex that Vornado contributed to that company when we did the spin in 2015. We've now attracted Amazon HQ2 there, mainly because of the concentration of assets that we have and obviously, because it's a great labor market. The same is true of our New York Penn District. So what we're trying to do and the objective is to take businesses which are different, meaning the Penn District is different than a core office building on even Park Avenue and allow investors to have the choice.

So we're very excited about it. It's a very important work in process, and more details will be coming as we advance it and when we announce it. I think somebody said in their reports last night that it was not well received by investors, which is troublesome to me. Because that's totally contrary to my feelings about it and our company feelings about it.

And so if that's the case, then we have some work to do to talk to our investors and make everybody understand exactly what we're thinking about. But we couldn't be more excited. And I think that's it for now.

John Kim -- BMO Capital Markets -- Analyst

When you list the key attributes to investment Vornado, arguably Penn District would come up as number one. So have you gotten feedback that this really isn't that different to the reason to invest in the company?

Steve Roth -- Chairman of the Board and Chief Executive Officer

I don't understand the question, John.

John Kim -- BMO Capital Markets -- Analyst

I guess your point that this -- you're stripping out something that's different. Where in reality, it's just a redevelopment of your existing assets that is the key reason to invest in Vornado today. I'm just wondering why you think it's different?

Steve Roth -- Chairman of the Board and Chief Executive Officer

Well, I can say what I said for the last five minutes over again. But the answer is that it's totally different in many, many different ways. It's real estate, but it's totally different. The other thing is when you think about stock performance, we don't think that our stock can go with or without -- we're getting no credit in the Vornado stock and trading price.

For the Penn District or basically anything else. So what will happen is that we think that the price of Vornado will be unaffected or maybe even rise, hopefully, whereas the Penn District stock will get to its true value. But we we don't agree with you. We think it's totally different.

John Kim -- BMO Capital Markets -- Analyst

Thank you.

Operator

And we have our next question from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alex Goldfarb -- Piper Sandler -- Analyst

Hey good morning Steve. Good morning Michael. So I'm going to take a different tack with my questioning this quarter. So I'm going to focus on two, what I perceived to be positive in your portfolio.

Steve, in your Chairman's letter, you outlined your Netflix binging and the fact that studios are now on your radar. It would seem with the JCPenney space at Manhattan Mall and the Penn Station, Penn District redevelopment, both of those assets have huge loading docks, huge amounts of potential space that can be carved out. And obviously, being in the city is incredibly convenient for studios versus people having to truck out to Queens or some of the outer boroughs. What are your thoughts on converting either those two assets or some of your other existing that have those sorts of attributes to studios?

Steve Roth -- Chairman of the Board and Chief Executive Officer

This all began with two things: Number one, all of us have become Netflix addicts; and number two, we have got incomings from entities that are in the soundstage business or that new sound stages. And so what's happened is, is that the streaming business and the entertainment business has become an unbelievably powerful, dynamically growing business and it's consolidating. And so the companies that are in that business are huge financial entities. And they all have a hankering and I mean a very strong desire to be in New York.

Apparently, there is a significant, maybe even dominant concentration of talent in New York. And so it's really basically, they stay in three places: New York, Southern California and, I guess, in one of the European cities. So the point being is that there is a tremendous amount of unserved demand. And so we're responding to incoming.

And so we have assets that could service that demand. Now I could take a way too aggressive statement that says the Penn District could become Hollywood east. So I don't take that to the bank, by the way. But there's a great deal of interest in some of our assets that we are working on.

Nothing imminent. We're just responding to where we see pockets of unique demand in the marketplace.

Alex Goldfarb -- Piper Sandler -- Analyst

Look, that's good. And it's obviously something new, and it would seem to be something that's good to repurpose, especially large blocks of space that have come back to your recently.

Steve Roth -- Chairman of the Board and Chief Executive Officer

And we feel we have assets that could be adapted to those kinds of uses.

Alex Goldfarb -- Piper Sandler -- Analyst

OK. The second question, Steve, is going back to Penn Station, you guys for over two decades, I've been talking about Penn Station. We all know the issues about the streetscape and the neighborhood and the desire to see that improve. When you look at Grand Central, that area is already there.

East side access is clearly going to frighten away a huge chunk of long Island commuters, and you guys have 350 Park. It would seem that 350 is almost a better site than Hotel Penn, just given that the neighborhood is already there, and there are a lot more people being excited by the commuter hub and you have East side access coming in the next few years. So what are your thoughts on accelerating 350? And where does that fit in your pipeline as you guys or Glen market anchoring a Hotel Penn versus getting tenants anchor at 350?

Steve Roth -- Chairman of the Board and Chief Executive Officer

We're an equal opportunity employer wherever the tenants want to go, and that's where we want to put them. Obviously, we have an enormous amount of respect for our 350 Park Avenue asset. It's a great asset. And it's kind of like bite size.

It's a 500,000 square foot asset. It's obviously a candidate for a tear down and rebuild. But in tear down and rebuild is a combination, and we can grow the site too, by the way, as speculated in the press. So we could grow in something that's 200 million square foot building if we wanted to.

Just focus on our own site without growing it, which will be a million square foot building. So that is an immense financial undertaking, which would require record rents, which we have talked several tenants about. And we may do that, but the likelihood is we will not do that. The more likely outcome is that we will rent up the existing 350 Park Avenue at a very favorable rent and sort of like post loan interest cycle and retain the option of doing a new build on it or continuing to rent the existing building over time.

So it's more likely that we will not do a tear down on that site and rent it out for one more cycle and focus our efforts on the Penn Station district. That's the more likely outcome. Although we couldn't be more delighted. By the way, if we decided that we wanted to sell that asset, with all of its optionality, in terms of a new build or whatever, we think we could get an extraordinary price for it.

But that's not something that's high on our agenda right now.

Alex Goldfarb -- Piper Sandler -- Analyst

OK. Thank you Steve.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you. We have our next question from Jamie Feldman with Bank of America. Please proceed.

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

Thank you and good morning Steve. I want to go back to a comment you made at the outset of the call, where you said major tech companies plan to continue growing their office footprint in New York City. Can you talk more about exactly what you're seeing? I think our understanding is that a lot of the big leases have been signed, but I'm curious if there's a lot more behind it.

Steve Roth -- Chairman of the Board and Chief Executive Officer

The answer is, I'm really not going to comment on our sort of confidential conversations with our customers, whom we cherish and we respect their confidences. We deal with all of these folks. We obviously have them all in our portfolio, all the way from Facebook to Apple to Amazon, etc. We can only tell you that this is firsthand information.

They love New York and for most of these folks, New York is their second largest outpost and center. What they love about New York is, first of all, their employees love New York. There is a very, very large and very importantly, a diverse workforce and that's very important to these clients. So they have their fingers on the pulse of New York.

They follow the real estate in New York as closely as we do. They all have very professional real estate organizations that we are in contact with frequently, almost daily. And so the answer is, is that I stand by my statement. They are very aggressively interested in New York.

Their interest in New York continues unabated, and we think that's a very exciting thing. By the way, their interest in New York is basically almost exclusively to the west side of New York. That's where their employees want to be, and that's where their culture says they want to be. So we think we're very well positioned for that, and we think that bodes very well for the future of New York and for the future of Vornado.

Michael Franco -- President and Chief Financial Officer

Maybe if you think about the tech business, right, you start with the big four or five. I mean, it's stunning the earnings that they recently posted, the growth rates they continue to have and the aspirations they continue to have. Then you have an entire segment of companies that have now either gone public and graduate at a point where there are mid-cap companies or large cap companies in New York. These companies have got significant ambition.

They need people to execute on those ambitions. They need to be in person, right? Huge amount of engineering talent, collaborations required, etc. And so both from our own tenants and others that are in the market that are continuing to expand obviously, we just bought, for example, FuboTV who just went public into our portfolio. These companies have significant aspirations on growing their business.

And as Steve said, New York is a central aspect of that. And I think that's very positive for this marketplace.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Michael brings up a very important point, and that is the newbies and the aspirants, who are high-growth people they want to be in the same cluster and in the same neighborhood as the established huge tech tenants are. And what Glen likes the best about the new tenants is they are enormous growers. And they look to locate in clusters in buildings, which have the potential where they can add 50,000 feet, add 100,000 feet. When we started with Facebook -- when we started FaceBook seven, eight years ago?

Glen Weiss -- Vornado Realty Trust -- Analyst

2010.

Steve Roth -- Chairman of the Board and Chief Executive Officer

They started with a couple of hundred thousand feet, and then they grew to 700,000 feet over a three- or four-year period. That's the kind of client that Glen loves, and that's why we're trying to -- that's the kind of occupancy that we expect to see.

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

That's very helpful. The 1.4 million square feet pipeline, how would you divide that up by those types of growing tech tenants versus kind of upgrade relocations? Or if there's any other meaningful category you'd split that into?

Glen Weiss -- Vornado Realty Trust -- Analyst

Yes. I'll tell you, Jamie, it's a very diverse industry sector mix and a very good mix of renewal, important renewal transactions as we look toward our expirations in the next three to four years, along with very good new tenant activity, a lot in the Penn District, but also throughout our other assets. So it's a very healthy mix of new renewals, some expansions and really every type of industry sector. The one industry that's really leading the chart right now is the financial tenants.

They're busy as I've ever seen it. So our financial oriented buildings are really busy, with -- we have backed up deals on deals at 888 Seventh, 280 Park, [indiscernible] Fifth. They're leading the charge, but in terms of the mix, we feel really good about really covering everyone out there right now in that pipeline we talked about.

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

OK. Can you quantify how much of that's renewals of the $1.4 billion?

Glen Weiss -- Vornado Realty Trust -- Analyst

I'd rather not get into the exact sense of the numbers.

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

OK. That's fair. And then, I guess, another question for you, Steve. You had commented on the boom.

I'm just curious what your thoughts are on the benefit to New York City from the Biden plan and the outcome, I know it's still early, but the mayoral race, kind of what should we be thinking about either the risk or the rewards based on who's in the game?

Steve Roth -- Chairman of the Board and Chief Executive Officer

So let's see, your question is, how will New York benefit from the boom? And then what's going on with the mayoral race, is that correct?

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

Well, just what are your thoughts on the Biden plan? And how you think that really could trickle through to New York? And then how should we be thinking about either the risk or the benefits from the mayoral race?

Steve Roth -- Chairman of the Board and Chief Executive Officer

So first of all, I mean, I think it's pretty clear the country is in a boom. The only thing that I'm uncomfortable about talking about is that the consensus feeling among almost everybody. So consensus is something to be concerned about. Normally, I'd like to be on the other side of that, but it is the consensus, and that is also what I believe.

And I think it's happening. If you go to other places around the country, which have not been as shut down as New York. It's happening now. You go to Texas, etc., where they have different, where they have been more lenient in the restrictions.

You go into a Target store and the shelves are empty. You go into some of the luxury retailers across the country and the shelves are empty. The demand is amazing. They can't build enough houses, etc.

So I think that's pretty clear. The Biden's policies, together with the fact that the majority leader of the Senate is from New York, there is a significant and fair, by the way, in terms of when you look at distribution of these programs across the nation. There is a significant amount of benefit -- financial benefit that's coming to New York in terms of the stimulus package. First, in terms of closing the budget deficits for the city and state, which is a universal program across the country, but it's good that we're getting in, and other benefits to our population.

So we think that the stimulus will be an enormous benefit to New York, and I think that's proving out. With respect to the mayoral race, that's a different kind of a fish. The oddity about politics in New York is that more than two-thirds -- more than 75% of the registered voters are Democrat in the city. And so therefore, the mayor race is not the election, it's the primary, so almost invariably whoever wins the Democrat primary is elected mayor in the general election.

There double-digit number of candidates. And interestingly, there's really no candidate, which has a defining lead. We also have ranked choice voting for the first time, so nobody really quite knows how that works. So the two or three or four leading candidates are certainly all in the race.

I'm hopeful that the candidates will all believe in a couple of principles that I think we believe in. First, that the quality of life is if not the single biggest issue, the biggest issue, and that is safe streets, clean streets. For example, the homeless situation has to be handled. And so quality of life issues are very important that they're number one on my list.

On my list, the second is that we need to be a growing city with with employment growing, which I think everybody subscribes to, which means we have to be a business-friendly city. And so every once in a while, we have plugged on that. The Amazon disaster a couple of years ago in Long Island city is probably the number one example of that. So quality of life, safe cities, the homeless situation, being business-friendly are the number one and two.

We then have income inequality, racial inequality, we have to be a fair city. And so those are the major issues, I think, in the campaign. And I believe that the three or four candidates who look like they have the best chance of being elected are all well qualified with respect to that. I think one of the very interesting things about elections is that this is a time when the political leadership or the political aspirants actually listen to the population.

And I think that the message that I just said, and I think is the universal message that's going from the voters to the politicians. Some groups of voters may say, income inequality and racial inequality is more important. Others may say business friendly and quality of life. But those four major points are the issues, I think, in our city at every other great city, probably in the world right now.

And I'm very hopeful that we will get a mayor one of the two or three or four leading candidates that will be well qualified in that regard.

Operator

Our next question is from Vikram Malhotra with Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you so much for the question. Good morning everyone. Maybe just first one, Steve, obviously, there's a lot of activity on the development front and future development. I'm just wondering, in the past, you've made comments about the right time to buy and I know the stress has not been plentiful.

But given the bullish view on office over a multi-year period, can you maybe walk us through how you're thinking about value-added opportunities in the New York area?

Steve Roth -- Chairman of the Board and Chief Executive Officer

As I think you have heard today and over the years, we are extremely bullish on New York. We are, as they say, loaded up on New York, and we think we like our position. I am disappointed that there has not been in this period, unique opportunities to add value by buying distress, which is something that we have been able to do in past cycles. But that's not the way this has worked out.

So this has kind of been a weird period. We've gone through a recession, a COVID-caused recession. It really didn't hurt our main businesses, in terms of our occupancies, but it did nick our income by $200 million because certain of our businesses were shut down like signage and garages, etc. On the other hand, and the other benefit of that is interest rates are historically low, chronically low.

It looks like they're going to be low forever, which is something I think we have to be a little bit thoughtful about before we subscribe to that. But there really hasn't been very much in terms of distress that we've been able to buy, although we've been looking very hard. So I'm disappointed in that, but what is, is. I do believe that the best opportunity that we have for capital in our business, by far and away, is investing in the Penn District, which I think if one has a five- and even a 10-year view, is going to be one of the great investments and one of the great developments out there.

So that's my view.

Vikram Malhotra -- Morgan Stanley -- Analyst

OK. Two more real quick ones. Just on street retail and particularly the vacancies on fifth Avenue. Can you maybe talk to us about where are we specifically on fifth and just more premium corridors, where are we in terms of rent levels that are low enough to attract retailers to really come back and start signing leases? Just wondering how do you start to fill up some of the vacancies that you have in the portfolio?

Steve Roth -- Chairman of the Board and Chief Executive Officer

As Haim said a couple of minutes ago, this is a market cycle that we've been through many times, and I think we can almost predict how these cycles go. And by the way, this is a very difficult cycle because, in addition to everything else, we have the secular change from brick-and-mortar retailer to internet shopping, which is a secular change, which sort of makes this cycle much deeper. Nonetheless, it's the cycle. So there's lots of vacancies.

The first thing that happens is that the vacancies are scooped up by a group of tenants who realize the value and who have business models that can operate and thrive with reasonable rents. When the vacancy starts to get to be absorbed, the rents rise. And during the whole process, the highest quality space commands the highest rents and the highest demand. So that's beginning to happen now.

And as Haim said a few moments ago, the retailers that have thrived are beginning to recognize that this is the bottom and are beginning to recognize that they want to add and even in New York aggressively add at this price point, the unique, important scarce site. So an example the that is that we did a deal with Fendi on Madison Avenue 57th Street recently. We extended a lease with Tods on Madison Avenue at 60th Street recently. And there's multiple other examples of that.

So what's going to happen is, I wouldn't focus on the spot rent today, that's meaningless. That rent will disappear in a year. And so what's happening is the smart players, the players who have a business model that works are beginning to absorb the good space and that will cause the market to shift. And in a year or 18 months or so, you'll see a totally different market.

And in three years from now, you'll see a monumentally different market, which will be thriving with much higher rents.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. And then just one quick clarification on Facebook. Can you maybe remind us the contribution -- the GAAP contribution that's there this year? Is some of that already recognized in the numbers? And just how does that ramp over the next six to 12 months?

Steve Roth -- Chairman of the Board and Chief Executive Officer

We're not going to comment on the details of the Facebook lease other than to say, we are so pleased with our relationship, and they are pleased with us. The most recent deal that we did with Facebook was 730,000 square feet in a very height of the pandemic to give you a feel for the courage that it takes for even somebody at Facebook scale to sign a lease, multi, multi, multi-hundred million dollar financial commitment. In the last summer, if you remember, the Facebook lease, which covers 730,000 square feet in Moynihan and in Farley is totally unique space that we believe and I think they believe is unique across the country for where it is in the city of New York. And the scale of it being a low-rise with 150,000 square foot floor plate.

So we anecdotally talk to some of their occupiers, their engineers. They are very excited. They can't wait to get into the space. And other than that, we're not going to comment on the financial details.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. We have our next question from Daniel Ismail with Green Street.

Dan Ismail -- Green Street Advisors -- Analyst

Great. Thank you Glen, I believe you mentioned the stabilization in office concessions. I was just curious, is that a reference to concessions maintaining their current level or a return to pre-COVID amounts?

Glen Weiss -- Vornado Realty Trust -- Analyst

I'm referring to stabilizing as of during pandemic, not pre, we're not back to pre for sure. The goal is to get back to pre, we're not there yet, but they have stopped rising for sure. I'm talking about in the current environment during the pandemic.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Dan, the same comment about markets. The market has to tighten up a little bit when the market tightens up, the concessions will tighten up as well.

Dan Ismail -- Green Street Advisors -- Analyst

Got it. And then just a quick question for me on Penn. Any update on the ground lease at PENN1?

Steve Roth -- Chairman of the Board and Chief Executive Officer

No.

Dan Ismail -- Green Street Advisors -- Analyst

Got it. And then a bigger picture question on a few of the non-office assets you mentioned in the annual letter. How do you view non-office opportunities like studios, gaming, etc., as a percentage of the overall company? How big can some of these non-office opportunities be?

Steve Roth -- Chairman of the Board and Chief Executive Officer

That's an unanswerable question. The reason I put that in there was, I think that our shareholders would like to know some of the things that are parking below the surface, even though they may not be that imminent. So for example, gaming is an interesting thing. Everybody that follows New York knows that there are three gaming licenses that are yet to be issued in the New York, in the New York Enabling Legislation and that they are targeted for down state.

And there's been a fair amount of news about that recently, where some people who are following not our company, but following the basic ebb and flow of stuff in New York knows about this. Now those three licenses are scheduled to be released in 2023, but there has been a great deal of speculation and press that, that may be accelerated earlier because of the budget deficits, etc. The urgency may be offset a little bit because the general governments close those deficits, but who knows. So we have probably the largest portfolio, and we have been receiving multiple incomings from the gaming industry operators who will be applying for those licenses and competing for those licenses.

And so the inquiries that we have gotten have been for Manhattan properties. And it turns out that if consensus that our potential assets are probably the best. We have multiple assets, and they're probably the best suited for this kind of activity. So now, I mean, we realize that there is in the enabling legislation, which was passed four, five or six years ago, there's a prohibition against gaming in Manhattan.

So that's sort of a disconnect. Why are the operators coming in, in multiple inquiries about our assets when there's a prohibition? So the market is sort of saying, well, maybe that prohibition doesn't make a lot of sense, etc. So when you think about it, there's going to be three licenses issued. It does make sense that one would be to the east of the Long Island region.

One would be to the Westchester region, and then there is the third. Well, and as I wrote about this, fairly short was it doesn't make a lot of sense for that third license to be issued in direct competition, the one on Long Island or one in Westchester, and that leaves Manhattan, which may be the golden goose in terms of getting revenue for our school systems and what have you. So it's impossible to predict how this comes out. We have multiple assets that are of high interest to these folks.

This is a complicated political process. And all I can say is we're just satisfying incoming interest and we'll see where that goes. But you can discount that to zero in your spreadsheet. Although if it did happen, it would be financially interesting.

We have no, no, no interest in being in the gaming industry or being an operator or anything like that. We are a real estate vendor. That's what we do. With respect to the sound space business, it's exactly the same story.

We are a real estate vendor. We are not going Hollywood. Although I think some of us would like to have a bit part somewhere, whatever. And we are responding to incomings from an industry, which is a streaming industry, which is unbelievably hot.

They have a quick deal of interest in being in Manhattan because that's where the talent is. So these are nascent ideas, which I put into the letter because I think our shareholders are entitled to know some of the things that are going on in the background. These will undoubtedly not become large parts of our business, but who knows. Just remember, I said, you can look at the Penn District, it could be Hollywood, Hollywood East.

It won't, for sure, but it's an interesting thing that sort of fantasize about.

Michael Franco -- President and Chief Financial Officer

Daniel, all these things that Steve referenced and I think to me, the key point for you guys, shareholders, etc., is our job is to maximize the value of our assets, right? We look under every rock, how to do that. And you got the streaming business, which is booming. Steve, just talked about the gaming dynamics. And so our objective every day we come to work is how do we maximize the value of our assets and look every different direction.

And so anything we may do here would be accretive to what we have today. And that's what we do on every asset, right? A lot can't be repurposed, but some things can be.

Dan Ismail -- Green Street Advisors -- Analyst

Great. I appreciate the color. And then just a very quick follow up, if I may. You mentioned the budget deficit, Steve.

Is there any potential given the fiscal concerns to potentially getting further density at or around Penn District?

Steve Roth -- Chairman of the Board and Chief Executive Officer

There is a GPP, a general positive plan, which was introduced by the State Economic Development Commission, which would take the assets that circle, Penn Station and supply more density and that is a pending initiative which has been promulgated by the state. And there are two things sort of involved in that: The first is, is that everybody, everybody is in favor of improving Penn Station from a logistic point of view, from a traffic point of view, from a usability point of view and from an aesthetic point of view. And so the state government and the railroads are actively involved in multiple attempts to do that, which involves public money. In addition, it's a totally accepted land planning principle that the most density in any city should be at and surrounding the transit hub, and that's us.

So that's in process now. It's going through community comment periods, etc. And so there's a lot going on in that regard.

Dan Ismail -- Green Street Advisors -- Analyst

Great. Thanks.

Operator

Thank you. We have our last question in queue. It is from Alex Goldfarb with Piper Sandler.

Alex Goldfarb -- Piper Sandler -- Analyst

Hey. Thank you. I just want to go back. You mentioned about Penn Station and the mayoral, I think it was Jamie who asked about the mayoral situation.

But when you look to Albany, they just passed $4 billion in taxes on the wealthy, which are really the business leaders. And those are the people who are leaving at the same time, SALT repeal doesn't look likely. So Steve, as you think about Penn Station and you mentioned that there's some pushbacks on the tracking stock. How do you think about you're putting billions of dollars of investment into the Penn Station area when Albany seems to be -- and you couple it with the Amazon fiasco a few years ago seems to almost be encouraging people to relocate.

How do you sort of reconcile those two?

Steve Roth -- Chairman of the Board and Chief Executive Officer

My children want me to go to Puerto Rico. Look, New York, there will always be New York. New York will always be great. New York will always be a high tax place to live and it will continue to be the center of commerce.

And it will continue to be the business capital of the United States. Now I agree with you that the folks in various governments. By the way, the price may come out of Washington in terms of taxation, Albany maybe a second runner here. But the point of it is, is that the loss of some very high earners who are at retirement age, by the way, is something that is happening.

It's happening all around the country. It's happening more aggressively in California, by the way. And California folks they flee to Texas, and New York folks flee to Florida. What I'm saying basically is the backbone of New York is not the 20 or 30 hedge funds trillionaires or billionaires who are going to Florida or wherever.

The backbone of New York is the $300,000, $500,000, even $1 million earning management people in their prime, in their 40s who are raising families, etc., who are not the heads of their businesses and can live anywhere, whose jobs and future depends upon being in New York, where they can do three times better than they can do anywhere else. As long as that holds, New York will be fine. And as we see it, people like JPMorgan Chase building, their new headquarters building, etc. The businesses that I'm not talking about the entrepreneurs who can live anywhere.

And there are a very small number of people, although they're very exponentially important. The mass of the talent that New York has pretty much is staying in New York, has to stay in New York, wants to stay in New York, loves to live in New York, and has to live in New York because that's where these unique jobs are.

Alex Goldfarb -- Piper Sandler -- Analyst

Yes. But Steve, you look at New York share of GDP, it was 11% 2 decades ago. Now it's down to seven. So it's clear that the economic growth elsewhere is outpacing, and that just seems to be something where New York depends on its historic laurels.

That seems to be the biggest risk here?

Steve Roth -- Chairman of the Board and Chief Executive Officer

Well, the answer to that is that New York is not growing as fast as some of these other smaller places are growing, but it's still not contracting. And we still think there will be a demand for our product. I'm going to set you up and get you a date to go up to Albany and talk to all my friends at Albany because I think you have a lot to say.

Alex Goldfarb -- Piper Sandler -- Analyst

That's why we like writing it in print. Listen, Steve. Thank you.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Thanks Alex.

Operator

We have no further questions in queue. I will now turn the call over to Mr. Steven Roth for closing remarks.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Thanks, everybody. We appreciate your participation. We appreciate your interesting and provocative questions, and we certainly appreciate your interest in our company. When is the next quarter call?

Michael Franco -- President and Chief Financial Officer

Tuesday, August 3.

Steve Roth -- Chairman of the Board and Chief Executive Officer

So if we don't see you before, and we're dying to see you in person. We're dying to see you in person and break bread with you and talk about all of the interesting things that are going on. And our next quarterly call is?

Michael Franco -- President and Chief Financial Officer

Tuesday, August 3.

Steve Roth -- Chairman of the Board and Chief Executive Officer

Tuesday, August 3 at 10:00 a.m., we'll see you then. Thank you.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Cathy Creswell -- Director of Investor Relations

Steve Roth -- Chairman of the Board and Chief Executive Officer

Michael Franco -- President and Chief Financial Officer

Steve Sakwa -- Evercore ISI -- Analyst

Steven Roth -- Chairman and Chief Executive Officer

Manny Korchman -- Citi -- Analyst

Glen Weiss -- Vornado Realty Trust -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Haim Chera -- Executive Vice President, Head of Retail

Alex Goldfarb -- Piper Sandler -- Analyst

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

Vikram Malhotra -- Morgan Stanley -- Analyst

Dan Ismail -- Green Street Advisors -- Analyst

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