SL Green Realty at Merrill Lynch Global Real Estate Conference - Final.(Broadcast transcript)

STEVE SAKWA, ANALYST, MERRILL LYNCH: We're going to get started with the next presentation. With us, with Ian Weissman and myself on the panel, is Greg Hughes from SL Green. Greg has been feverishly working on all the financial -- industry problems this morning, and has come down to share all of his wisdom with us on the market.

Obviously, the company has come under a lot of pressure in the stock price given its exposure to New York. And there's still a lot of uncertainties as we've heard this morning on a number of the different panels. Obviously, there is a lot of different views about the tone in the market, the trends that are going on.

SL Green was, I think, one of the first companies in the New York market to really start to talk about a potential softening in rents. But I think there were some diverging views this morning as to the magnitude of those potential declines. I think some of those trends may begin to accelerate as we maybe heard on the lunch panel from the folks at CB Richard Ellis.

But Greg, maybe just take a few minutes. I know that so many of the events are really fresh, some things from this morning, yesterday, Monday. But as you guys sit in Midtown, how are you thinking about what's been happening? And how might that be changing your potential views on the leasing environment from a 30,000 foot standpoint?

GREG HUGHES, COO, CFO, SL GREEN REALTY: Sure absolutely. First, let me start by thanking you guys for having us and I told Steve yesterday we did actually cancel a number of our 101 meetings. So, I just want to start by saying, that it's just a function of a bunch of things that we have going on. Nothing more than that. And hopefully those that come out through the presentation will see a lot of the things that we're working on to try to address issues that people have, and questions.

But it's certainly an incredibly dramatic time within the city and the financial community, unlike anything that I can remember. And, I think that that will hopefully create a lot of opportunity -- as we see it, a lot of uncertainty and angst in the short term, but we think that it will turn into a lot of great opportunity.

We had talked, as Steve alluded to, in December, and really throughout the year, about seeing a 10% to 15% decline in net effective rents. It's kind of what we were looking to see in 2008. And that hasn't come to fruition or hadn't anyway through the first half of the year. In fact, the rents were quite good and we saw almost no movement at all.

But we had been concerned and were watching and continue to watch. I think the wild card is -- what is the sublease space in the market going to end up being? We have the good fortune of having no meaningful spec space to speak of to come on. But we've been watching the sublease space build. We described the equilibrium in the market place as being kind of 9% vacancy. If it's below that, it's a landlord's market. If it's above that, it's a tenant's market and we lose pricing power.

And our general sense, prior to the events of this weekend, was that the Midtown market anyway, downtown is a completely different animal at some level. That the Midtown market could sustain another 2 to 4 million square feet of sublease space and still have it be a landlord's market. And so, as we looked around prior to the weekend, we still felt pretty good.

You saw the million square feet of space coming on from -- or expected from JP Morgan. Pfizer then unexpectedly is looking to put close to 800,000 square feet of space into the market, although again, that, we think, could present opportunity for us.

But now, as we take stock of what happened over the weekend, between Lehman, between Merrill, between AIG, this between 5 and 6 million square feet of space that those firms occupy in Midtown. You know another 6 million square feet, here downtown. And so, I think we need to -- we're watching and trying to take stock of what's going to happen there.

Barclays buying the Lehman building. We think is some good news this morning. But we think that there is going to be downward pressure on the market, and I think it's tough to think other than that, to think that we have lost three of the five biggest broker dealers in a six month period of time is, I think, is stunning. I don't think you can characterize it as anything other than that.

And I think we're all -- a lot of people were just digesting the fact that Bear Stearns is no longer in business. And now it turns out that's just going to be a footnote to a major …