SL Green Realty Meets Expectations, But Office Conditions Could Still Get Worse

These are challenging days in the office segment of commercial real estate (or CRE), as an economic slowdown threatens weaker employee headcounts and space demand in 2023, work-from-home remains difficult to predict over the next few years, and rising rates are squeezing liquidity and expected project returns.

SL Green (NYSE:SLG) is a high-quality option in the office REIT space, and I think high-quality names are good ones to own in tougher times, but I’m cautious for now. The shares do trade at what appears to be a large discount to net asset value (or NAV), but I do see risk to NAV estimates over the next six to 18 months and the combination of elevated leverage (and interest costs) and weaker net operating income (or NOI) could pressure the payout in the short term. There will be a good time to buy SLG again, but I don’t think this one is a must-buy right now unless you have a meaningfully more bullish outlook for the economy in 2023.

 

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SL Green Realty Meets Expectations, But Office Conditions Could Still Get Worse