Q2 2023 Paramount Group Inc Earnings Call
Participants
Albert P. Behler; Chairman, CEO & President; Paramount Group, Inc.
Peter R.C. Brindley; Executive VP & Head of Real Estate; Paramount Group, Inc.
Thomas Francis Hennessy; VP of Business Development & IR; Paramount Group, Inc.
Wilbur Paes; COO, CFO & Treasurer; Paramount Group, Inc.
Blaine Matthew Heck; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Camille Bonnel
Dylan Robert Burzinski; Analyst; Green Street Advisors, LLC, Research Division
James Poskitt; Equity Research Associate; Evercore ISI Institutional Equities, Research Division
Tamim Mahmud Sarwary; Research Associate; Morgan Stanley, Research Division
Presentation
Operator
Good day ladies and gentlemen. Thank you for standing by. Welcome to the Paramount Group Second Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note that this conference call is being recorded today, August 1, 2023.
I will now turn the call over Tom Hennessy, Vice President of Business Development and Investor Relations.
Thomas Francis Hennessy
Thank you, operator, and good morning everyone. Before we begin, I would like to point everyone to our second quarter 2023 earnings release and supplemental information, which were released yesterday. Both can be found under the heading Financial Results in the Investors section of the Paramount Group website at www.pgre.com. Some of our comments will be forward-looking statements with the meaning of the federal securities laws. Forward-looking statements, which are usually identified by the use of the 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 second quarter 2023 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 P. Behler
Thank you, Tom, and thank you all for joining us today. Yesterday, we reported core FFO of $0.18 per share, which is $0.01 ahead of consensus estimates. Our second quarter financial and operating metrics were impacted by the much talked about First Republic lease at One Front Street and the SVB Securities lease at 1301 Sixth Avenue. While Wilbur will cover the impact of these items on our operating results and guidance, let me spend a few minutes recapping those transactions. As you all know, First Republic was our largest tenant and leased over 460,000 square feet at One Front Street.
They represented approximately 6.4% of our annualized rent, which equated to about $43 million annually. On May 1, First Republic was shut down and the FDIC was appointed as Receiver. Shortly thereafter, J.P. Morgan Chase acquired substantially all of the assets and assumed certain obligations of First Republic. J.P. Morgan had 60 days to decide whether or not to assume or reject our lease. We didn't just sit back and wait for the outcome. Right from the onset, we began discussions and negotiations with J.P. Morgan. That effort, which culminated at the end of June resulted in what we believe was a terrific outcome, especially considering what could have been.
When all was said and done J.P. Morgan ended up retaining about 75% of the space that was leased to First Republic and that, too, at the same economic terms. The 25% they surrendered essentially represented space that wasn't being utilized, and over 75% of the space surrendered had been subleased to several tenants. We immediately engaged with these subtenants and converted them to direct leases. All-in-all, we were able to retain over 94% of the occupancy and about 88% of the rental revenue. The outcome is not only a testament to the desirability of the quality of the asset, but also our proactive hands-on management style.
We are delighted to welcome J.P. Morgan to the Paramount portfolio. We look forward to working with them in the future as they figure out their long-term space needs post the integration of the First Republic platform. In addition to the failure of First Republic, we were also affected, albeit to a lesser extent by the failure of Silicon Valley Bank. Our tenant at 1301 Sixth Avenue was SVB Securities, the subsidiary of SVB Financial Group, the parent company of Silicon Valley Bank. SVB Financial Group filed for bankruptcy and rather than wait for the outcome of that bankruptcy proceeding, we choose to engage directly with the entity that was going to acquire the assets of SVB Securities.
The original lease was for 109,000 square feet. The new lease with the acquiring entity is also for 109,000 square feet, although I should point out that about 41,000 square feet is leased on short-term basis. Both the SVB and J.P. Morgan deals are being negotiated simultaneously as one was executed on June 28 and the other one on June 30. Needless to say, I'm extremely proud of our team's efforts here, and this would not have been possible without their hard work and dedication. Turning to our operating businesses; our New York portfolio continues to be steady and improving. Occupancy was up 30 basis points to 90.5%.
Notwithstanding the reduced leasing velocity in the market during the second quarter, we are experiencing an increase in inquiries and [tourists]. Utilization figures have been consistently improving as more and more businesses are mandating returns to the office. While we continue with the blocking and tackling, our primary focus in New York is to fill our existing large block vacancy at 1301 Sixth Avenue and the upcoming availability at 31 West 52nd Street. To that end, we are in the final stages of finalizing our 30,000 square foot Amenity Center at 1301 Sixth Avenue.
The Amenity Center, which will be at the base of 1301 will feature a double-height atrium providing for ample natural light into the main lounge area. An elevated food and beverage offering and catering service, a grab-and-go Cafe, a wellness studio, a game room and a large training room and a 200-plus person auditorium. The Amenity Center at 1301 will be available to all tenants in the Paramount campus. The reception from the brokerage community and existing and prospective tenants alike has been stupendous. We look forward to sharing more with you in the coming months.
While our San Francisco portfolio continues to lag that of New York, the streets of San Francisco have become more vibrant in recent months and utilization figures have been consistently rising. Recent data suggests there is an increase in demand driven by AI companies. Many of those are searching for larger block space in excess of 50,000 square feet. Turning to the transaction market; activity remains subdued due to elevated interest rates, volatile equity markets and wide bid-ask spreads. To-date, there have been very few quality assets coming to market.
However, there has been some recent activities showing signs of optimism and supporting our view that for the most part, the underlying value of Class A trophy real estate remains intact. While that is certainly not reflected in the current public market stock prices of office REITs, including ours, we run our business with a long-term mindset. Our strategy of investing in Class A and trophy buildings in coastal gateway markets is one that has stood the test of time. It will again.
With that, I will turn the call to Peter.
Peter R.C. Brindley
Thanks, Albert, and good morning. During the second quarter, we leased approximately 72,000 square feet. Our second quarter leasing activity was weighted towards New York with approximately 60,000 square feet leased, driven largely by the continued expansion of Wilson Sonsini at 31 West 52nd Street and a full floor lease at 900 Third Avenue. We continue to navigate challenging market conditions in both New York and San Francisco. This period of uncertainty has caused many companies to exercise caution when making long-term real-estate decisions. In general, much of the recent activity has been lease expiration driven as those tenants that do not need to make an immediate decision are, in many cases, choosing to hold off for the time being.
The results of these headwinds has been reduced leasing velocity in our two markets and negative absorption year-to-date as reflected in the broader market statistics. We remain squarely focused on executing on our business plan and delivering exceptional services throughout our high-quality portfolio. Companies in our two markets are increasingly prioritizing the highest quality assets with stable ownership equipped with not only the operational know-how of running a Class A building, but also the financial wherewithal to deliver on the financial commitments made as part of a lease transaction.
This trend is causing a reduction in competitive supply in our two markets, which inures to our benefit as evidenced by the fact that we captured the second largest new lease in Midtown and the largest new direct lease in San Francisco in 2023. We are increasingly encouraged by the utilization figures in our own portfolio and expect the return-to-work trend to result in increased leasing activity as sentiment improves. At quarter end, our same-store portfolio-wide leased occupancy rate at share was 89.6%, down 20 basis points from last quarter and down 180 basis points year-over-year.
As we look ahead, our remaining lease expirations are manageable with 3.2% or approximately 252,000 square feet at share expiring by year-end. Turning to our markets; Midtown's second quarter leasing activity of approximately 2.5 million square feet, excluding renewals, was flat quarter-over-quarter, but 27% below the 5-year quarterly average. Availability in Midtown remains elevated at 18.5%, but absorption was slightly positive during the second quarter as there were limited space additions. We are encouraged by the increasing level of interest in our availabilities at 1301 Avenue of the Americas and 31 West 52nd Street and will aim to build on the success we have had at both properties.
Our New York portfolio is currently 90.5% leased on a same-store basis at share, up 30 basis points quarter-over-quarter and down 150 basis points year-over-year, largely as a result of the known lease expiration with Credit Agricole at 1301 Avenue of the Americas. During the second quarter, we leased 59,800 square feet at a weighted average term of 11.3 years, with an initial rent of approximately $74 per square foot. Our overall lease expiration profile in New York is manageable with 1.5% or approximately 86,100 square feet at share expiring by year-end.
Shifting our focus to San Francisco, leasing activity remains muted. However, we are encouraged, particularly given San Francisco remains a hotbed for premier tech talent with high-growth potential. San Francisco-based companies have raised a robust $20.5 billion in venture capital through the first half of the year. Venture-backed companies, particularly AI, have contributed to increased tenant demand in San Francisco, which is currently 4.7 million square feet, up 23.5% quarter-over-quarter and up 30.4% since year-end 2022. The average historical tenant demand in San Francisco is approximately 7 million square feet.
Leading San Francisco-based companies continue to announce their return-to-office plans which has resulted in improved utilization figures in our own portfolio, a key ingredient for increased leasing activity. Despite San Francisco's elevated availability rate, the market for premier assets remains tight and economics remain strong, particularly for view space in trophy assets. At quarter end, our San Francisco portfolio was 87.2% leased on a same-store basis at share, down 150 basis points quarter-over-quarter, down 260 basis points year-over-year, driven by the impact of the First Republic resolution.
Looking ahead, our San Francisco portfolio has 7.8% or approximately 166,000 square feet at share expiring by year-end. The majority of our 2023 lease roll will occur at Market Center where Uber's lease expired in July. We look forward to building on our most recent success at Market Center, where we signed the Waymo lease, the largest new direct lease signed in San Francisco during the first half of the year. 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 $0.18 per share. The current quarter results were impacted by non-cash straight-line write-offs of $0.06 per share related to the agreements executed with J.P. Morgan and SVB Securities. Almost all of the analysts had reflected this adjustment in their numbers as consensus estimates were at $0.17 per share. The beat was driven primarily by lease termination income from a tenant at 1633 Broadway, a portion of which was recognized during the quarter and the remainder of which will be recognized in the third quarter.
More on that when I cover the building blocks to our revised guidance for the year. Same-store growth in the quarter, as expected, was down 4.7% on a cash basis and 5% on a GAAP basis, primarily due to the known lease expirations in our New York portfolio. As a reminder, we do not include the benefit of lease termination income in our same-store numbers. Looking at each of our businesses; our New York portfolio was down 9.5% on a cash basis and 7.4% on a GAAP basis, while our San Francisco portfolio was up 6.3% on a cash basis and down 0.2% on a GAAP basis.
During the second quarter, we completed 71,847 square feet of leasing at a weighted average starting rent of $78.14 per square foot and for a weighted average lease term of 10.6 years. Mark-to-markets on 34,514 square feet of second-generation space was positive 3.9% on a GAAP basis and negative 3.1% on a cash basis. Turning to our balance sheet; our liquidity position remains strong. We ended the quarter with $483 million of cash and restricted cash at share, which is up $30.3 million from the start of the year. We have the full $750 million of undrawn capacity under our revolver, bringing our liquidity to over $1.2 billion.
Our outstanding debt at quarter end was $3.67 billion at a weighted average interest rate of 3.61% and a weighted average maturity of 3.6 years. 87% of our debt is fixed and has a weighted average interest rate of 3.26%. The remaining 13% is floating and has a weighted average interest rate of 5.99%. We have under $85 million of debt at share maturing in the fourth quarter of 2023, which represents our share of debt at 300 Mission and $478 million at share maturing in 2024, which primarily represents our share of debt at One Market Plaza. The debt markets for the office sector in general are very challenging, not just in terms of the cost of debt, but also in terms of the availability of debt capital.
We continue to explore all possibilities with lenders when dealing with an upcoming maturity, including short-term extensions with existing lenders to the extent it makes economic sense. As we have said before, one of the underappreciated benefit of our capitalization structure is that all of our debt is secured and non-recourse to our balance sheet. Turning now to our 2023 guidance; based on our second quarter results, which include the resolution of the J.P. Morgan and SVB Securities leases as well as our outlook for the remainder of the year, we have updated our core FFO guidance to be between $0.84 and $0.88 per share or $0.86 per share at the midpoint.
This is down $0.06 per share at the midpoint compared to our prior guidance. Drivers of the $0.06 include the following: non-cash straight-line rent receivable write-offs aggregating $0.06 per share related to the terminated SVB Securities lease and the surrender J.P. Morgan space, which has already been reflected in our second quarter results. Lower GAAP rental revenue in the second half of the year, aggregating $0.02 per share related to the agreements entered into with J.P. Morgan and the entity acquiring SVB Securities, partially offset by termination income of $0.02 per share in connection with an 86,000 square foot tenant lease termination at 1633 Broadway, a portion of which has already been reflected in our second quarter results.
We have provided in our Supplemental Package a very straightforward reconciliation of the impact of these three transactions on the operating and financial assumptions underlying our guidance. The bottom line is that our guidance is essentially unchanged from the prior quarter, except for the impact of these three transactions. Lastly, while this does not have an impact on FFO, we did report a $24.7 million non-cash impairment loss on our investment in 60 Wall Street, essentially taking a full write-down of our 5% investment in the asset. We, together with our partners, remain in discussions with the existing lender to modify and extend the loan, but have not yet reached a mutually agreeable long-term solution.
With that, operator, please open the lines for questions.
Question and Answer Session
Operator
(Operator Instructions) The first question comes from the line of Camille Bonnel with Bank of America.
Camille Bonnel
Just wanted to start with the dividend reduction you made this quarter. While you do have some near-term headwinds, it does look well covered by your funds available for distribution. So can you please elaborate a bit more on why 50% reduction versus 20% or 30% was appropriate?
Albert P. Behler
Hi. This is Albert Behler. We think -- we discussed t with the Board. Every quarter we discuss these things with the Board. And we came to the conclusion that it would make more sense under the circumstances and the current market environment to cut the dividend the way we cut it and get additional cash into the company for opportunities for potential support and paying down some debt, giving the company more flexibility and thus being helpful for (technical difficulty) in general.
Camille Bonnel
And just a follow up on that. Any color on how you plan to use those additional proceeds?
Wilbur Paes
So Camille, again, just to add to what Albert said, you're looking at the fat payout ratio, recognize that, one, that is a backward-looking metric, not a forward-looking metric. And so when you say it is well covered, you're certainly right. It is well covered based on today. But as Albert said, we're looking at our future plans. We're looking at the lease roll that's coming up. We're looking at the TI dollars that we would need to spend and also trying to be mindful of our balance sheet and the environment that we are -- as far as the -- I'm sorry Camille, can you repeat your second part of your question?
Camille Bonnel
Just trying to understand like where those -- that extra cash flow.
Wilbur Paes
Yeah. So that's what I was referring to in terms of like the leasing costs and the TIs. Albert referred to in his prepared remarks, the Amenity Center, which is also underway. So we were looking at this holistically and trying to make sure we have ample liquidity for capital improvements for TI dollars as well as potential paydowns of debt.
Camille Bonnel
Got it. Then can you talk about the marketability of Market Center just following the move out of Uber later or this month, it will become one of the lowest occupied buildings within the portfolio. So just curious, knowing this, have tenants been asking for more incentives? And how is your leasing pipeline tracking there?
Peter R.C. Brindley
Hi Camille, this is Peter. Thanks for the question. I would say that our pipeline has improved from the year-end 2022. You heard in my remarks that San Francisco's leasing pipeline is up 30% relative to where it stood at the end of '22, which was at the time, very, very low relative to historical averages. We've seen that reflected in the market by way of increased tours. It's still not where we would like it to be, and it's not nearly as far along as New York in terms of inquiries.
But 555 Market, the building you're now referring to shows very well. We, of course, announced the largest deal in San Francisco earlier this year with Waymo. And I think that's been helpful in terms of generating some momentum. But at this point in time, it's still too early to give you much more than that by way of detail other than to say, big picture, San Francisco is showing some additional signs of life most recently with an increase in the tenant pipeline.
Camille Bonnel
And one more follow-up on Market Center. Are there any other large leases coming up (inaudible) before the loan comes due in 2022?
Wilbur Paes
Nothing of size. Market Center typically is a smaller [flow] play building. It's 555 Market. It's a two-building complex 555 Market is where Uber sat. And so that's why you had a large -- but when you look at the portfolio and you look at our expiration profile, you have a lot of smaller tenants in and out, but nothing major.
Peter R.C. Brindley
The role at Market Center equates to roughly 80% of our expiries over the balance of this year. And when you look to 2024, for example, you're looking at roughly 109,000 square feet of expiration. So that is in addition to what Wilbur just now mentioned at a 100%.
Operator
Next question comes from the line of Blaine Heck with Wells Fargo.
Blaine Matthew Heck
Several of your peers in New York have noted that the pace of leasing activity -- properties with kind of middle of the market rents has picked up recently. I guess are you guys seeing the same? And can you talk a little bit more about any changes in the number or size of prospects you have for your larger vacancies in New York?
Peter R.C. Brindley
We've all been talking about flight to quality, and there's no question that this market has been dominated -- that's been a very pronounced trend in our market. We are, however, seeing tenants that have been pursuing opportunities with rents call it, in the $70 and $80 a foot range. And so that I think is on point. I agree with that sentiment. We are seeing more of that as some tenants aim to elevate the quality of their real estate into a property-owned by the likes of a Paramount and pay in the neighborhood of $70 or $80 per square foot. I would say that our pipeline continues to increase. I would say that over the last 45 to 60 days, we've seen an increase in tour activity.
One of my colleagues remarked that we had nine tours at the end of last week, which -- in one day, which was really very encouraging. We've seen an increase in tour activity. I would dimension our pipeline as being increasingly improving. We currently have leases in negotiation or proposals in advance stages, totaling approximately 300,000 square feet. And I would say that beyond that, we're trading paper and working very hard to advance some of these opportunities and that pipeline is healthy as well. I would say, in excess of the 300,000 square feet I just now mentioned as it relates to advance stage activity. So we feel like things are certainly improving and accelerated in New York over and above San Francisco, but we're seeing improvement in both of our markets.
Blaine Matthew Heck
Great. Very helpful, Peter. Second question, kind of similar and related I appreciate your thoughts on artificial intelligence in San Francisco. I guess can you talk about the total magnitude of demand that you're seeing in the San Francisco market that's driven by AI in particular? And whether you think that level of demand will be enough to potentially start to turn the tide and maybe create somewhat of an inflection point in San Francisco.
Albert P. Behler
So of the 4.7 million square feet in the pipeline currently, I would say roughly 20% is AI, if you will. Some of that demand is lease expiration driven as you would expect. I think quite honestly, we're seeing this all develop real-time. I think there's good reason for the excitement that you hear from us and others as it relates to what this means for San Francisco. But it's just too hard to say just yet what it means in terms of its contribution towards leasing activity going forward. Right now, we know that it represents, like I said, roughly 20% of the pipeline, I've now described a couple of times.
And I think it will be interesting over the balance of this year to see how this comes together. We all know that these companies have been heavily funded, as I mentioned, venture capital through the first half of the year is really very strong. AI companies are the recipients of this capital. Many of them are San Francisco-based and we think that this certainly inures to the benefit of San Francisco more broadly, and we'll see how it develops in our own portfolio going forward.
Blaine Matthew Heck
Okay, great. Lastly for me, can you talk a little bit more about the lease termination at 1633, Wilbur? I think you gave the size, which was helpful. But if you can tell us when you expect that lease or that space to be vacated and anything about the profile of the tenant or color on their decision to leave would be helpful?
Wilbur Paes
So maybe I'll take the first part of the question and then let Peter comment about the profile of the tenant. But we expect that tenant to be out in the fourth quarter. So call it towards the middle of October, if you will. And essentially, that termination income that we got and the guidance adjustment of $0.02 that we did is net of the lost rent in the fourth quarter from that tenant. So in our guidance originally, we had contemplated that tenant would be paying and being in the portfolio for the full year.
So the loss of contribution for one quarter offset by the termination income that we will be receiving is what's reflected in the guidance. As I said, it was 86,000 square feet on a 8.6 million square foot portfolio. That's the 1% reduction that we did in the guidance because it's happening at the back end of the year. And as you know, by the time the tenant leaves, we prep the space, demolish white box. We took a very realistic approach to understanding whether that there was a possibility of that getting leased this year, and hence, we made the adjustment.
Peter R.C. Brindley
And Blaine, I would only add that it's as simple as in our portfolio, specifically, some tenants have expressed interest in growing and others have decided that they just simply have too much space relative to what it is that they require. And this tenant unfortunately fell into the second bucket where they just had too much space. The good news is that our largest building 1633 Broadway is for intents and purposes, fully leased. And so we are in touch with existing tenants in the building, some of whom in the past have raised their hand and inquired about additional space. And so -- it remains to be seen what that ultimately yields that reach out. But suffice it to say, we've got a tremendous asset. We're getting back floors that I think will be desirable. And unfortunately, we did incur the termination, and so we move forward.
Wilbur Paes
1633, remember, is 99.7% leased. This expiration has a roughly 350 basis point impact on that occupancy. So just to put it in perspective, even post this termination, that's a 96.2%-plus leased asset.
Operator
Your next question comes from the line of Jay Poskitt with Evercore ISI.
James Poskitt
I was wondering if you could just provide a little bit more color on what some of those AI tenants in San Francisco are looking for in terms of geography, in terms of space needs? And then, Peter, to your point, too, about the pipeline being up about 30%. You mentioned 20% of that is kind of AI-driven, which I would imagine is new demand, but what percentage of that is just from renewals being pulled forward as well?
Peter R.C. Brindley
Hard for me to quantify, Jay, the percentage of demand, if you will, that is lease expiration driven or driven largely by renewals. I do think it's a healthy percentage of it. AI companies have been really all over the board in terms of the submarkets they're considering. We have seen them locate in the neighborhoods, if you will, some of the neighborhood, non-CBD submarkets, but we also have seen them touring in our assets as well.
Some of the requirements have real infrastructure requirements, and we become a magnet for those tenants that want to capitalize on a building that can deliver on those robust infrastructure requirements. I think we'll have a heck of a lot more to say about the profile of AI demand and how it comes together in the coming quarters. I think it's still early. We all have read about the largest AI users of space, if you will. But I do think that they are proactively thinking about setting themselves up in the right building currently, and that's why we're having some conversations with them. But I would say it's still early days on the AI front just yet.
James Poskitt
Okay. That's helpful. And then just another question as well on the -- debt expirations. I was wondering if there's any update on 300 Mission Street or just any of the upcoming debt maturities as well?
Wilbur Paes
Sure. Yeah. As I said, this is a very, very challenging market for the office sector. We are in the market, and I said previously that we're exploring all paths both with the new financing as well as existing lenders. I would venture to say most likely this would be in the extension bucket versus a full refi bucket, if you will. And so those discussions are fluid and ongoing. I do expect a good result here. But given that those discussions are fluid beyond what I said, it would not be appropriate to comment.
Operator
Next question comes from the line of Ronald Kamdem with Morgan Stanley.
Tamim Mahmud Sarwary
Tamim on for Ronald. Yeah, just first question on the J.P. Morgan lease. So my understanding, J.P. Morgan has a lease nearby One Front Street. Just if you guys could talk at all about J.P. Morgan's long-term plans with that space, if any insight there would be helpful.
Albert P. Behler
Yes, we -- Peter and I had a lot of discussion with J.P. Morgan, and you know that, First Republic had a campus of buildings in San Francisco. We went very early into it and discussed it with them. And I think the outcome is fantastic kudos to our leasing team in San Francisco and Peter to achieve what was achieved because I know some of the analysts think the results are not great results for the quarter, but the results could be much, much worse if J.P. Morgan would have come out of the building.
So I think we developed a nice relationship. And I -- it's too early to say where things end up for them. We -- and I don't want to be a topic for J.P. Morgan (technical difficulty) in San Francisco. But you can imagine by them making that investment in First Republic, which was clearly a bank that had a lot of very strong customer relationships with the positive for them, and they want to keep, I think, a strong foothold in San Francisco. And I think that speaks for them needing space and Peter and I are in front of them and working with them to make sure that they are satisfied with the spacings.
Tamim Mahmud Sarwary
Got it. And then 60 -- you guys talked about 60 Wall Street a little bit and how you're in discussions with the lender. What about 111 Sutter -- any updates there and just how you're thinking about the trade-offs between putting in incremental capital and just continuing to let that loan sit there?
Wilbur Paes
Sure. I'll start with 111 Sutter. 111 Sutter effectively was resolved on a short-term basis last quarter. What we did there is we negotiated a cash flow loan essentially where Paramount will not be putting any capital from its balance sheet into the asset. And so the lender is now funding all of the stabilization cost for that asset. And we put the maturity out to 2024. Any shortfalls and any monies funded by the lender will accrete to the existing principal balance of the loan, and we'll take a look at where we stand in 2024, how the markets are and whether it makes sense for us to have another discussion then and negotiation then. But right now, that's effectively an option for us where we get to manage the asset, we get the fees, and we'll look to see how the market develops with respect to that asset. In the case of 60 Wall, as you all know, it's a redevelopment play.
There is a significant amount of capital that the joint venture is willing to invest in that asset. And -- but it has to make sense. It has to make sense vis-a-vis the loan term. And up to this point, we had not been able to get to terms with the lender on what our ask was. And so the loan went into default. And we have basically disclosed that as such. We will accrue interest on the default rate, but recognize that will never get paid until we reach a resolution or we hand back the keys. So the goal is to try to reach a resolution so we can develop that asset into what we believe could be a world-class opportunity downtown.
Operator
Next question comes from the line of Dylan Burzinski with Green Street.
Dylan Robert Burzinski
I appreciate the comments on debt markets remaining challenging for the office sector. But just curious in your guys' conversation with lenders, and this is something that we've heard from brokers is that LTVs aren't really being focused on given the uncertainty associated with what the V is, but debt yields are now in focus. Just curious sort of what debt yields lenders are sort of targeting these days.
Wilbur Paes
Look, Dylan, you're right that LTVs will always be an equation that people are struggling with the V part of that equation. I can tell you it's just one metric. Debt yield is an item. There's other things that lenders are focused on. People are focused on structure in these loans because lenders want to make sure that the landlord is invested, whether it's putting capital up in terms of reserves upfront and what have you. So there's not one item that's the hot button. It's a series of items that are being focused on.
Dylan Robert Burzinski
Appreciate the color on that. And then I think last quarter, you guys had mentioned that the market is possibly improving for making acquisitions. Just curious how you guys are thinking about that today?
Albert P. Behler
I think it's still quite early. It looks like the market is trying to find the right value. We, as a company, as I mentioned, or we mentioned in the last quarter and before. We will be very careful with spending Paramount's equity on new acquisitions. We see what's available to be acquired. We would focus on Class A (technical difficulty). But I don't see the market yet the right asset for us to spend time on.
And if we would do it, as I said before, it would be in a joint venture fashion, very similar to what we had done on 1600 Broadway, where we put a very small amount of capital into the acquisition and bought the asset for a major (technical difficulty) wanted to really buy that asset for long-term cash flow and depreciation. So I think it might be still a little early, and it's not developing quarter-by-quarter. I know you guys look on quarter-by-quarter, we look in a little bit longer term. And I think the market might have to find the right value in the next couple of quarters for something to (technical difficulty).
Operator
There are no further questions at this time. I would like to turn the floor back over to Albert Behler for closing comments.
Albert P. Behler
Thank you, everyone, for joining us here today. We really look forward to providing an update on the continued progress we can report in our third quarter 2023 results. Thank you, and have a good day. Goodbye.
Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
