Yahoo Finance Vornado Realty Trust (VNO) Q4 2018 Earnings Conference Call Transcript
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Vornado Realty Trust (NYSE: VNO)
Q4 2018 Earnings Conference Call
Feb. 12, 2019, 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 Fourth Quarter 2018 Earnings Call. My name is Michelle, and I will be your operator for today's conference. This call is being recorded for replay purposes. All lines are in a listen-only mode, and our speakers will address your questions at the end of the presentation, during the question-and-answer session. (Operator Instructions)
I will now turn the call over to Ms. Cathy Creswell, Director of Investor Relations. Please go ahead, ma'am.
Catherine Creswell -- Director, Investor Relations
Thank you. Welcome to Vornado Realty Trust fourth quarter earnings call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our Annual Report on Form 10-K 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. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K, 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 Form 10-K for more information regarding these risks and uncertainties. The call may include time sensitive information that maybe 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 of the Board and Chief Executive Officer; and David Greenbaum, President of the New York Division. Also in the room are Michael Franco, Executive Vice President and Chief Investment Officer; Joseph Macnow, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer; Mark Hudspeth, Executive Vice President and Head of Capital Markets; Matt Iocco, Executive Vice President and Chief Accounting Officer; and Tom Sanelli, Executive Vice President and Chief Financial Officer, New York Division.
I will now turn the call over to Steven Roth.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thank you, Cathy. Good morning, everyone. 2018 was a good year. Here are some highlights. Our leasing activity for the year across the entire business including New York, theMART, 555 California Street and retail, totaled over 2.6 million square feet and 230 leases with industry-leading mark-to-markets of 25.6% GAAP and 18.4% cash. At year-end, office occupancy across the board was 97%; and retail occupancy was 97.3%. These numbers in the very high 90s are typical of our performance year-in and year-out over the past 20 years. Thanks to Glen, and our best in the business leasing team.
We have begun closings that are 220 Central Park South super-tall condominium project. In the fourth quarter, we closed 11 units aggregating $222 million with a $67.3 million after-tax gain. And we have already closed in just the first five weeks of this year, another $290 million. Closings will continue throughout 2019, as we climb up the building. And the last of the 27 large full floor apartments in the tower is now committed and under contract. I'm guessing that this is the most successful project ever, anywhere.
We increased our ownership in the Moynihan Train Hall Farley project from 50% to 95%. We are in full blown construction here. And in 2020, we will deliver the best creative space in Manhattan. We love this asset. It is the link between our Penn Plaza neighborhood and Hudson Yards. It is a doublewide block with 150,000 square foot floor plates and high ceilings. It is a horizontal campus in an iconic landmark building much like the horizontal campuses favored by our fan tenants in the West. It is a truly unique asset.
In the Penn District, we are under way to transform PENN1 and PENN2 to create a two building 4.4 million square foot campus right on top of Penn Station. It will include a three block, Grant Plaza along Seventh Avenue covered by a giant new bustle across the entire 400 foot frontage of PENN2. This plaza will extend 70 feet out from the building and will be 50 feet above the street. It will serve a dual-purpose. It will be striking, creating a huge covered plaza in front of our 1.8 million square foot PENN2, and the main entrance to PENN Station. It will bring the neighborhood into the modern age.
And at the same time, we will create 140,000 square feet of very valuable new best-in-class creative space. The scale of our campus here will allow us to provide our tenants with the biggest and best unparalleled amenity package. Even a giant step forward from what many of you have seen that we have done at theMART. Considering our redevelopment plans and everything that's happening around us, we expect that incremental $30 uplift in rents here. This financial reward is the main event.
So putting 220 Central Park South and the Penn District together; big picture, our financial plan is to redeploy the proceeds of 220 Central Park South sales into the CapEx of Farley PENN1 and Penn2. Give or take, we expect to finance all this CapEx internally, probably with no, or very little new debt. Given that the only cost of the capital coming out of 220 Central Park South is the accounting item capitalized interest, which in round numbers is about $25 million. This will be enormously accretive.
As is our custom, we published management's estimate of NAV in the fourth quarter supplement. Please see Page 22 of the supplement. Our spot NAV is $97 per share versus $96 per share a year ago. The math here reflects an increase in office NOI, partially offset by an increase in the cap rate on street retail, the 4.5% from 4.25%, which we believe more accurately reflect current market conditions. Last month, we increased our quarterly dividend to $0.66 per share, at an annual rate of $2.64 per share, a 4.8% increase, this after a 7.7% increase the year before. Based on yesterday's closing price, the dividend yield is 3.8%.
It is very encouraging that Amazon shows New York for half of HQ2 and that Google, Disney, Facebook and many others continue to expand and expand again and again making New York their second home. By the way, the other half of HQ2 is going to Crystal City, Virginia, on land, we contributed to our JBG SMITH spin-off validating investments we made years ago. This is a really big deal. Kudos to Matt Kelley and the JBG Smith team.
Here's an interesting tidbit that bodes really well for the future of New York. As David will tell you in a minute, a research piece just came out with the fact that New York has grown to be the leading tech city in this year's index overtaking San Francisco. The point here is that New York has been steadily growing in creative class workforce, in creative employers, and in creative infrastructure.
Now, I'd like to cover the financial math. Financial results for the full year are as follows: net income was $2.01 per share, compared to $0.85 per share for 2017. Total FFO was $3.82 per diluted share compared to $3.75 for 2017. FFO as adjusted was $3.76 per diluted share, compared to $3.73 per diluted share for 2017, consistent with our comments at the beginning of the year that 2018 would be flat. 2018 cash basis FFO as adjusted was $3.73 per diluted share, compared to $3.48 per diluted share for 2017, up a strong 7.2%.
Companywide cash basis NOI for 2018 was $1.338 billion, compared to $1.315 billion for 2017. 2018 cash basis same store NOI increased 3.9% as follows. New York office was up 7.5%. Retail was essentially flat down two-tenths of a percent. The total New York segment was up 4.3%. Retail produced $324.2 million of cash NOI at 2018, well ahead of the $304 million minimum we guided in the beginning of the year, which we increased to $315 million minimum in the third quarter. The amount was down a funky 6.5%, as a result of a fourth quarter $12.1 million additional real estate tax accrual. This is essentially a timing mismatch between the GAAP required expense accrual in 2018, and the actual payment which we will make in 2019, which is when we will bill our tenants and collect approximately 80% in reimbursement income. Excluding this mismatch, theMART same store would have been positive 8.8%. At 555 California Street, same-store was up 18.1%.
For the fourth quarter, our results are as follows: net income was $0.53, compared to $0.14 in the prior year's fourth quarter. Total FFO was $1.10 per diluted share compared to $0.80 per diluted share for the prior year's fourth quarter. FFO as adjusted, which excludes non-recurring items was $0.90 per diluted share, compared to $0.98 per diluted share in the prior year's fourth quarter. FFO as adjusted for this quarter was negatively impacted by the following items: $12.1 million, or $0.06 from the already mentioned additional real estate tax accrual at theMART. $10.5 million, or $0.05 from expected retail vacancies and lower income from a few short-term deals; and $6.2 million, or $0.03 from expected vacancy as 90 Park Avenue and theMART. Space out of service at PENN2 and 825 Seventh Avenue and lower office termination fees. Of course, there were many positives, which partially offset these items. This is all, the normal EBIT flow of our business.
We run the business for cash. Here are the cash numbers for the quarter. Cash basis FFO was adjusted with $0.91, compared to $0.90 for the prior year's fourth quarter. This quarter's companywide cash basis NOI was $324 million, compared to $342.3 million in the prior year's fourth quarter. This decrease is primarily due to the additional 12 midpoint one-year real estate tax accrual at theMART in the fourth quarter and the sale of our interest in 666 Fifth Avenue in August.
Cash basis same store NOI decreased by 1.7%, this flattish number masks a very healthy business. Here are the details. New York office was up a sound 5.8%, retail was down and anticipated 4.1% based on scheduled lease expiries and reduced rents on short-term renewals. The total New York segment was up 1.9%. theMART same-store number is so heavily skewed by the real estate tax mismatch, that the number is not meaningful. Excluding this mismatch, theMART same store would have been positive 2.7%. And 555 California Street was up a very healthy 15.8%.
Our office business continues to perform very well. We continue to experience a robust demand from all matter of industries in all of our sub-markets. As I have said before, our tenants are optimistic, aggressive, growing and upbeat about New York.
Retail continues to be soft, albeit, we are finding sales volumes are leveling and there is increased retailer activity and tours. The two strongest retail sub-markets in town are Time Square and Penn Station, where we are the largest owner with the best assets. And here I want to make a plug for the 120,000 square feet of retail we are developing in the Moynihan Train Hall at Penn Station. In addition to the teaming streets and the existing traffic in the nation's busiest train station, all the pedestrian traffic to and from Hudson Yards and Manhattan West will funneled through us. As you would expect, we have tremendous retailer interest in this unique space. David will give you more facts and details in a minute.
Turning now to investment sales. After a slow start to 2018, the investment sales market strengthened over the course of the year ending strongly. Investor appetite for New York City office continues to be healthy though disciplined with a good mix of domestic and foreign capital sources easily replacing declining activity from China. Demand for assets in the West and South of Manhattan and for smaller assets continue to be stronger, but investor interest is also active in midtown. Pricing has stayed fairly constant with cap rates in the mid fours. The market has suffered from a shortage of available quality product on offer and with a fair amount coming out in 2019, should get off to a strong start.
The debt markets continue to be constructive very strong in the first three quarters of 2018, but signaling caution and volatility in the fourth quarter. All in borrowing rates remain low by historical standards. It's interesting to note that for us, secured non-recourse financing which is our main stay is now cheaper than unsecured public market full recourse financing by 25 basis points for sure and maybe even more. We have a highly liquid fortress balance sheet with $3.3 million in immediate liquidity, measured leveraged and well staggered debt maturities. And this doesn't count a couple of billion dollars to come from 220 closings and non-core asset sales.
Thank you. Now to David.
David Greenbaum -- President, New York Division
Steve, thank you. Good morning, everyone. 2018 was a historic year in Manhattan. We leased a total of 42.2 million square feet, the most active year in two decades, including 61 leases of 100,000 square feet or greater with 20 of those deals greater than 250,000 square feet. This enormous rising activity is due to the continued strong job growth in New York, both private-sector employment at 3.98 million jobs and office using employment at 1.4 million jobs are at all-time high.
Manhattan's overall average asking rent ended the year at a record $76 per square foot with Class-A midtown rents north of $80 per square foot. The overall availability rate remained steady and actually went down in Midtown, even in the face of the delivery of some 2 million square feet of new construction. Financial service tenants continued to be a strong player in the Midtown market accounting for 41% of all leasing activity.
Large tenants continue to be attracted to new and redeveloped product, which captured significantly almost two-thirds of the years leasing activity. The Landmark announcements made by JP Morgan Chase to develop a new corporate headquarters on Park Avenue, Google's commitment to a campus on Hudson Square, Disney's announcement to build a new headquarters also in Hudson Square, Deutsche Bank's commitments in Midtown, Pfizer's commitment to Hudson Yards, and finally, Amazon's selection of Long Island City for half of its second headquarters location, all reflect upon the great strength of this city.
Just last week, Sable's the international brokerage house issued its Annual Global Tech cities report. Sable's concluded that New York ranked first, as the world's foremost center for tech, due to its deep talent pool providing the business environment, lifestyle and quality of urban infrastructure to position New York as the attractive location for both start-ups and multinationals alike. Our portfolio of redeveloped assets has experienced the benefit of enhanced demand from tenants and Farley PENN1 and PENN2 are up next.
Reflective of the strong overall marketplace in New York, as well as River North in Chicago and San Francisco, Vornado's portfolio across all three cities delivered very strong results. For the year 2018, our leasing team has completed 230 leases, a total of 2.5 million square feet of activity, an exceptionally strong mark-to-markets across the board of 25.6% GAAP and 18.4% cash.
Focusing on our New York office portfolio, for the year, our team completed 113 office leases, totaling over 1.8 million square feet at an average starting rent of $79 per square foot with strong, strong mark-to-markets of 33.7% GAAP and 22.7% cash. We remain full, we're viewing the occupancy at 97.2% and a very modest 625,000 square feet expiring during 2019, with approximately half of the expiring space coming from the to be redeveloped PENN1 and PENN2 campus.
Tenants in New York are growing. 38% of our activity in 2018 was with tenants new to and expanding in New York City, real, real growth in the city. Looking at the last three years, our leasing performance in the portfolio totaled almost 6 million square feet, at an average starting rent of $76.50 per square foot, underscoring a very high quality of our offerings and a strong profile of the tenants in our buildings. During 2018, our trophy assets also continued to shine highlighted by 11 triple-digit transactions, totaling 445,000 square feet, comprising fully a quarter of our total annual activity at an average starting rent of $109 per square foot. Our New York office 2018 same-store results show robust growth of 7.5% cash and 4% GAAP.
Now turning to the fourth quarter, we executed on 479,000 square feet across 27 transactions at an average starting rent of $73 per square foot and positive mark-to-markets of 6.9% GAAP and 1.2% cash. Same-store growth during the quarter was a strong 5.8% cash, while GAAP was essentially flat. Notable fourth quarter leases included a new headquarters for sublease international at 650 Madison Avenue on the entire 38,000 square foot second-floor with this luxury residential brokerage house will take advantage of these buildings premier location, great branding opportunities and abundant outdoor space. This space previously was retail space, which we now have converted to office taking advantage of the highest and best use for this space similar to what we did with Kmarts third floor, at 770 Broadway.
In the fourth quarter, we also relocated CICC, one of China's leading investment banking firms from our 350 Park Avenue into 20,000 square feet at 280 Park Avenue, where they will double inside. And the Interpublic Group expanded again at 100 West 33rd Street by 44,000 square feet, bringing IPG's total footprint there to 662,000 square feet.
As we kick-off 2019, we are seeing very active demand in the market, but leases in negotiation totaling 460,000 square feet across all sub-markets, and another 600,000 square feet of deals in the pipeline. At 1290 Avenue of the Americas in 90 Park Avenue, two of our completely redeveloped buildings. We have seen multiple tenants bidding on the blocks of space available and our sweet spot in the market in the $80 per square foot to $90 per square foot range.
Now turning to our office development and redevelopment pipeline, where we remain very active. We've recently completed and brought to market the new build 170,000 square foot office building at 512 West 22nd Street, directly on the High Line, where we are in active dialog with multiple tenants. Notably, these discussions are mainly with boutique financial services tenants, looking for a new home in Chelsea. As we have said in the past, the geographic boundaries for tenants in Manhattan to continue to expand, as demand for this type of product in this district is at an all time high. Rents in Midtown South for this product have now surpassed midtown asking rents.
Construction progress at Farley continues where you can now really get a sense of the grandeur of the new Train Hall. The Train Hall's mid-block Skylight, one of two signature skylight is now complete. The skylight toward 50 feet above the mid-block whole that will include our retail restaurants and one of our three office lobbies. The work on our office core and shell program has commenced with initial delivery anticipated by mid-2020. We are seeing great office and retail interest in the project from all industry types, as we are presenting the vision of this horizontal campus to brokers and tenants on almost a daily basis.
PENN1 is a tone setter for the new Penn District neighborhood, where we will create a hospitality rich communal workplace for our districtwide tenants from the lobby to the second and even to the third floor. Physical work has commenced both our facade restoration and elevator modernization programs have begun. We've completed the necessary arrangements to relocate office and retail tenants at the base of the building, which will allow us to begin the real construction work on this transformational project, once these tenants move this coming summer.
At PENN2, we are finalizing our plans and permits with construction to commence during the first quarter of 2020. Here we have completed the necessary tenant relocations to make way for this fill building capital program, delivering 1.8 million square feet of unique modernized office space along with all new retail offerings, outdoor plazas and multiple amenities, which will also serve our tenants districtwide. Collectively, the projects we are undertaking at Farley PENN1 and PENN2 are the catalysts to our recreation of the Penn District neighborhood in the epicenter of the new New York. I encourage you to take a look at our Penn District plans, which are now posted on our website at www.vno.com homepage.
Now turning to our flagship New York retail portfolio. For the year, we leased a total of 255,000 square feet. Same-store results were flat year-over-year, negative 2.2% GAAP and negative 0.2% cash. Retail portfolio occupancy stands at a strong 97.3%. During the fourth quarter, we completed nine retail leases comprising 26,000 square feet with positive mark-to-markets of 3% GAAP, and 1.1% cash. Notable deals included a lease with HSBC Bank at our new 606 Broadway in SoHo, Wells Fargo's lease of the entire retail box at 968 Third Avenue and the announcement of Ballast Point breweries first New York location at 330 West 34th Street. Ballast Point will bring their West Coast craft brewery and restaurant concept to the Penn district, but they will have an indoor restaurant experience on 34th Street, and an outdoor Garden for it's patrons on 33rd Street, directly across the street from what will be the main entrance to our future Farley building office occupancy.
We also completed a lease for a new flagship location with Krispy Kreme at the Crowne Plaza Hotel at the corner of 48th Street in Broadway, which will include a 4,500 square foot retail component as well as a large exterior digital signage presence. At theMART in Chicago, 2018 results reflect continued strong leasing performance at this 3.7 million square foot campus. We completed 243,000 square feet of leases for the year, comprised mainly of a variety of showroom tenants and very strong starting rents of $53.50 per square foot.
During the fourth quarter, we completed 46,000 square feet of showroom deals at an average starting rent of $61 per square foot with positive mark-to-markets of 8.7% GAAP and 3.2% cash. We currently have in office lease out for 36,000 square feet with a well-known technology company and have multiple other prospects, the remaining space vacated last year by Publicis on floors four and five.
In San Francisco, we completed a stellar year at our 555 California Street campus taking full advantage of this marketplace, where the demand for space continues to surge amid limited availability. Our same-store results for the year were a very strong 14.9% GAAP and 18.1% cash. In 2018, we leased 249,000 square feet at an average starting rent of $89 per square foot resulting in very healthy mark-to-markets of 34.3% GAAP and 13.4% cash. We are now at 100% occupancy.
At 315 Montgomery, we do have a renewal leasing negotiation for 56,000 square feet, which we expect to close during the next few weeks. And our 345 Montgomery redevelopment work is in full force with concrete work substantially complete and steel work having begun. We remain on time with respect to our delivery of the building to reach spaces by the end of the third quarter of this year. We are very pleased with our overall 2018 companywide results and continued to see strength in all three of our markets. These leases, are credit to the quality of our portfolio and the dedication and teamwork of all of our enormously talented professionals. Back to Steve.
Catherine Creswell -- Director, Investor Relations
We're ready for Q&A.
Questions and Answers:
Operator
Thank you. We'll now begin the question-and-answer session. (Operator Instructions) The first question in the queue comes from Steve Sakwa from Evercore. Your line is open.
Steve Sakwa -- Evercore -- Analyst
Thanks, good morning. Steve, you and David both kind of mentioned the Amazon situation. I know there's been a number of different press reports out there about maybe the city, having some issues coming to terms with Amazon on the Long Island City project. And I'm just wondering, what that sort of signals as it relates to kind of new business coming here and kind of any thoughts you have around that deal maybe getting consummated?
Steven Roth -- Chairman of the Board and Chief Executive Officer
That's a hot potato. First of all, folks like Google and Facebook and on and on and on have no trouble expanding growing relocating, locating in New York through the conventional way of dealing with basically as of right real property. Amazon chose to take a different tact. And that's fine. I would say, it's my personal opinion that if -- it's my personal opinion that the deal that the Governor of New York and the Mayor of New York made with Amazon was a terrific deal for the city and a terrific deal for us. I mean, a huge company with an enormous number of important high paying jobs et cetera. If the political climate in New York blows this deal, it would be the stupidest damn thing I've ever seen. And that's what I think. Now we have, as I said before, obviously, we are heavily involved and I'm the Chairman of the company, the Crystal City company, which is welcoming. So I think maybe some of the folks in the auction to take a much more welcoming savvy point of view on this deal.
Steve Sakwa -- Evercore -- Analyst
Okay. My second question, as it relates to kind of the buyout at Farley, I think your overall cost in that deal might be sort of around $1,100 a square foot. I'm just wondering if you could sort of talk about your expectations sort of for leasing at Farley timing and remind us what your expectations are for a return on that project?
David Greenbaum -- President, New York Division
Steve, good morning. Listen, we think the Farley Building as a horizontal campus in New York. It is totally unique in terms of the space that we will be delivering. We have told you in the past, that we think rents at this building are triple-digit numbers and by the way, as you think about rents in the city, generally, when I mentioned earlier, some 44 million square feet or 42 million square feet of activity for the year, some 4.2 million square feet across the city last year was leased at over at over $100 rents. So these triple-digit rents as it relates to redeveloped and new construction clearly have become the norm. We think again our building is differentiated in a significant way from substantially all of the new well called vertical product. We remain in discussion with a number of tenants for this space. As I said, the space will be delivered for tenants to begin build out sometime by the middle of next year, very excited about the fact we now own 95% of this asset.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Yeah. You know, our financial plan here Steve, is that we are basically going to build this deal with cash. Cash coming out of 2020, so that our cost of capital here is the lowest in the -- the lowest that it's possible to be. And we have a head -- we have enthusiastic -- very enthusiastic reactions from the brokerage community and the tenant community. And as we said -- and as I said and David also said, we love this one.
Steve Sakwa -- Evercore -- Analyst
Okay. And then I guess my last question just around the uplift, you talked about it, I guess, 2PENN and maybe the uplift at 1PENN. I think you quoted a $30 per square foot figure. Just kind of help us think through how you're sort of framing that out, or thinking about the uplift in sort of the rent differential that you would expect there to be between some of the new product that Manhattan West and Hudson Yards and maybe ultimately your finished project at 1PENN and 2PENN?
David Greenbaum -- President, New York Division
Well, I mean, I think it's pretty simple. The in-place rents are high '50s, low '60s, on average with current leasing being a little bit higher than that, but the average in the buildings are those numbers. We think the finished product will be worth in the marketplace. Let's say, pick a number, $90 a foot. So that's a $30 uplift. Now out of that uplift has become a marginal increase in expenses, the cleaning doesn't get to be any higher or the operating doesn't have to, the taxes may go up a little bit. So basically, that's a fairly pure number, and we're pretty excited about it. We determine what we believe, the future market -- we got to remember this is trended now for a couple of years. We determine what we believe the future market will be, based upon what we see all around us, what new building, new builds are going forward, other spaces going forward and the fact that we have the best location on top of Penn Station. And we have experience in transforming these buildings both at theMART and in New York at many different occasions. And we have history and what the transformation yields in terms of tenant demand and pricing. So, that's how -- that's our best judgment and we're pretty certain we're right.
Steve Sakwa -- Evercore -- Analyst
Okay, that's it from me. Thanks guys.
David Greenbaum -- President, New York Division
Thanks, Steve.
Operator
Thank you. The next question in the queue comes from Manny Korchman with Citi. Your line is open sir. Please proceed.
Emmanuel Korchman -- Citi -- Analyst
Hey, good morning, everyone. Maybe if we can just sector Farley for one more second. In the past, you've discussed a potential life science component there and build out to support that. And now it sounds like you are squarely focused on a more traditional, if you will, tech tenant. Am I reading that correctly?
Steven Roth -- Chairman of the Board and Chief Executive Officer
You know, maybe, whereas -- where an equal opportunity landlords, I mean, when an important tenant at the proper pricing comes in, a strong tenant, we're very happy to welcome everybody with open heart. So we have some interest from science tenants, we have more interest from creative class tenants, we even have interest from some fairly significant financial firms. So once again, this is not a special purpose building. It's a building designed to service the entire market.
Emmanuel Korchman -- Citi -- Analyst
Thanks for that. And then in terms of street retail transaction activity has been a little bit lighter. What gives you confidence that cap rates tenants moved up more than the 25 basis points, Steve applied to the cap rates in your NAV analysis. And maybe with that, can you talk about the potential new legislation related to a vacancy pack?
Steven Roth -- Chairman of the Board and Chief Executive Officer
You know, the cap rate we put in this year's NAV is our best estimate of what the marketplace is. So it's a very thin marketplace, but these great scarce unique assets trend pricing that is -- we believe we've hit the -- we believe, we've hit it right on the button, OK. The second question was what about legislation, Manny?
Emmanuel Korchman -- Citi -- Analyst
On the retail vacancy tax, it's getting proposed, I guess for the umpteenth time?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Well, I think the key thing there is the umpteenth time. Everybody is concerned about the fact that there are lots of vacancies on the streets of New York, it's not good for anybody.It's especially not good for the landlords. Okay. So I don't understand why the politicians. And we talked to these folks all the time. I don't understand why the politicians don't recognize the fact that it's landlords want to fill this space up more than they want the space filled up. And so obviously, the landlords that are professional will go to the clearing price for the space. So I think it's extremely what's the word, it's a bad piece, it's a bad idea both in concept then in execution. And I don't make predictions, but I'm fairly confident that it will go, it will pass by. By the way, just as I'm saying, we're confident -- just as I'm going back to what Steve said, that just as I'm fairly confident that the Amazon deal will get completed.
Emmanuel Korchman -- Citi -- Analyst
Okay. Thank you.
Operator
Thank you. The next question in the queue comes from Jamie Feldman with Bank of America Merrill Lynch. Your line is open. Please proceed.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Great. Thank you and good morning. It sounds like you'll have a lot of move-ins and move-outs in the portfolio for the rest of the year and even as you're kind of getting ready for the PENN2 redevelopment emptying out that building? Are you able to give us more color on what same store NOI could look like, what earnings could look like? Just some, a bit of a guide as we kind of -- as you get the portfolio ready for those big changes?
David Greenbaum -- President, New York Division
Yeah, you know, you're talking about guidance. And as you know, we don't give guidance. We do guide for what we think are extraordinary things. For example, when the patent office moved out of -- and -- what was it, the BRAC when we had all of that dislocation in Washington, better part of 10 years ago, we did guide for that because we thought it was something that was very difficult to predict that everybody was focused on. Last year, we did guide to what the minimum the retail cash NOI would be and I'm happy to say we missed it by $20 million to the positive side. So having said that -- so we will think about your question because it's a valid question.
I will tell you one thing. I for one as an operator don't understand how folks think about this. When we empty out a slug of space that's paying us $55 a foot to transform the building and two years later or 18 months later, we let that space for $90 a foot, we think that that's a huge asset and that's a very important part of our business and our colleagues as well. So whereas -- what I'm really saying is that I wish you folks would look upon the fact that we are going to kick out $50 tenants and move in $90 tenants as a huge uptick in shareholder value. We hear what you're saying about guiding and everything, we'll think about it, but that's not the normal way we run our business.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. That's a fair point. I mean, I think the -- it's more just about setting expectations and -- I mean, I don't think anyone disagrees that it's the right thing to do to kick out tenants and redevelop the buildings, it's more just -- so the market has a sense of what to expect as we are heading into quarter -- quarterly earnings each year -- each quarter. And then moving on, I know Manny had touched on cap rates. Can you just talk generally about your thoughts on the '19 transaction market? You said you thought office will probably pick up in terms of volumes. Maybe what's on the market and what do you think cap rates will look like?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Michael Franco is here, who is our Chief Investment Officer. I'm going to let him answer that question.
Michael J. Franco -- Executive Vice President & Chief Investment Officer
So, Jamie. Good morning. Like -- it -- I think after a pause coming in the year, there's a number of things that are hitting the market. Some new product like the condo, interested 30, Hudson Yards, you've got some other, call it, Midtown buildings, maybe lesser quality coming out on Lex, but I think the sweet-spot is going to continue to be that under $300 million to $400 million size, where a lot of the deals were last year. But we also have some bigger deals coming out, whether -- it's a couple of things that SL Green is putting out or some of the other assets in the Garment District. So it looks like near-term, there's probably $5 billion to $6 billion of office product that is recently hit or will hit in the next 30 days. I think it's probably higher quality than what we saw for the bulk of last year and we'll see how it plays out, but I think the investor interest, at least from what we're seeing, hearing, is active and I think you're starting to see investors perceive value in Midtown as well, just sort of on a price per square foot standpoint, where most of the assets are trading for $1,000 a foot or less, which is, as we're seeing now, is some of the new builds that are going out at $2,000 a foot or north. That's a pretty attractive basis. So the market feels like it's picking up in terms of quality and I think we'll see investor interest reflect that.
Steven Roth -- Chairman of the Board and Chief Executive Officer
I would put my two-cents and I agree with what Michael said. I think the first thing is that buildings have been pricing now at $1,000 a foot in that neighborhood a pinch more or a pinch less for years now. The investing marketplace has gotten used to that number and considers it to be fair value as I do. So there is no sticker shock and people are getting used to the pricing of what first-class Manhattan office buildings trade for. So I think that there is a very deep market of investors who want to invest in New York. I think it's basically the strongest market in the world. We know what's going on in London, we know what's going on in Europe. I mean, Tokyo is doing great, that's a whole different kettle of fish. So what I'm saying is is we think New York gets way more than its fair share. We think pricing, investors are used to the pricing and we're anticipating a strong investment sales market next year.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay, thank you. And then finally, Steve, you had mentioned as source of capital non-core asset sales, are you thinking more operating buildings or maybe you've seen a decent move in some of the REIT stocks, some of the equities you guys are holding?
Steven Roth -- Chairman of the Board and Chief Executive Officer
All of that is on the for sale list. I'm not going to predict timing and I'm not going to predict, which specific assets. But I mean, we were pretty transparent in what we intend to do to realize over $1 billion of sales. We -- those -- it's pretty obvious what we're doing in terms of timing those sales with our CapEx needs, et cetera. So that will all -- that will all roll-out over time.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay, thank you.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thank you, sir.
Operator
Thank you. The next question in the queue comes from Adam Gabalski with Morgan Stanley. Your line is open. Please proceed.
Adam Gabalski -- Morgan Stanley -- Analyst
Hey, guys. Thanks for taking the question. Just on street retail, given what we saw happen with rents in 2018, do you guys have any thoughts on where you could see street retail rents bottom and start to inflect positively? And also, whether or not Vornado is considering taking advantage of any distress you're seeing in the market?
Steven Roth -- Chairman of the Board and Chief Executive Officer
We love the stress, Adam. We can't wait for some distress. We have the capital base, the appetite and most importantly the expertise to be interested in growing in this asset class at fair prices or maybe even a little bit below fair prices, so there's that. We're not seeing a lot of that. We're beginning to see the first inkling of assets going back to lenders now and so that's the beginning of that cycle. With respect to rents, the biggest problem on rents are that there are fewer tenants trolling the marketplace looking for space. So we don't yet know what the bottom price is. If you follow this market as most other markets, it will take a while, maybe a year, maybe two years for some of these vacancies to be cleaned up by bottom fishers and then the market will level and start to grow again. So we have the enviable position of not really having -- I mean, we have a vacancy here, we have a vacancy there, but in terms of the mass of our portfolio, it's under lease for long-term with good tenants and so we're fine.
Adam Gabalski -- Morgan Stanley -- Analyst
All right. That's very helpful. Thank you. And then just one more on street retail. I know the Massimo Dutti and Westbury expirations got pushed out a little bit, can you just talk about the latest update on those leases and then what the impact will be to street retail NOI in 2019?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Once again, that's a guidance question. I don't think the Massimo Dutti lease was pushed out. So I don't think that and the neighboring MAC lease has -- goes into the 20s, 24 I think. We have people cruising the Massimo Dutti space, we have nothing to report yet.
Adam Gabalski -- Morgan Stanley -- Analyst
All right. Thanks. Appreciate it.
Operator
Thank you. The next question in the queue comes from Alexander Goldfarb with Sandler O'Neill. Your line is open. Please proceed.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Good morning. Steve, I appreciate your comments on guidance. So I guess, let me try to ask it this way. If we look over this year -- well, Steve, you got to try, right, every New Yorker has got to try. If you look over earnings this year and next, obviously theMART had -- you guys created values, the taxes went up, you'll recoup part of that, but still that's a net headwind. PENN2 is going to come offline, I think, next year. So that's some NOI that will come off in the near term, obviously you guys will boost rents and grow it eventually. But you then have the Cube at 555 that will get filled and produce NOI.
So just with all the different pieces that are coming and going, including some of the street retail vacancy that -- I mean, street retail that you talked about before, directionally, do you see over this year to next that net NOI will be growing, stay flat or reduce just with all the different moving parts? I think, to Jamie's question, earnings have been flat the past few years. So just trying to get a sense for how, directionally, people are thinking about it because I think we all agree you're creating value at the NAV and property level, but just from an FFO, that part stays flat?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Oh, boy. I don't want you to hold me to this, but I would just say, directionally, if you think flat, that would be a good thought. Okay? So there is -- I mean, the business is, some people refer to it as noise. I refer to it as the normal ebb and flow of our business. Tenants move in, tenants move out, rents go up, rents go down, whatever. Okay? So if you take it all together, the office business in three different jurisdictions, arguably the best building in San Francisco, arguably the best financial asset in Chicago and our New York business and our retail business, overall, I think it will all known together as flat, but that's not a guide and don't hold me to it. Okay?
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Okay. And then the second question is just bigger picture, I guess, this morning or yesterday Silverstein said, he may go spec Downtown, obviously Brookfield has talked about going spec on the Far West Side. Do you view this as marketing bluster, like trying to drum up business or are you concerned that we could suddenly have another supply wave, where we're just sort of working through the previous few years of supply delivery, which has pressured rents in New York?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Hey, these are major, major people. They don't bluster. Okay? They may bullshit a little bit, but they don't bluster. So you got to remember that both of these firms are firms that deal with promoted third-party capital. Okay? So what their -- my guess is is and I haven't talked to either of them about this, if they can get the -- an investor who has the appetite, they'll build the building, why not. Okay? So I think that's totally possible and whatever. There is a large appetite of invested capital for buildings for -- even for development and brilliantly located spots, like Park Avenue, for example. So I have no idea what Larry and Rick are going to do and they're both seasoned guys. Rick has got fund money that he has discretion over, so he can build it if he wants to. Larry will raise third-party capital if he can and we'll see what happens.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
But you're not concerned about another supply sort of glut pressure in rents though, it doesn't sound like?
Steven Roth -- Chairman of the Board and Chief Executive Officer
A building here, a building there, a building in the next place, these buildings, they won't take five, seven years to create. They are like pulling teeth. They are -- they will not have a dramatic influence on the 400 million square foot New York City office business. The last time that this happened was in the early -- in the '80s, in the early '80s where there was a zoning change and then the entrepreneurial developers, there was a rush to beat the zoning change and 20 million or 30 million square feet was created in one slug. That is not happening now and will not happen now.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Thank you, Steve.
Steven Roth -- Chairman of the Board and Chief Executive Officer
By the way, as an aside, OK, we love new -- we love to build new buildings. I mean, we're pretty good at it. We have -- we built the Bloomberg building, we built 220, so we know how to do it, it's part of our skill-set. But our main business is in the core of properties that we own now. And if somebody is going to build a new building and get $120 a foot rents for it, that creates the absolutely wonderful price umbrella that we function under in the $80-$85, $90-$95, $100 range. Okay? So that's all fine.
Alexander Goldfarb -- Sandler O'Neill -- Analyst
Thank you.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thanks, Alex.
Operator
Thank you. The next question in the queue comes from John Kim with BMO Capital Markets. Your line is open. Please proceed.
John Kim -- BMO Capital Markets -- Analyst
Thank you. Thanks. Just want to follow up on Alex's last question. Given Manhattan West directly competes with Penn Plaza, does that potentially change the timeline of the redevelopment of PENN2?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Absolutely not. Absolutely not. PENN2, we are going as fast as we can on PENN2. We're going to deliver the product as quickly as we can. We think it's unique product and we think that's all fine. The more people that are in our neighborhood in first-class property with first-class tenants, the better it is for the entire neighborhood, us included. So we don't look upon them as a competitor, we look upon them as a colleague and as a good neighbor.
John Kim -- BMO Capital Markets -- Analyst
Okay. With your NAV at $97, can I just ask what your updated views are on a share buyback, given you now trad at a 28% discount? And I don't know if you saw this morning, but Simon just announced a $2 billion buyback program during the call?
Steven Roth -- Chairman of the Board and Chief Executive Officer
No, I didn't see that. Our views on the buyback are the same as we have communicated over the last year or so.
John Kim -- BMO Capital Markets -- Analyst
Which is you look at it, but it's lower on the priority list?
Steven Roth -- Chairman of the Board and Chief Executive Officer
The answer is that our views would change if somebody were to do a buyback that was successful. So that hasn't happened yet and so we'll watch and learn, keep our money in our jeans and we'll see. So the answer is, it's right -- as of right now, our buyback -- our thinking about buybacks is pretty much the same as it's been over the last year or so.
John Kim -- BMO Capital Markets -- Analyst
Okay. And then a final question, this might be for Joe. But at 220 Central Park South, you had on your balance sheet condo units ready for sale at $99 million and that's lower than what you've already closed in January. So I'm wondering, if this is a good indicator of what you plan to close on over the next quarter going forward?
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
I think in Steve's remarks, he commented that through the first five weeks in January, it was another $290 million. We anticipate substantial additional closings in the remainder of 2019 and quarter-by-quarter they will be more reclassified for accounting rigors into that category, that's your question. But yes, we expect substantially more closings. Remember, all of the full floor apartments have been sold for the remainder of 2019.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Check me on this Joe. My understanding of the accounting convention is that when an apartment gets a TCO, a temporary certificate of occupancy, it gets reclassified into -- on the balance sheet as apartments available for sale.
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
That's correct.
Steven Roth -- Chairman of the Board and Chief Executive Officer
So that the number that you're looking at is -- got nothing to do with sales, nothing to do with future financial activity, it has entirely to do with how many apartments in what order we have gotten Because on.
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
And this is number as of the end of the year, not a number into 2019. It will grow in 2019.
Steven Roth -- Chairman of the Board and Chief Executive Officer
And so our plan is that we get TCOs on the apartment serially as we go through right before we sell them. I hope that helps.
John Kim -- BMO Capital Markets -- Analyst
Yeah, it does. Is there a good run rate that we should be modeling, is it $200 million to $300 million per quarter?
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
No. We haven't given the information by quarter. And to take that noise out of earnings, we've shown it as non-comparable because, again, it is one-time, albeit 3 -- over $3 billion in total. But no, we have not given that by quarter and I don't think we intend to.
Steven Roth -- Chairman of the Board and Chief Executive Officer
It's going to roll out over the next year. Okay? I mean, pretty simply, whether it's another $100 million or $200 million, more one quarter or less one quarter, doesn't matter, it's going to all rolled out and be sold over the next year.
John Kim -- BMO Capital Markets -- Analyst
Great, thank you.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thank you.
Operator
Okay. The next question comes from Nick Yulico with Scotiabank. Your line is open. Please proceed.
Nick Yulico -- Scotiabank -- Analyst
Okay, thanks. Couple of questions. First on, how we should think about -- you talked about the $25 million of capitalized interest from 220 Central Park South. I think the plan is to pay down debt from the sales of the condos, which would lower your interest expense, but then you are also losing that capitalized interest benefit over time. So can you just give us a feel for how we should think about that impact to your interest expense over the next year?
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
Well. Hi, it's Joe. Good morning. We've said publicly that we're going to pay down the construction for its mortgage, which was originally in the amount of $950 million. At year-end, was a little over $700 million. Today, is a little over $400 million. And that -- the balance of the proceeds are going to be used, as Steve said earlier, to fund the needs of PENN1, PENN2, Farley, the entire pipeline of what we have in development. We've shown you in the NAV $1 billion, that's not -- and somebody wrote in one of the reports, that's an increase from the prior year quarter. It's really the same number and that comes from the $3.2 billion of sales proceeds $200 million of taxes is $3 billion, the cost of the job was $2 billion, that's $1 billion. So I think that's where we are.
Nick Yulico -- Scotiabank -- Analyst
Okay. I'm just trying to think about capitalized interest, which is at its highest level for your Company. Last year is kind of a benefit for interest expense and how does that change going forward as 220 Central Park goes away versus you spending on your new develop -- new redevelopments?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Centrally put, our financial plan is this. The first sales that come out of 220 go to pay down a secured loan of $950 million, which is now in the 4s and will quickly go to zero. So that eliminates the interest expense for that loan. And by the way, that loan is the lowest cost of capital in the industry. Then all of the capital that comes out after that, which is going to be the better part of a couple of billion dollars, OK, will go into CapEx or other purposes. So when you think about it, I mean, we are going to be building these buildings with no interest cost and therefore the profit in those buildings will be higher, the accretion to our P&L will be very substantial.
Nick Yulico -- Scotiabank -- Analyst
Okay, thanks. And then just going back to the Retail segment, can you -- I know, you had the benefit this year from Levi's, Sephora, Forever 21 lease commencements. As the offsets you do have some of the move out, Massimo Dutti and then the expiration this year, I think there was also some temporary occupancy renewal item at Westbury. So do you mind just giving us a feel for the expirations and the move-outs, the temporary occupancy issue? I mean, how much of a offset that is to your -- the benefits you are getting from lease commencements and lease escalations in the portfolio?
Steven Roth -- Chairman of the Board and Chief Executive Officer
I mean, that's a detailed guidance question, again. Basically, in the beginning of last year, we said that our retail cash NOI would not go below $304 million, OK. That number was adjusted to $309 million because we bought back some of the retail -- it was the other way around, $309 million, we bought back some of the Kmart space in favor of Facebook, so that number went from $309 million to $304 million. In mid-year last year, we said that that minimum number, this is a minimum guidance that we gave last year for Retail would be no less than $315 million cash NOI, OK. We came in the year at $324 million, OK. So we're happy about that. It's too sensitive a number for me to give you something off the top of my head. But once again, we are guesstimating that the retail business cash will be flattish this year.
Nick Yulico -- Scotiabank -- Analyst
Okay, thanks. Appreciate it.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Yes, sir.
Operator
Okay. The next question queue comes from Jamie Feldman with Bank of America Merrill Lynch. Your line is open. Please proceed.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Jamie, welcome back.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Thank you. Good to be back. I just had a quick follow-up, I don't want to prolong your call. But in the foot -- in -- on the 10-K on page 31, you have a footnote talking about where you think you can get rents leased or kind of renewals done in 2019. And it looks like on office, you're looking at about an 11% leasing spread, it looks like on, should retail, you're looking at positive depending on where it is in that range, but generally positive. I just want to get your thoughts on, is -- are you seeing rent growth? Is this kind of a flat -- a look at market rents being flat? I just want to get your thoughts on where market rents are going and if there's any way to tie this into kind of leasing spreads for the year that would be helpful?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Jamie, first of all, my congratulations for ferreting that information out. I think that's genius. Joe, what are you guys saying?
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
I was just going over with David that what Jamie is referring to is the office expiries in 2019 have an average embedded rent of $65.58 and Jamie took the midpoint of our guidance for what that will we let at and that was $73, so he did the math and said it's 11% mark-to-market. That's close.
David Greenbaum -- President, New York Division
Jamie, I think the important point there is this -- the number that's published. Effectively it is only relevant with respect to the 600 and something thousand square feet, that's actually expiring next year. So it's not reflective of mark-to-markets across the portfolio, it's not reflective of where we think rents are across the portfolio, we're specifically looking at the space that's coming up over the course of the next year and in fact some of that space that's coming up comes in at 2 Penn Plaza, which in fact is going to go out of service.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. And then just...
Steven Roth -- Chairman of the Board and Chief Executive Officer
Jamie, your observation that next year's numbers will benefit from expiries at a low number in the mid 60s as opposed to $10 or $20 higher than that is a valid observation. So we do expect to have a low double-digit mark-to-market in 2019.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay, thank you. And then just general sense of rent growth in the market...
Steven Roth -- Chairman of the Board and Chief Executive Officer
(Multiple Speakers) little higher. Go ahead, Jamie.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Sorry. Oh, sorry. Just general sense of rent growth. I mean, would you say rents are rising or would you say they're still generally flat?
David Greenbaum -- President, New York Division
I'll come back to what I said a little bit earlier, Jamie, and that is while if you look at a single spot number and say Manhattan rents generally over the last year went up 3%, 4%, 5%, whatever the number is, again I think the key is and we've emphasized this in any number of our calls is looking at the sub districts in the city, where we've seen the highest rent growth. So I mentioned Midtown South, which obviously includes our West Chelsea assets, asking rents in Midtown South have increased dramatically over the last couple of years. The same thing is true obviously in Hudson Yards and in Manhattan West, where rents started out several years back in the mid 70s and those numbers today are in the triple-digits. The most telling thing as I said earlier is what we're seeing today is triple-digit rents are no longer a sticker shock to tenants as it relates to new product and redeveloped product. So generally, I'd say we are seeing a bifurcation in the marketplace between buildings that are older buildings, not redeveloped, where rents are flat and maybe even trending down a bit to the redeveloped product and new buildings, where we are seeing rents increasing. And then the other thing I would add to all this is from a concession point of view, we see concessions that basically have leveled off at this point in time. All encouraging from a net effective rent point of view.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. All right, thank you. And I have to be on a driver client is even smarter than I am that pointed that out to me, just full disclosure, but thank you for your help.
Steven Roth -- Chairman of the Board and Chief Executive Officer
That's all very interesting. I'm happy to give you the credit. Thanks.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
All right. Thank you.
Operator
The next question in the queue comes from Daniel Ismail with Green Street Advisor. Your line is open.
Daniel Ismail -- Green Street Advisors -- Analyst
Thanks. Good morning, guys. Just a quick one from me. On the NAV page, looks like you raised the cap rate for residential by about 50 bps. Can you provide any more color on that? And is that speaking to just weakness in the rising market in New York?
Steven Roth -- Chairman of the Board and Chief Executive Officer
We are not that smart to know whether it's exactly this or that or the other, we just thought 3.5 was a very aggressive number. It's a small number in our portfolio. It doesn't affect the NAV substantially and we thought the better part of conservatism and the better part of valor was to take it up a notch. I am sure that the residential gang would fight me and say the number is really 3.5 or 3 or 2.5 or whatever it is, but we are comfortable with 4. And from our point of view, it doesn't make any difference, whether it's 3.5 or 4 in terms of the shareholder value of our Company.
Daniel Ismail -- Green Street Advisors -- Analyst
Fair enough. Thank you.
Steven Roth -- Chairman of the Board and Chief Executive Officer
But we have limited market knowledge. To support that, we have some. But I mean, we're not going to die on our sword over that number.
Operator
Okay. The next question in the queue comes from Manny Korchman with Citi. Your line is open. Please proceed.
Michael Bilerman -- Citi -- Analyst
Hey. It's Michael Bilerman here with Manny. Good morning, Steve. Steve, I -- last July, late July...
Steven Roth -- Chairman of the Board and Chief Executive Officer
Hi, Michael. I was wondering, where you were hanging?
Michael Bilerman -- Citi -- Analyst
I'm hanging. You made a comment last July, when talking about the NAV discount that you have fluctuate between being frustrated and being test. And you said, we can quote you on it, so I'm quoting you on it. The NAV went up over the course of the year, right? You've been executing and getting additional office NOI as the lease has started and a number of other value creating activities. And so, I'm just wondering, at what point should the market expect any sort of future ways of narrowing this gap, and I know you've talked about the share buyback being not something that you'd want entertained because others haven't been successful at it in your mind. But when should we expect something else that that may occur, if anything?
Steven Roth -- Chairman of the Board and Chief Executive Officer
Once again, as I said before, we think we've done more in terms of restructuring our business, focusing our business, spinning off this, spinning off that, selling non-core assets, et cetera. Anybody in the entire industry (ph). Once again, we still think the stock is significantly undervalued. And we continue to work hard on it. We can't really tell you and we are not going to speculate and we're not even going to hint anymore as to what we might do. When we decide to do something, that's when we will announce it.
Michael Bilerman -- Citi -- Analyst
Do you feel like the timing -- the time to do something is getting shorter, given what's going on in the marketplace that you'd want to make a decision about what route to go to narrow this gap that arguably you've been frustrated with? It's not something that's a new and I totally agree with you of all the value creating things that the Company has done over the last number of years to highlight that value and increase that value. I just don't know whether you feel like time is getting short to want to take advantage in the marketplace that may be changing?
Steven Roth -- Chairman of the Board and Chief Executive Officer
What do you mean by take advantage and what do you mean by may be changing?
Michael Bilerman -- Citi -- Analyst
Well, I don't know, I think there's a lot of uncertainty out in the global marketplace and you don't want to be in a situation, where you can't get to that NAV in the event that we have a softer economic environment or there's some other external event that occurs.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Well, I think that would be the opposite of what you just said. If you're hinting that we may have a recession and the stock market may go down, that would be the time that we would want to avoid buying stock at this price, if it's -- we think -- you think it's going to go lower, I don't know. I mean, I'm not...
Michael Bilerman -- Citi -- Analyst
Well, I don't think stock -- I'm not saying stock buyback, I can see that your view on that, that may not be the route to go, I'm thinking more broadly strategic in terms of liquefying additional assets, may be doing additional spin or split offs, doing some other may be type of sales transactions to narrow the gap between what you believe is $97 and the stock that's in the $70s?
Steven Roth -- Chairman of the Board and Chief Executive Officer
My answer to that is yes. I mean, we appreciate your advice, believe me, that's something that we focus on every minute of every day. And I've been cautioned by some of my friends out there not to speculate, not even to hint that what we might do, just shut up and do it and that's what we're going to do.
Michael Bilerman -- Citi -- Analyst
Okay. And I look forward to seeing what comes out. I appreciate it. Thank you.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thanks. Thanks, Michael.
Operator
Okay. And the last question in the queue comes from Steve Sakwa with Evercore. Your line is open. Please proceed.
Steve Sakwa -- Evercore -- Analyst
Thanks. Just a follow-up. David, you had kind of touched on this, just in terms of like the TI leasing commissions, they're running a little over 12% in New York. I'm just curious, how you sort of see that number trending over the next year or so? I mean, if rents are up, you see CapEx and TI leasing commissions kind of being flat so that number can go down or do you see that 12% holding steady?
David Greenbaum -- President, New York Division
Leasing commissions realistically are a function of a percentage of the rent. So leasing commissions realistically are going to track directly as it relates to rent. So unless I'm missing something, I want my leasing commissions to be generally as high as they can be because it's going to reflect a significant rent growth. So I think the only variable relates to TI allowance and as I said, I think those numbers have plateaued.
Steve Sakwa -- Evercore -- Analyst
Okay, thanks.
Operator
We have no further questions in the queue at this time, so I will now turn the call back over to Mr. Steven Roth for any closing remarks.
Steven Roth -- Chairman of the Board and Chief Executive Officer
Thanks, everybody. I just want to emphasize one thing, which is, in my remarks, I said that our financial plan is to take the very significant billions coming out of 220 Central Park South, which has a zero cost of capital and putting it into our developments, which will be enormously accretive. We're very excited about our future prospects and growth and all of our conversation about 220 has focused only on One Penn and Two Penn and Farley and not all the other assets. So anyway, we're very enthusiastic. We look forward to talking with you again next quarter.
Operator
Thank you, ladies and gentlemen. This concludes today's teleconference. Thank you for participating. You may now disconnect.
Duration: 77 minutes
Call participants:
Catherine Creswell -- Director, Investor Relations
Steven Roth -- Chairman of the Board and Chief Executive Officer
David Greenbaum -- President, New York Division
Steve Sakwa -- Evercore -- Analyst
Emmanuel Korchman -- Citi -- Analyst
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Michael J. Franco -- Executive Vice President & Chief Investment Officer
Adam Gabalski -- Morgan Stanley -- Analyst
Alexander Goldfarb -- Sandler O'Neill -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Joseph Macnow -- Executive Vice President, Chief Financial Officer & Chief Administrative Officer
Nick Yulico -- Scotiabank -- Analyst
Daniel Ismail -- Green Street Advisors -- Analyst
Michael Bilerman -- Citi -- Analyst
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