Paramount Group, Inc. (NYSE:PGRE) Q1 2024 Earnings Conference Call May 2, 2024 10:00 AM ET
Company Participants
Tom Hennessy – Vice President of Business Development and Investor Relations
Albert Behler – Chairman, President and Chief Executive Officer
Peter Brindley – Executive Vice President and Head of Real Estate
Wilbur Paes – Chief Operating Officer and Chief Financial Officer
Conference Call Participants
Steve Sakwa – Evercore ISI
Camille Bonnel – Bank of America Merrill Lynch
Blaine Heck – Wells Fargo Securities, LLC
Dylan Burzinski – Green Street Advisors LLC
Tamim Sarwary – Morgan Stanley
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 2, 2024.
I will now turn the call over to Tom Hennessy, Vice President of Business Development and Investor Relations. Thank you. You may begin.
Tom Hennessy
Thank you, operator, and good morning, everyone. Before we begin, I would like to point everyone to our first quarter 2024 earnings release and the supplemental information, which were released yesterday. Both can be found under the heading Financial Results the Investors section of the Paramount Group website at www.pgre.com.
Some of our comments will be forward-looking statements within the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company’s operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2024 earnings release and our supplemental information.
Hosting the call today, we have Mr. Albert Behler, Chairman, Chief Executive Officer and President of the company; Wilbur Paes, Chief Operating Officer, Chief Financial Officer and Treasurer; and Peter Brindley, Executive Vice President, Head of Real Estate. Management will provide some opening remarks, and we will then open the call to questions.
With that, I will turn the call over to Albert.
Albert Behler
Thank you, Tom. And thank you all for joining us today. Though it hasn’t been long since we last spoke, we are excited to share our progress as we are off to a strong start in 2024. Yesterday, we reported core FFO of $0.22 per share for the first quarter, which was $0.01 above consensus. From an operational standpoint, we had a terrific quarter of leasing as well. We carried the momentum we had in the fourth quarter of 2023 into the first quarter of 2024 and executed leases for about 277,000 square feet. To put it further in perspective, this represents our strongest first quarter of leasing since 2019.
We continue to make progress on our availability in the Sixth Avenue corridor. Both 1301 Sixth and 1325 Sixth showed an uptick in leased occupancy. While 1325 Sixth is full by any measure at 96.8% leased, 1301 Sixth saw the most meaningful increase this quarter with a 420 basis point increase in leased occupancy. This, of course, was driven by the new 74,000-square-foot lease with Citizens Bank. We welcome Citizens Bank to the Paramount portfolio and are thrilled that we continue to add to our strong high-quality tenant roster.
The leasing activity in New York continues to improve, and we continue to pick up more than our fair share of that activity in the market. The leases we signed during the quarter are a testament to the strength of our Class A assets and their ability to outperform the market in all different types of operating environments. Our class-leading buildings situated in prime locations continue to attract robust tenant demand. We are encouraged by the elevated level of leasing activity and remain confident in our ability to leverage the quality and strategic positioning of our portfolio to execute on our availabilities.
Today, we also announced the official opening of Paramount Club at 1301 Sixth Avenue. Paramount Club is a members-only club created exclusively for the tenants across our New York portfolio. This unique offering has undoubtedly aided in our ability to attract and retain top-tier office tenants by providing an exclusive on-site suite of amenities that enhances the work experience for our clients and their employees. Paramount Club is quickly becoming a key differentiator in the market that will continue to drive leasing activity at 1301 and throughout our broader New York office portfolio.
Adding to the excitement of carefully curated offerings to our tenants, the highly anticipated, Michelin star-rated Din Tai Fung is slated to open this quarter under the iconic Glass Cube in the plaza of our headquarters at 1633 Broadway. Tenants in the broader New York market buzz about the opening, and we couldn’t be happier. While certainly not at the same pace as New York, the market in San Francisco is starting to become more vibrant. The good news is that our assets are modernized, amenitized and centrally located, and that will carry the day in attracting high-quality tenants.
During the quarter, we signed approximately 160,000 square feet of leases, including a 138,000-square-foot short-term extension with KPMG at 55 Second Street. Peter will provide additional color on this and our leasing pipeline. As we touched on last call, during the quarter, we modified and extended the existing mortgage loan at One Market Plaza in San Francisco. The previous $975 million loan was extended by three years and was reduced to $850 million following a $125 million paydown by the joint venture. This loan modification is a terrific result and a testament to the quality of the asset and the commitment of the sponsorship.
This quarter, we reached a resolution with the lending group on 60 Wall Street. The modified and extended loan is now set to mature in May 2029. While Wilbur will discuss the financing in greater detail, the extended term allows us and our partners the appropriate runway to execute our business plan. 60 Wall will be redeveloped to today’s standards and will redefine the standard of redeveloped assets in the financial district. The fully redeveloped assets, which has been designed by Kohn Pedersen Fox will have a new glass facade on the podium floors that will replace the existing facade and allow for ample natural light into the base of the building. It will also feature a new grand staircase and a 100-foot-high vertical green wall. The redevelopment is underway, and I encourage you to check out our website for additional information regarding the project.
Shifting to the broader transaction market. The environment remains muted, though the volume of deals coming to market has begun to pick up. We still believe the environment will become more dynamic in the year ahead as white bid-ask spreads that have kept many prospective buyers and sellers on the sidelines begin to narrow. Additionally, we foresee an increase in distressed assets coming to the market which could present compelling acquisition opportunities as elevated interest rates may be around a bit longer than expected. We will remain poised and judicious in allocating capital towards external growth opportunities and, only together with third-parties, leveraging our deep market expertise and disciplined investment approach.
Turning to sustainability. We are proud to announce that we have been awarded the 2024 ENERGY STAR Partner of the Year Award from the EPA and the Department of Energy for the third consecutive year. This is a testament to our commitment to sustainability and our efforts to achieve ENERGY STAR labels across 100% of our office portfolio, totaling 11.3 million square feet. Executing on initiatives that reduce our environmental impact and operating costs is core to our mission as a responsible real estate owner. Our participation in the ENERGY STAR program exemplifies this commitment, benefiting both our company and the tenants who collaborate with us on these sustainability efforts.
ESG principles are of paramount importance to us and our tenant base. Upholding strong ESG practices will remain a key strategic priority as we continue to create long-term value for our shareholders and elevate the tenant experience across our portfolio.
In closing, the performance of this quarter gets us excited about 2024 and confident in executing on our strategy and the direction we are heading. Our Class A buildings and the coastal gateway markets in which we operate are resilient.
With that, I will turn the call over to Peter.
Peter Brindley
Thanks, Albert, and good morning. During the first quarter, we leased approximately 277,000 square feet with approximately 117,000 square feet in New York and approximately 160,000 square feet in San Francisco. The weighted average term of leases signed during the first quarter was 7.9 years. Our New York activity was highlighted by the 74,000-square-foot lease we signed at 1301 Avenue of the Americas with Citizens Bank for an initial 15-year term.
In addition to welcoming Citizens Bank to the New York portfolio, we expanded several existing Paramount tenants, a trend we are seeing with an increasing number of tenants in New York, particularly with law firms and financial service companies. In San Francisco, our first quarter leasing was driven largely by the 138,000-square-foot lease extension we completed with KPMG and a 19000-square-foot lease we completed with a growing AI-based company.
We continue to execute on our business plan, as evidenced by our solid first quarter performance. Tenants continue to prioritize the highest-quality assets in our two markets, choosing to pursue centrally located, amenity-rich buildings run by best-in-class, well-regarded and well-capitalized owners. Our portfolio is uniquely positioned to capitalize on these pronounced trends.
As a result, our pipeline is growing. We remain focused on delivering exceptional service to our tenants, renewing existing tenants with expirations over the next several years and leasing vacant space in our portfolio. Currently, we have leases in negotiation and advanced-stage proposals for more than 300,000 square feet, a good portion of which is for a vacant or soon-to-be vacant space. Beyond the 300,000 square feet, our pipeline continues to grow with ongoing negotiations at various stages.
At quarter end, our same-store portfolio-wide leased occupancy rate at share, including non-core assets, was 89.1%, down 100 basis points from last quarter and down 190 basis points year-over-year. As we look ahead, our remaining lease expirations are manageable with 7.4% of annualized rent or approximately 562,000 square feet at share expiring by year-end.
Turning to our markets. Midtown’s first quarter leasing activity of approximately 3.71 million square feet, excluding renewals, surpassed the five-year quarterly average for the second consecutive quarter and was the strongest start to the year in Midtown since Q1 2020. The steadily improving demand profile in Midtown has been most evident within Midtown’s core submarkets as tenants increasingly pursue the highest-quality real estate with close proximity to public transportation. Availability in Midtown remains elevated at 18.1% and absorption was slightly negative during the first quarter. Sublease activity in Midtown continues to decline, down 13% from the high set in February 2023.
Tour activity continues to accelerate, and we are experiencing growing demand for our high-quality assets in our New York portfolio. A tailwind in attracting top-tier prospects and retaining existing tenants has been the launch of our market-leading members-only Paramount Club at 1301 Avenue of the Americas, which opened today.
Membership is offered to tenants in our New York portfolio. This project embodies our belief that enterprises thrive in community, not in isolation. The Paramount Club serves as a central hub where members of our New York portfolio can connect and enjoy unmatched conveniences and enriching experiences. Dining in the atrium bar and lounge, hosting a conference, recording a podcast, watching the Paris Olympics in the game room, wine tastings and classes in the wellness center are just some of the opportunities from which to choose. Our New York portfolio is currently 90.1% leased on a same-store basis at share, down 10 basis points both quarter-over-quarter and year-over-year. Our overall lease expiration profile in New York is manageable, with 8.4% of annualized rent or approximately 476,000 square feet at share expiring by year-end.
Shifting our focus to San Francisco. San Francisco recorded approximately 1.4 million square feet of leasing during the first quarter, 14.4% above the pandemic year and quarterly average but 40.3% below the quarterly average during the preceding 10-year period. Tenant and the market demand has grown to more than 6 million square feet, the highest it has been since Q1 2020. This increase has been driven in part by the emergence of newly funded San Francisco-based AI companies.
Many of these AI-based requirements are early-stage entities, which have become an increasingly large percentage of the demand pipeline in San Francisco. These requirements coupled with the larger AI requirements will contribute to the absorption of availability, particularly for build space, which is necessary for San Francisco to return to healthier market fundamentals. Despite challenges in the market, San Francisco remains a hotbed for premier tech talent with high-growth potential. Our high-quality portfolio is well positioned to capture outsized market share as the recovery continues in Francisco.
At quarter end, our San Francisco portfolio was 85.5% leased on a same-store basis at share, down 430 basis points quarter-over-quarter, down 820 basis points year-over-year. Looking ahead, our San Francisco portfolio has 4.7% of annualized rent for approximately 86,000 square feet at share firing by year-end. We look forward to updating you on our progress.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Wilbur Paes
Thank you, Peter, and good morning, everyone. Yesterday, we reported core FFO of $0.22 per share, which is $0.01 above first quarter Wall Street consensus estimates and $0.03 below the prior year’s first quarter. The $0.03 decline from the prior year was driven by negative same-store growth of 1.5% on a cash basis and 3.5% on a GAAP basis, primarily due to scheduled lease expirations in the portfolio and higher interest expense.
Looking at the same-store results of each of our operating businesses. The New York portfolio was down 2.9% on a cash basis and down 1.1% on a GAAP basis, while the San Francisco portfolio was up 1.9% on a cash basis and down 9.2% on a GAAP basis. During the first quarter, we completed 276,717 square feet of leasing at a weighted average starting rent of $68.82 per square foot and for a weighted average lease term of 7.9 years. Mark-to-markets on 94,975 square feet of second-generation space was negative 4.1% on a cash basis and negative 17.7% on a GAAP basis.
The negative 17.7% GAAP mark-to-market was driven by the short-term KPMG lease renewal at 55 Second Street in our San Francisco portfolio. As you may recall, this asset was acquired back in 2019, and at the time of acquisition, the prior lease was required to be fair valued in accordance with GAAP.
So essentially, the prior GAAP rent was comprised of three components: the cash rent, a straight-line rent adjustment and a FAS 141 fair value adjustment. The current GAAP rent does not include a FAS 141 fair value adjustment. So if you were to exclude the FAS 141 fair value adjustment from the prior GAAP rent, the mark-to-markets would have been negative 2.2%.
Turning to our balance sheet. We had a very active quarter on the financing front. We modified and extended the previously announced loan at One Market Plaza and, more recently, the $575 million loan at 60 Wall Street. In fact, over the past six months, we have modified and extended over $1.8 billion of maturing debt and pushed out their weighted average maturities by over 3.5 years, no small feat in this challenging capital markets environment.
At 60 Wall, the modified loan was bifurcated into a $316 million A-Note and a $259 million B-Note, and the maturity was extended to May 2029. The A-Note will accrue interest at SOFT plus 245, but only 4% is current pay, while the remaining is PIK. The entirety of the B-Note is PIK and will accrue interest at 12%. The B-Note and the PIK interest on both the A and B notes will be subordinate to the equity invested by the joint venture. The joint venture plans to invest approximately $250 million to reposition the asset, of which our 5% share, prior to any fees earned for development and asset management, is approximately $12.5 million.
Our liquidity position remains strong. We ended the quarter with $412 million of cash and restricted cash at share, which is down $56.7 million from year-end, driven by our share of the loan paydown at One Market Plaza. We have the full $750 million of undrawn capacity under our revolver, bringing total liquidity to approximately $1.2 billion.
Our outstanding debt at quarter end was $3.6 billion at a weighted average interest rate of 3.92% and a weighted average maturity of 3.3 years. 87% of our debt is fixed and has a weighted average interest rate of 3.3%, and the remaining 13% is floating and has a weighted average interest rate of 8%. These figures, of course, include the debt on the two assets we designated as non-core, both of which come due within the next 12 months. Excluding the debt on the non-core assets, we have no debt maturing until 2026 and the weighted average maturity of the remaining debt increases from 3.3 years to 3.6 years.
In light of the designation of 111 Sutter and Market Center as non-core assets, we have provided additional disclosures throughout our supplemental package and investor deck. The additional disclosures are provided in an effort to help investors evaluate the impact of these two assets on our financial and operating performance. We hope you find the additional disclosures helpful.
Turning to guidance. Based on our first quarter results as well as our outlook for the remainder of the year, we have updated our guidance, including some of the underlying assumptions. We have increased our leasing guidance by 37,500 square feet at the midpoint to a range of 725,000 to 900,000 square feet. We have increased our same-store NOI and same-store cash NOI growth assumptions by 50 basis points at the midpoint.
And lastly, we have increased our core FFO guidance by $0.02 per share at the midpoint to a range between $0.75 and $0.81 per share or $0.78 per share at the midpoint. The increase in core FFO was largely driven by better-than-expected portfolio operations and higher fee and other income.
With that, operator, please open the lines for questions.
Question-and-Answer Session
Operator
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Steve Sakwa
Yes. Thanks. Good morning. Maybe starting with Peter, just on the pipeline, the leasing and the expirations. Just kind of help us think through some of the known move-outs maybe in the upcoming expirations. And on that pipeline, is that stuff that you can get signed this year in order to kind of cover that? Or do you think that there’s still some downdraft in the, I guess, the leased occupancy by the end of the year?
Peter Brindley
Hi. Steve. I’ll start in New York. We’ve talked about the known move-out of Clifford Chance at 31 West 52nd Street in the amount of roughly 229,000 square feet. That’s just shy of 50% of our 2024 lease expirations. That is a significant known move-out. But I’m happy to say that of the 300,000-square-foot pipeline I referenced, a large percentage of that is based in New York and a significant percentage of it is on vacant space, specifically space that will be vacated by Clifford Chance. We have talked about in the past also the fact that we’ve got significant role in San Francisco. Roughly 60% of our 2025 lease expirations in San Francisco are made up of JPMorgan and Google. At this point, it’s too soon to tell. We, of course, as I’ve mentioned, enjoy very good relationships with our tenants in San Francisco, and we’re working very hard to mitigate that risk. But those are some of the larger blocks as it relates to our expirations.
Going back to the pipeline now for a minute, in New York specifically, we feel better about our pipeline than we have in quite some time. In excess of the 300,000 square feet of leases out, we have, I would say, a pipeline in excess of 500,000 square feet, and it just seems to be growing. Interestingly, in Manhattan, not Midtown specifically but Manhattan, we’ve seen active tenants in the market in par – on par I should say with 2018, 2019 levels. We’re seeing user demand approaching 20 million square feet, which is really very encouraging. And Midtown, of the three major markets in Manhattan, has been the most productive, accounted for roughly 75% of the velocity in the first quarter. And if you delve a little deeper, it’s really the core submarkets in Midtown that are accelerating, accounting for about two-thirds of the leasing activity in Midtown in the first quarter. So we feel like we’re very well positioned. Our pipeline feels strong. We’re very focused on roll in 2024, 2025 and into 2026, and the expirations that I just now mentioned to you are the big ones that make up the big blocks of that expiration profile.
Steve Sakwa
Okay. Thanks. Maybe moving on, Wilbur, you did mention that the two assets that have the upcoming maturities that you kind of deemed non-core. Is there anything that you or Albert could just sort of give us in terms of the discussions with the banks? Or at this point, is it pretty much your plan to still hand the keys back on those assets at the right time?
Albert Behler
Well, Steve, let me say again, we’ve said it on the last call, I’ll consider our assets – you know that the balance sheet, we don’t have any debt on balance sheet. And I consider our portfolio like a family. I come from a family of six, and everybody got basically the same from the parents. Some of them developed nicely and some others didn’t develop that well, and that’s the same with our assets. So you can only expect so much from your parents, and that’s how we treat our assets for the time being.
Wilbur Paes
Yes. Maybe if I add, Steve, the only thing I’d say, look, I think the goal is never to just go and hand the keys back. What we wanted to dimension is that these two assets have been impaired. We have lost that investment, and we are going to try to preserve as much optionality. We owe that to ourselves. We owe that to our shareholders, while maintaining the strength of our balance sheet. So I think we continue to discuss with the lender to see if there is a way to move forward.
On 111 Sutter, I think we’re probably one of the only REITs that executed a cash flow loan where literally, there is no risk to our balance sheet as an optionality. If we can preserve that optionality and live to fight another day before we come up with a solution, I think that helps us on the fee income side, and that helps us preserve optionality. So we’re going to evaluate that. We continue and knee-deep in discussions. I think before the next quarter, we should have some type of resolution, whether it is handing the keys back or being able to preserve some more optionality on that asset while being mindful of shareholder capital.
Albert Behler
And again, Steve, we really are very straightforward with our debt providers, and they get full information. And we like to be good partners, and that’s what we do with all of our relationships. And that’s, I think, what helped us in the last couple of transactions where we got extensions negotiated at very favorable interest rates. And that shows, I think, the respect that the team has in the marketplace. And I think that’s what we are going to have going forward as well.
Steve Sakwa
Okay. Thanks. Last question for me. Just Albert, you sort of mentioned the transaction market in distress and things picking up. I’m curious, are you solely focused on looking at New York and San Francisco opportunities? I know you’ve been in other markets in the past. So would you open up the lens to D.C., again, Boston or other markets? Or are you exclusively looking at San Francisco and New York?
Albert Behler
For the time being, we are looking at San Francisco and New York. We have an office still in Washington, D.C., but we don’t see opportunities there. We had mezz investments, mezzanine fund investments there, and the D.C. market doesn’t seem to be attractive at all for the time being. And I think New York and San Francisco will offer opportunities that are write-down or early, and we will focus on that.
Steve Sakwa
Great. Thanks. That’s it for me.
Albert Behler
Thank you, Steve.
Operator
And the next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question.
Camille Bonnel
Hi. I wanted to clarify on 111 Sutter. You mentioned you’re expecting an outcome in the next few weeks. Is there any risk that this plays out for a few more quarters?
Wilbur Paes
Camille, I don’t know what you mean by risk. When I think about risk, there is no risk to us and our partners. Right now, what we have is we have a maturing loan that is cash flowing where all shortfalls accrete to the principal balance. The debt is still non-recourse. So there is no risk per se to Paramount and its shareholders in Paramount’s balance sheet. The possible outcomes in this scenario are we continue to extend that in a similar structure, which I think is a tremendously favorable outcome for Paramount and its shareholders because it preserves optionality while limiting any risk to Paramount’s balance sheet, or the outcome is the asset potentially goes back. And if it does, then the debt comes off our books and we would have effectively delevered because there is no contribution from these assets to Paramount’s earnings right now.
Camille Bonnel
Okay. Appreciate the clarification. And there’s a lot going on with Showtime’s parent company. I know that lease is a bit further out, but do you see – like have you started any conversations there? And any probability that, that lease will be extended, too?
Albert Behler
Camille, we are constantly talking to, I think that’s one of our strengths, that our property and leasing management is consistently communicating with our tenants. We want to be very tenant-friendly, so there are communications all the time. And Showtime is a large tenant in our 1633 asset. But it’s too early to say what the plans are there. We have very good demand potentially by other tenants at 1633 who might want to have additional space, but it’s too early to go into any details.
Camille Bonnel
Got it. And finally, just wanted to get more color on the short-term renewal of KPMG’s lease at 55 Second. Just any further details on why they took a renewal for one-year. And if you offered lower rent or more conventions, do you think you could have gotten a longer lease?
Peter Brindley
Hi. Camille, this is Peter. It was more than a year. It was 21 months. We know and enjoy a very good relationship with KPMG. I think once again, it’s too soon to say how this plays out going forward. But for the time being, this was a deal that was acceptable to both sides, and we were very happy to make the deal.
Camille Bonnel
Okay. Thanks for taking my questions.
Peter Brindley
Thank you, Camille.
Operator
And the next question comes from the line of Blaine Heck from Wells Fargo. Please proceed with your question.
Blaine Heck
Thanks. Good morning. Just wanted to revisit the possibility of dispositions, in particular on the retail side, given that we’ve seen some interesting trades relatively recently. Is that something you all would consider in the kind of near future?
Albert Behler
Well, we are, as you know, in the market with 712. We have some vacancy there. We have done a terrific lease with the neighboring property and lease part of the 712 retail to Harry Winston, which is currently under construction. They’re doing a beautiful job, so it will be a wonderful new store, combining 718 and parts of 712. And the rest of the space is currently in the market for lease. I think we did well by taking our time because the interest is coming in our favor. Rental rates, with regard to retail on Fifth Avenue, are really coming up significantly. There’s a very healthy space demand for retail. And I don’t like to comment about dispositions in the retail arena. We have discussions off and on, but there’s nothing to talk about at this earnings call.
Blaine Heck
Great. Thanks, Albert. And just quickly to come back to Showtime. I had been under the impression that you guys had previously said that was a known move-out. Has something changed there? It didn’t seem like your commentary ruled out a potential extension. Just wanted to make sure I heard you correctly?
Albert Behler
No, it’s just relatively early. I mean we have heard rumors by KPMG, for example, it’s another example, last year that they moved out or wanted to move out, and they now extend it in place, and we don’t know whether they will do another extension. My experience has taught me that large corporations change their mind a couple of times, sometimes within 12 months. And we had this in many different cases with banks that wanted to grow or shrink and change their mind because there were M&A business going on. So I think it’s too early to give something definite about that tenant.
Blaine Heck
Okay. Got you. That’s fair. Last one, Peter, can you just talk about what you’re seeing with respect to concessions? It seems to be a little elevated on the leasing you guys did this quarter. Market commentary is that they’re very high, if landlords can even afford to pay them. So can you just talk through those dynamics and whether you’re seeing continued upward pressure on TIs or maybe that’s plateaued at this point?
Peter Brindley
Hi. Blaine, I would say that concessions have plateaued. It may be slightly elevated. I think what you’re referring to is concessions we gave in New York specifically in the first quarter. That was against the transaction we completed on the second floor. And so concessions don’t vary all that much based on rent generally. So I think that’s the reason for it being slightly elevated in the quarter. But all things considered, they are at historical levels. They are high, but they have not gone up recently. They’ve remained stable, and we expect that to be the case going forward.
Blaine Heck
Great. Thank you guys.
Albert Behler
Thank you, Blaine.
Operator
And the next question comes from the line of Dylan Burzinski with Green Street. Please proceed with your question.
Dylan Burzinski
Hi, all. Thanks for the taking the question. Just wanted to go back to sort of your comments on acquisitiond. I guess, what are some of the things you guys are looking for to actually go out and put capital to work in the private market? Is it simply just pricing hasn’t gotten to where you guys think it makes sense to pull the trigger today? Or are you guys more looking at it holistically from an overall portfolio perspective to where you guys kind of want to get through some of the larger move-outs within the existing portfolio today before going out and putting capital to work into another opportunity?
Albert Behler
We do things parallel. We work on leasing our portfolio and we parallel work with our funds. So in our funds business, we look at opportunities all the time. Maybe even going back to PGRE’s capital, we have said over and over that we will be currently not investing significant equity amounts from our own balance sheet. Our balance sheet and cash is very important to us. We have a balance sheet that is debt-free and filled with liquidity. And we would do it potentially in joint ventures. We have relationships that we have been working on since, in certain cases, over 25 years. And those kind of relationships have different investment horizons that we do have.
We have made investments a while ago. We bought an asset together with a large pension fund that they wanted to focus on retail on Broadway. We bought the M&M store that raised some eyebrows by some shareholders. But this was not really a Paramount core investment. We put a very, very small equity amount into this investment, and we made a very, very nice return on the fee income, outpacing our equity investment. So we are looking more for these kind of opportunities where we can use the expertise of our platform and investing in deep value that comes to the market. And we’re also focusing on quality. We are not interested in a B or C class opportunity that some other people think as because it’s just cheap and affordable. We are looking at something that would really justify a Paramount investment. And our sources on the human side is limited, and we want to make sure that we can do well by our shareholders and joint venture partners.
Dylan Burzinski
And in your discussions with your JV partners or potential future JV partners, I mean do you have a sense for what unlevered IRR targets they’re looking to achieve if they put money to work in office today?
Albert Behler
Yes, they’re looking at something in the neighborhood of 15% to 20%, depending on what their capital sources and where they’re coming from.
Dylan Burzinski
Great. That’s helpful. Thanks, guys.
Albert Behler
Thank you.
Operator
[Operator Instructions] Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.
Tamim Sarwary
Hey. Good morning guys. This is Tamim for Ron. Just on the occupancy side, if I take your 87.1% occupancy, you guys finished at 89.1% in the quarter. You guys talked about Clifford Chance vacating. I guess the occupancy guidance does imply some pretty substantial absorption at Clifford Chance. Maybe just talk about that a little bit and kind of where you’d see that incremental absorption coming from, whether it’s in the San Francisco portfolio or in New York? Thanks.
Peter Brindley
Sure. So this is Peter speaking. We’re anticipating approximately 400,000 square feet of occupancy increasing leasing during the year in order to achieve the midpoint of our guidance, which is 87.1%. So the areas with which we expect to achieve that occupancy increasing leasing, I think, will be more heavily weighted toward New York. Specifically, it will certainly be 31 West 52nd Street with the known vacate of Clifford Chance. Certainly, there is an opportunity at 1301 Avenue of the Americas where we happen to be active.
Third Avenue, the East side, of course, has been quiet, has a very high availability rate. It’s been one of the submarkets in Midtown that has underperformed. But I would say recently, with renewed interest in locations with close proximity to public transportation, certain buildings along Third Avenue have seen a recent uptick, 900 Third being one of them. Not where it needs to be just yet, but there’s a building where we have an occupancy level well below where it has historically been. And there, as a result, is an opportunity to increase occupancy. So those are, I think, some opportunities for us. But certainly, we feel very good about activity specifically in our properties along Sixth Avenue where, once again, we have an opportunity to chip away at that 420,000, that’s the exact number, 420,000 square-foot occupancy goal that we have to get to our guidance.
Tamim Sarwary
Makes sense. And then if I look at your mark-to-market in the quarter, flat in New York, negative in San Francisco. Just for the pipeline that you guys have, where do you see the mark-to-market trending for the remainder of the year?
Peter Brindley
It’s interesting. Of the 18% availability in Midtown, about 57% of that availability is on floors 15 and below. So what I would say to you is that we have pricing power in our Class A and trophy buildings and, of course, submarkets on upper floors, and we are experiencing some very positive developments in terms of pushing rent. I would say, on some of the base floors, just given the amount of availability, we have been able to transact, but we just don’t have nearly the pricing power that we do on upper floors. So as it relates to mark-to-markets without being too specific, there will be opportunities, we believe in opportunity to achieve positive mark-to-market, but it’s really on a case-by-case basis.
Tamim Sarwary
Got it. Thank you, guys.
Albert Behler
Thank you.
Operator
And there are no further questions at this time. I would like to turn the floor back over to Albert Behler for any closing comments.
Albert Behler
Thank you, everyone, for joining us here today on this call. We look forward to providing you guys an update on our continued progress when we report our second quarter 2024 results. Goodbye.
Operator
And ladies and gentlemen, that does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
