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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K


ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                .

Commission File Number: 33-167793-02

SL GREEN OPERATING PARTNERSHIP, L.P.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  13-3960938
(I.R.S. Employer
Identification No.)

420 Lexington Avenue, New York, NY 10170
(Address of principal executive offices—Zip Code)

(212) 594-2700
(Registrant's telephone number, including area code)



         SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None

         SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ý    No o

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller Reporting Company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

         As of February 28, 2011, 82,139,264 common units of limited partnership interest of the Registrant were held by non-affiliates of the Registrant. There is no established trading market for such units.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Definitive Proxy Statement of SL Green Realty Corp., the parent of the Registrant, for its 2011 Annual Meeting of Stockholders to be filed within 120 days after the end of the Registrant's fiscal year are incorporated by reference into Part III of this Annual Report on Form 10-K.


Table of Contents

SL Green Operating Partnership, L.P.
FORM 10-K
TABLE OF CONTENTS

10-K PART AND ITEM NO.

PART I

       

1.

 

Business

   
3
 

1.A

 

Risk Factors

   
10
 

1.B

 

Unresolved Staff Comments

   
22
 

2.

 

Properties

   
22
 

3.

 

Legal Proceedings

   
31
 

4.

 

(Removed and Reserved)

   
31
 

PART II

       

5.

 

Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities

   
32
 

6.

 

Selected Financial Data

   
34
 

7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

   
36
 

7A.

 

Quantitative and Qualitative Disclosures about Market Risks

   
63
 

8.

 

Financial Statements and Supplementary Data

   
65
 

9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   
153
 

9A.

 

Controls and Procedures

   
153
 

9B.

 

Other Information

   
154
 

PART III

       

10.

 

Directors, Executive Officers and Corporate Governance

   
154
 

11.

 

Executive Compensation

   
154
 

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   
154
 

13.

 

Certain Relationships and Related Transactions, and Director Independence

   
154
 

14.

 

Principal Accounting Fees and Services

   
154
 

PART IV

       

15.

 

Exhibits, Financial Statements and Schedules

   
155
 

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ITEM 1.    BUSINESS

General

        SL Green Realty Corp., also referred to as the Company or SL Green, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. The Operating Partnership received a contribution of interest in the real estate properties, as well as 95% of the economic interest in the management, leasing and construction companies which are referred to as the Service Corporation. All of the management, leasing and construction services with respect to the properties wholly-owned by us are conducted through SL Green Management LLC which is 100% owned by us. The Company has qualified, and expects to qualify in the current fiscal year, as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Code, and operates as a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, through payments of dividends to stockholders, is permitted to reduce or avoid the payment of Federal income taxes at the corporate level. Unless the context requires otherwise, all references to "we," "our" and "us" means SLGOP and all entities owned or controlled by SLGOP.

        Substantially all of SL Green's assets are held by, and its operations are conducted through, the Operating Partnership. The Company is the sole general partner of the Operating Partnership. As of December 31, 2010, noncontrolling investors held, in the aggregate, a 1.57% limited partnership interest in the Operating Partnership. See Note 12.

        Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P., or ROP, are subsidiaries of the Operating Partnership.

        As of December 31, 2010, we owned the following interests in commercial office properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban assets:

Location
  Ownership   Number of
Properties
  Square
Feet
  Weighted
Average
Occupancy(1)
 

Manhattan

  Consolidated properties     22     15,141,945     91.8 %

  Unconsolidated properties     8     7,182,515     95.3 %

Suburban

 

Consolidated properties

   
25
   
3,863,000
   
81.9

%

  Unconsolidated properties     6     2,941,700     94.3 %
                   

        61     29,129,160     91.6 %
                   

(1)
The weighted average occupancy represents the total leased square feet divided by total available rentable square feet.

        As of December 31, 2010, our Manhattan properties were comprised of fee ownership (23 properties), including ownership in condominium units and leasehold ownership (seven properties). As of December 31, 2010, our Suburban properties were comprised of fee ownership (30 properties) and leasehold ownership (one property). We refer to our Manhattan and Suburban office properties collectively as our portfolio.

        We also own investments in 11 retail properties encompassing approximately 405,362 square feet, four development properties encompassing approximately 465,441 square feet and three land interests. In addition, we manage four office properties owned by third parties and affiliated companies encompassing approximately 1.3 million rentable square feet.

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        Our corporate offices are located in midtown Manhattan at 420 Lexington Avenue, New York, New York 10170. As of December 31, 2010, our corporate staff consisted of approximately 250 persons, including 190 professionals experienced in all aspects of commercial real estate. We can be contacted at (212) 594-2700. SL Green maintains a website at www.slgreen.com. On this website, you can obtain, free of charge, a copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as practicable after we file such material electronically with, or furnish it to, the Securities and Exchange Commission, or the SEC. SL Green has also made available on its website its audit committee charter, compensation committee charter, nominating and corporate governance committee charter, code of business conduct and ethics and corporate governance principles. You can also read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549 (1-800-SEC-0330). The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Business and Growth Strategies

        We are the largest owner and operator of commercial office properties in the borough of Manhattan in New York City. We also control a significant amount of premier Manhattan retail properties—both within our office buildings and in our free-standing retail portfolio. Outside of our direct property ownership platform, we are a sizeable investor in debt and preferred equity investments, investing primarily in Manhattan office assets. Our portfolio also includes office properties in Queens, Brooklyn and New York City's surrounding suburban markets.

        Our core business is the ownership of high quality office buildings that are strategically located in close proximity to midtown Manhattan's primary commuter stations. We are led by a strong, experienced management team that provides a foundation of skills in all aspects of property ownership and management including leasing, operations, capital improvements, repositioning and maintenance. It is with this team that we have achieved a market leading position in our targeted submarkets.

        With these exceptional skills and knowledge base, we have also been able to take advantage of attractive investment opportunities in additional submarkets and in the retail sector.

        We seek to enhance the value of our company by executing strategies that include the following:

Leasing and Property Management

        We seek to capitalize on our management's extensive knowledge of the Manhattan and suburban markets and the needs of our tenants through proactive leasing and management programs, which include: (i) use of in-depth market experience resulting from managing and leasing 29 million square feet of office and retail space,

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predominantly in Manhattan; (ii) careful management to ensure adequate average lengths of leases and manageable lease rollovers; (iii) utilization of an extensive network of third-party brokers; (iv) use of comprehensive building management analysis and planning; and (v) commitment to tenant satisfaction by providing high quality tenant services at attractive rental rates.

        It is our belief that our proactive leasing efforts have directly contributed to our average portfolio occupancy consistently exceeding the market average.

Property Acquisitions

        We acquire core properties for long-term appreciation and earnings growth. Non-core properties are typically held for shorter periods during which we attempt to create significant increases in value. This strategy has resulted in capital gains that increase our investment capital base.

        Through an intimate knowledge of our markets and operating base we have developed a keen ability to source transactions with superior risk-adjusted returns by capturing off-market opportunities that lead to acquisitions at meaningful discounts to replacement costs. In rising markets, we acquire strategic vacancies that provide the opportunity to taking advantage of our exceptional leasing capability to increase cash flow and property value. In stable or falling markets, we target assets featuring credit tenancies with fully escalated in-place rents to provide cash flow stability near-term and the opportunity for increases over time.

        In acquiring core and non-core properties, directly or through joint ventures with a predominance of high quality institutional investors, we believe that we have the following advantages over many of our competitors: (i) senior management's average 24 years of experience leading a full-service, fully-integrated real estate company focused on the Manhattan office market; (ii) the ability to offer tax-advantaged structures to sellers through the exchange of ownership interests as opposed to solely cash transactions; and (iii) the ability to close transactions quickly despite complicated ownership structures.

Property Repositioning

        Our knowledge of the leasing markets and our ability to efficiently plan and execute capital projects provide the additional capability to enhance returns by repositioning acquired retail and commercial office properties that are underperforming. Many of the retail and commercial office buildings we own or would seek to acquire feature unique architectural design elements, large floor plates, unique amenities and characteristics that can be appealing to tenants when fully exploited. Our strategic reinvestment in such buildings, combined with our active management and pro-active leasing, provide the opportunity to creatively meet market needs and generate favorable returns.

Debt and Preferred Equity Investments

        We seek to invest in high-yield debt and preferred equity investments. Our knowledge of our markets and our leasing and asset management expertise provide underwriting capabilities that enable highly educated assessments of risk and return. The benefits of this investment program, which has a carefully managed aggregate size generally not to exceed 10% of our total enterprise value, include the following:

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Property Dispositions

        We continuously evaluate our properties to identify those most suitable to meet our long-term earnings growth objectives and contribute to increasing portfolio value. Properties that no longer meet our objectives are identified as non-core holdings and are targeted for sale to release equity created through management's value enhancement programs or to take advantage of opportune market valuations.

        Capital generated from these dispositions is efficiently re-deployed into property acquisitions and investments in high-yield debt and preferred equity investments that we expect will provide enhanced future capital gain and earnings growth opportunities.

Competition

        The leasing of real estate is highly competitive, especially in the Manhattan office market. We compete for tenants with landlords and developers of similar properties located in our markets primarily on the basis of location, rent charged, services provided, balance sheet strength and the design and condition of our properties. Although currently no publicly traded REIT other than SL Green has been formed primarily to acquire, own, reposition and manage Manhattan commercial office properties, we may in the future compete with such other REITs. In addition, we face competition from other real estate companies including other REITs that currently invest in markets other than or in addition to Manhattan, private real estate funds, domestic and foreign financial institutions, life insurance companies, pension trusts, partnerships, individual investors and others that may have greater financial resources or access to capital than we do or that are willing to acquire properties in transactions which are more highly leveraged or with different financial attributes than we are willing to pursue.

Manhattan Office Market Overview

        Manhattan is by far the largest office market in the United States, containing more rentable square feet than the next five largest central business district office markets combined. The properties in our portfolio are concentrated in some of Manhattan's most prominent midtown locations.

        Manhattan has a total inventory of 392.7 million square feet, including 241.5 million square feet in midtown. Based on current construction activity, we estimate that midtown Manhattan will have approximately 2.0 million square feet of new construction becoming available in the next two years, approximately 26.8% of which is pre-leased. This will add approximately 0.5% to Manhattan's total inventory.

General Terms of Leases in the midtown Manhattan Markets

        Leases entered into for space in the midtown Manhattan markets typically contain terms which may not be contained in leases in other U.S. office markets. The initial term of leases entered into for space in excess of 10,000 square feet in the midtown markets is generally seven to fifteen years. The tenant often will negotiate an option to extend the term of the lease for one or two renewal periods of five years each. The base rent during the initial term often will provide for agreed-upon periodic increases over the term of the lease. Base rent for renewal terms, and base rent for the final years of a long-term lease (in those leases which do not provide an agreed upon

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rent during such final years), often is based upon a percentage of the fair market rental value of the premises (determined by binding arbitration in the event the landlord and the tenant are unable to mutually agree upon the fair market value). Leases may contain termination options whereby tenants can terminate their lease obligations generally, upon payment of a penalty.

        In addition to base rent, the tenant will generally also pay its pro rata share of increases in real estate taxes and operating expenses for the building over a base year. In some leases, in lieu of paying additional rent based upon increases in building operating expenses, the tenant will pay additional rent based upon increases in the wage rate paid to porters over the porters' wage rate in effect during a base year, increases in the consumer price index over the index value in effect during a base year, or a fixed percentage increase over base rent.

        Electricity is most often supplied by the landlord either on a sub-metered basis or rent inclusion basis (i.e., a fixed fee is included in the rent for electricity, which amount may increase based upon increases in electricity rates or increases in electrical usage by the tenant). Base building services other than electricity (such as heat, air conditioning and freight elevator service during business hours, and base building cleaning) typically are provided at no additional cost, with the tenant paying additional rent only for services which exceed base building services or for services which are provided other than during normal business hours.

        In a typical lease for a new tenant, the landlord will deliver the premises with all existing improvements demolished and any asbestos abated. The landlord also typically will provide a tenant improvement allowance, which is a fixed sum that the landlord makes available to the tenant to reimburse the tenant for all or a portion of the tenant's initial construction of its premises. Such sum typically is payable as work progresses, upon submission of invoices for the cost of construction. However, in certain leases (most often for relatively small amounts of space), the landlord will construct the premises for the tenant.

Occupancy

        The following table sets forth the weighted average occupancy rates at our office properties based on space leased as of December 31, 2010, 2009 and 2008:

 
  Percent Occupied as
of December 31,
 
Property
  2010   2009   2008  

Manhattan Properties

    92.9 %   95.0 %   96.7 %

Same-Store Properties(1)

    91.5 %   93.5 %   95.3 %

Unconsolidated Joint Venture Properties

    95.0 %   95.1 %   95.0 %

Portfolio

    91.6 %   93.6 %   95.2 %

(1)
Same-Store Properties for 2010 represents 44 of our 47 consolidated properties owned by us at January 1, 2009 and still owned by us at December 31, 2010.

Rent Growth

        We estimated that rents in place, at December 31, 2010, in our Manhattan and Suburban consolidated properties were approximately 5.0% and 5.1%, respectively, below current market asking rents. We estimated that rents in place at December 31, 2010 in our Manhattan and Suburban properties owned through unconsolidated joint ventures were approximately 16.3% and 9.3%, respectively, below current market asking rents. These comparative measures were approximately 4.9% and 4.5% at December 31, 2009 for the consolidated properties and 10.4% and 0.3% for the unconsolidated joint venture properties. As of December 31, 2010, approximately 34.7% and 32.1% of all leases in-place in our consolidated properties and unconsolidated joint venture properties,

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respectively, are scheduled to expire during the next five years. There can be no assurances that our estimates of current market rents are accurate, that market rents currently prevailing will not erode in the future or that we will realize any rent growth. However, we believe the degree that rents in the current portfolio are below market provides a potential for long-term internal growth.

Industry Segments

        We acquire, own, reposition, manage and lease commercial office and retail properties in the New York Metropolitan area and have two reportable segments: real estate and debt and preferred equity investments. We evaluate real estate performance and allocate resources based on earnings contribution to income from continuing operations.

        At December 31, 2010, our real estate portfolio was primarily located in one geographical market, namely, the New York Metropolitan area. The primary sources of revenue are generated from tenant rents and escalations and reimbursement revenue. Real estate property operating expenses consist primarily of security, maintenance, utility costs, real estate taxes and ground rent expense (at certain applicable properties). As of December 31, 2010, one tenant in our portfolio contributed approximately 8.0% of our portfolio annualized rent. No other tenant contributed more than 5.9% of our portfolio annualized rent. Portfolio annualized rent includes our consolidated annualized revenue and our share of joint venture annualized revenue. No property contributed in excess of 8.0% of our consolidated total revenue for 2010. In addition, two debt and preferred equity investments each accounted for more than 10.0% of the revenue earned on debt and preferred equity investments at December 31, 2010. Our industry segments are discussed in Note 19, "Segment Reporting" in the accompanying consolidated financial statements.

Employees

        At December 31, 2010, we employed approximately 1,027 employees, over 191 of whom were managers and professionals, approximately 776 of whom were hourly-paid employees involved in building operations and approximately 60 of whom were clerical, data processing and other administrative employees. There are currently three collective bargaining agreements which cover the workforce that services substantially all of our properties.

Acquisitions

        During 2010, we acquired 125 Park Avenue for an aggregate purchase price of $330.0 million, including the assumption of $146.25 million of mortgage debt. We also completed the foreclosure of the senior mezzanine loan at 100 Church Street. Through a joint venture, we acquired 600 Lexington Avenue for $193.0 million, including the assumption of $49.85 million of mortgage debt. We also closed on the remaining 45% joint venture interests in the leased fee at 885 Third Avenue and 2 Herald Square and the entire leased fee interest at 292 Madison Avenue for an aggregate investment of $349.7 million, including the assumption of $265.6 million of mortgage debt.

Dispositions

        During 2010, we sold 19 West 44th Street for a gross contract price of approximately $123.2 million. We recognized a gain of approximately $35.5 million on the sale of this property, which encompassed 0.3 million square feet. We also sold our partnership interest in 1221 Avenue of the Americas for total consideration of $577.4 million and recognized a gain of approximately $126.8 million on the sale of our interest.

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Debt and Preferred Equity Investments

        During 2010, we originated or acquired approximately $520.7 million in debt and preferred equity investments (net of discount), inclusive of accretion of discount and pay-in-kind interest. We also recorded approximately $342.5 million in sales, repayments, participations, foreclosures and loan loss reserves in 2010. Included in this was approximately $20.9 million of loan loss reserves.

Offering/Financings

        In January 2010, SL Green sold 5,400,000 shares of its Series C preferred stock. The net proceeds from this offering (approximately $122.0 million) was used to repurchase unsecured debt and for other corporate purposes. SL Green contributed the net offering proceeds of approximately $122.0 million to us in exchange for an equivalent number of operating partnership units of a corresponding class.

        In March 2010, we, SL Green and ROP, as co-obligors, issued $250.0 million principal amount of 7.75% senior unsecured notes, due 2020, at par. The net proceeds from the offering (approximately $246.9 million) were used to repay certain of our existing indebtedness, make investments in additional properties, and for general corporate purposes.

        In October 2010, we issued $345.0 million aggregate principal amount of 3.00% exchangeable senior notes due October 2017 at par. The net proceeds from the offering (approximately $336.5 million) were used to repay certain of our existing indebtedness, make investments in additional properties, and for general corporate purposes.

        During 2010, we also closed on 12 mortgages and other loans payable, which are collateralized by our real estate and debt investments, totaling approximately $1.3 billion.

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ITEM 1A.    RISK FACTORS

Declines in the demand for office space in New York City, and in particular, midtown Manhattan, as well as our Suburban markets, including Westchester County, Connecticut, New Jersey and Long Island, resulting from general economic conditions could adversely affect the value of our real estate portfolio and our results of operations and, consequently, our ability to service current debt and make distributions to SL Green.

        Most of our commercial office properties are located in midtown Manhattan. As a result, our business is dependent on the condition of the New York City economy in general and the market for office space in midtown Manhattan in particular. Weakness in the New York City economy could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our cash flow and ability to service current debt and make distributions to SL Green. We could also be affected by similar weakness in our suburban markets.

We may be unable to renew leases or relet space as leases expire.

        When our tenants decide not to renew their leases upon their expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of renewal or reletting, including the cost of required renovations, may be less favorable than current lease terms. As of December 31, 2010, approximately 6.0 million and 3.1 million square feet, representing approximately 34.7% and 32.1% of the rentable square feet, are scheduled to expire by December 31, 2015 at our consolidated properties and unconsolidated joint venture properties, respectively, and as of December 31, 2010, these leases had annualized escalated rental income totaling approximately $283.8 million and $157.4 million, respectively. We also have leases with termination options beyond 2015. If we are unable to promptly renew the leases or relet the space at similar rates, our cash flow and ability to service debt and make distributions to SL Green could be adversely affected.

The expiration of long term leases or operating sublease interests could adversely affect our results of operations.

        Our interests in seven commercial office properties are through either long-term leasehold or operating sublease interests in the land and the improvements, rather than by ownership of fee interest in the land. These properties are 673 First Avenue, 420 Lexington Avenue, 461 Fifth Avenue, 711 Third Avenue, 625 Madison Avenue, 1185 Avenue of the Americas, all in Manhattan, and 1055 Washington Avenue, Stamford, Connecticut. We have the ability to acquire the fee position at 461 Fifth Avenue for a fixed price on a specific date. Unless we can purchase a fee interest in the underlying land or extend the terms of these leases before their expiration, we will lose our right to operate these properties upon expiration of the leases, which would significantly adversely affect our results of operations. The average remaining term of these long-term leases as of December 31, 2010, including our unilateral extension rights on each of the properties, is approximately 42 years. Our share of annualized escalated rents of these properties at December 31, 2010 totaled approximately $240.2 million, or 24%, of our share of total portfolio annualized revenue.

Our results of operations rely on major tenants, including in the financial services sector, and insolvency, bankruptcy or receivership of these or other tenants could adversely affect our results of operations.

        Giving effect to leases in effect as of December 31, 2010 for consolidated properties and unconsolidated joint venture properties, as of that date, our five largest tenants, based on square footage leased, accounted for approximately 22.3% of our share of portfolio annualized rent, with three tenants, Citigroup, Inc. (and its affiliates), Credit Suisse Securities (USA) LLC and Viacom International Inc. accounting for approximately 8.0%, 5.9% and 5.3% of our share of portfolio annualized rent, respectively. In addition, the financial services sector accounted for approximately 39% of our total annualized revenues and 38% of our square feet leased of our portfolio as of December 31, 2010. This sector continues to experience significant turmoil. If current economic conditions persist or deteriorate, we may experience increases in past due accounts, defaults, lower occupancy and

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reduced effective rents, particularly in respect of our financial service tenants. Our business would be adversely affected if any of our major tenants became insolvent, declared bankruptcy, are put into receivership or otherwise refused to pay rent in a timely fashion or at all.

Adverse economic and geopolitical conditions in general and the Northeastern commercial office markets in particular could have a material adverse effect on our results of operations, financial condition and our ability to service debt and make distributions to SL Green.

        Our business may be affected by the unprecedented volatility and illiquidity in the financial and credit markets and other market or economic challenges experienced by the U.S. economy or real estate industry as a whole. As a result of the economic downturn that began in the second half of 2007, demand for office and retail space declined nationwide due to bankruptcies, downsizing, layoffs and cost cutting. Real estate transactions and development opportunities lessened compared to the period prior to the current economic downturn and capitalization rates rose. As a result, the cost and availability of credit was, and may in down markets be, adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led, and in downturn periods may lead, many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers, and this may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our tenants. Our business may also be adversely affected by local economic conditions, as substantially all of our revenues are derived from our properties located in the Northeast, particularly in New York, Westchester County and Connecticut. Because our portfolio consists primarily of commercial office buildings (as compared to a more diversified real estate portfolio) located principally in Manhattan, if negative economic conditions persist or deteriorate, then our results of operations, financial condition and ability to service current debt and to make distributions to SL Green may be adversely affected. Specifically, our business may be affected by the following conditions:

        These conditions, which could have a material adverse effect on our results of operations, financial condition and ability to service debt and make distributions to SL Green, may continue or worsen in the future.

We may suffer adverse consequences if our revenues decline since our operating costs do not necessarily decline in proportion to our revenue.

        We earn a significant portion of our income from renting our properties. Our operating costs, however, do not fluctuate in relation to changes in our rental revenue. As a result, our costs will not necessarily decline even if our revenues do. Similarly, our operating costs could increase while our revenues stay flat or decline. In either such event, we may be forced to borrow to cover our costs, we may incur losses or we may not have cash available to service debt and make distributions to SL Green.

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We face risks associated with property acquisitions.

        We may acquire individual properties and portfolios of properties, including large portfolios that could significantly increase our size and alter our capital structure. Our acquisition activities may be exposed to, and their success may be adversely affected by, the following risks:

        We may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us arising from our ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:

Competition for acquisitions may reduce the number of acquisition opportunities available to us and increase the costs of those acquisitions.

        We plan to continue to acquire properties as we are presented with attractive opportunities. We may face competition for acquisition opportunities from other investors, particularly private investors who can incur more leverage, and this competition may adversely affect us by subjecting us to the following risks:

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ITEM 1A.    RISK FACTORS

We rely on seven large properties for a significant portion of our revenue.

        As of December 31, 2010, seven of our properties, 420 Lexington Avenue, 220 East 42nd Street, One Madison Avenue, 485 Lexington Avenue, 1185 Avenue of the Americas, 1515 Broadway and 388-390 Greenwich Street, accounted for approximately 41% of our portfolio annualized rent, including our share of joint venture annualized rent. Our revenue and cash available to service debt and make distributions to SL Green would be materially adversely affected if any of these properties were materially damaged or destroyed. Additionally, our revenue and cash available to service debt and make distribution to SL Green would be materially adversely affected if tenants at these properties fail to timely make rental payments due to adverse financial conditions or otherwise, default under their leases or file for bankruptcy.

The continuing threat of terrorist attacks may adversely affect the value of our properties and our ability to generate cash flow.

        There may be a decrease in demand for space in New York City because it is considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals. In the aftermath of a terrorist attack, tenants in the New York City area may choose to relocate their business to less populated, lower-profile areas of the United States that are not as likely to be targets of future terrorist activity. This in turn could trigger a decrease in the demand for space in the New York City area, which could increase vacancies in our properties and force us to lease our properties on less favorable terms. As a result, the value of our properties and the level of our revenues could materially decline.

A terrorist attack could cause insurance premiums to increase significantly.

        We maintain "all-risk" property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism) within two property insurance portfolios and liability insurance. The first property portfolio maintains a blanket limit of $750.0 million per occurrence, including terrorism, for the majority of the New York City properties in our portfolio. This policy expires on December 31, 2011. The second portfolio maintains a limit of $600.0 million per occurrence, including terrorism, for some New York City properties and the majority of the Suburban properties. The second property policy expires on December 31, 2011. Additional coverage may be purchased on a stand-alone basis for certain assets. We maintain liability policies which cover all our properties and provide limits of $201.0 million per occurrence and in the aggregate per location. The liability policies expire on October 31, 2011.

        In October 2006, SL Green formed a wholly-owned taxable REIT subsidiary, Belmont Insurance Company, or Belmont, to act as a captive insurance company and be one of the elements of its overall insurance program. Belmont is a subsidiary of ours. Belmont was formed in an effort to, among other reasons, stabilize to some extent the fluctuations of insurance market conditions. Belmont is licensed in New York to write Terrorism, NBCR (nuclear, biological, chemical, and radiological), General Liability, Environmental Liability and D&O coverage.

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        As long as we own Belmont, we are responsible for its liquidity and capital resources, and the accounts of Belmont are part of our consolidated financial statements. If we experience a loss and Belmont is required to pay under its insurance policy, we would ultimately record the loss to the extent of Belmont's required payment. Therefore, insurance coverage provided by Belmont should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.

        The Terrorism Risk Insurance Act, or TRIA, which was enacted in November 2002, was renewed on December 31, 2007. Congress extended TRIA, now called TRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007) until December 31, 2014. The law extends the federal Terrorism Insurance Program that requires insurance companies to offer terrorism coverage and provides for compensation for insured losses resulting from acts of certified terrorism, subject to the current program trigger of $100.0 million. Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), mezzanine loans, ground leases, our 2007 unsecured revolving credit facility and other corporate obligations, contain customary covenants requiring us to maintain insurance. Although we believe that we currently maintain sufficient insurance coverage to satisfy these obligations, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from "all-risk" insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments allowing the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions. In addition, if lenders prevail in asserting that we are required to maintain full coverage for these risks, it could result in substantially higher insurance premiums.

        We have a 49.9% interest in the property at 100 Park Avenue, where we participate with Prudential, which carries a blanket policy of $500.0 million of "all-risk" property insurance, including terrorism coverage. We own One Madison Avenue, which is under a triple net lease with insurance provided by the tenant, Credit Suisse Securities (USA) LLC, or CS. We have a 50.6% interest in the property at 388 and 390 Greenwich Street, where we participate with SITQ, which is leased on a triple net basis to Citigroup, N.A., which provides insurance coverage directly. We monitor all triple net leases to ensure that tenants are providing adequate coverage. Other joint ventures may be covered under policies separate from our policies, at coverage limits which we deem to be adequate. We continually monitor these policies. Although we consider our insurance coverage to be appropriate, in the event of a major catastrophe, such as an act of terrorism, we may not have sufficient coverage to replace certain properties.

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Our dependence on smaller and growth-oriented businesses to rent our office space could adversely affect our cash flow and results of operations.

        Many of the tenants in our properties are smaller, growth-oriented businesses that may not have the financial strength of larger corporate tenants. Smaller companies generally experience a higher rate of failure than large businesses. Growth-oriented firms may also seek other office space as they develop. Dependence on these companies could create a higher risk of tenant defaults, turnover and bankruptcies, which could adversely affect our distributable cash flow and results of operations.

Debt financing, financial covenants, degree of leverage, and increases in interest rates could adversely affect our economic performance.

Scheduled debt payments could adversely affect our results of operations.

        Cash flow could be insufficient to make distributions to SL Green and meet the payments of principal and interest required under our current mortgage and other indebtedness, 2007 unsecured revolving credit facility, senior unsecured notes, debentures and indebtedness outstanding at our joint venture properties. The total principal amount of our outstanding consolidated indebtedness was approximately $5.3 billion as of December 31, 2010, consisting of approximately $650.0 million under our 2007 unsecured revolving credit facility, $1.1 billion under our senior unsecured notes, $100.0 million under our junior subordinated deferrable interest debentures and approximately $3.4 billion of non-recourse mortgages and loans payable on 21 of our investments and a recourse loan on one of our investments. In addition, we could increase the amount of our outstanding indebtedness in the future, in part by borrowing under our 2007 unsecured revolving credit facility, which had $776.9 million available for draw as of December 31, 2010. Our 2007 unsecured revolving credit facility matures in June 2011 and has a one-year as-of-right extension option. As of December 31, 2010, the total principal amount of non-recourse indebtedness outstanding at the joint venture properties was approximately $3.7 billion, of which our proportionate share was approximately $1.6 billion.

        If we are unable to make payments under our 2007 unsecured revolving credit facility, all amounts due and owing at such time shall accrue interest at a rate equal to 4% higher than the rate at which each draw was made. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgagee could foreclose on the property, resulting in loss of income and asset value. Foreclosure on mortgaged properties or an inability to make payments under our 2007 unsecured revolving credit facility or our senior unsecured notes would have a negative impact on our financial condition and results of operations.

        We may not be able to refinance existing indebtedness, which may require substantial principal payments at maturity. In 2011, approximately $84.8 million of corporate indebtedness, $216.7 million of debt on our consolidated properties and $589.0 million of debt on our unconsolidated joint venture properties will mature. At the present time, we intend to exercise extension options, repay or refinance the debt associated with our properties on or prior to their respective maturity dates. At the time of refinancing, prevailing interest rates or other factors, such as the possible reluctance of lenders to make commercial real estate loans may result in higher interest rates. Increased interest expense on the refinanced debt would adversely affect cash flow and our ability to service debt and make distributions to SL Green. If any principal payments due at maturity cannot be repaid, refinanced or extended, our cash flow will not be sufficient in all years to repay all maturing debt.

Financial covenants could adversely affect our ability to conduct our business.

        The mortgages and mezzanine loans on our properties generally contain customary negative covenants that limit our ability to further mortgage the properties, to enter into new leases without lender consent or materially

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modify existing leases, and to discontinue insurance coverage. In addition, our 2007 unsecured revolving credit facility contains customary restrictions and requirements on our method of operations. Our 2007 unsecured revolving credit facility and senior unsecured bonds also require us to maintain designated ratios, including but not limited to, total debt-to-assets, debt service coverage and unencumbered assets-to-unsecured debt. These restrictions could adversely affect our results of operations and our ability to service debt and make distributions to SL Green.

Rising interest rates could adversely affect our cash flow.

        Advances under the 2007 unsecured revolving credit facility and certain property-level mortgage debt bear interest at a variable rate. These consolidated variable rate borrowings totaled approximately $1.1 billion at December 31, 2010. In addition, we could increase the amount of our outstanding variable rate debt in the future, in part by borrowing under our 2007 unsecured revolving credit facility, which had $776.9 million available for draw as of December 31, 2010. Borrowings under the 2007 unsecured revolving credit facility currently bear interest at a spread equal to the 30-day LIBOR, plus 90 basis points. As of December 31, 2010, borrowings under the 2007 unsecured revolving credit facility and junior subordinated deferrable interest debentures totaled $650.0 million and $100.0 million, respectively, and bore interest at 1.18% and 5.61%, respectively. We may incur indebtedness in the future that also bears interest at a variable rate or may be required to refinance our debt at higher rates. Accordingly, increases in interest rates above that which we anticipated based upon historical trends could adversely affect our results of operations and financial conditions. At December 31, 2010, a hypothetical 100 basis point increase in interest rates across each of our variable interest rate instruments would increase our annual interest costs by approximately $11.0 million and would increase our share of joint venture annual interest costs by approximately $6.7 million. Accordingly, increases in interest rates could adversely affect our ability to continue to service debt and make distributions to SL Green.

Failure to hedge effectively against interest rate changes may adversely affect results of operations.

        The interest rate hedge instruments we use to manage some of our exposure to interest rate volatility involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to interest rate changes. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

No limitation on debt could adversely affect our cash flow.

        SL Green considers its business as a whole in determining the amount of leverage of itself and its subsidiaries, including us. SL Green also considers other factors in making decisions regarding the incurrence of indebtedness, such as the purchase price of properties to be acquired with debt financing, the estimated market value of our properties upon refinancing and the ability of particular properties and our business as a whole to generate cash flow to cover expected debt service. Our organizational documents do not contain any limitation on the amount of indebtedness we may incur. As a result, if we become more highly leveraged, an increase in debt service could adversely affect cash available for distributions to SL Green and could increase the rise of default on our indebtedness.

Debt and Preferred Equity Investments could cause us to incur expenses, which could adversely affect our results of operations.

        We owned first mortgages, mezzanine loans, junior participations and preferred equity interests in 23 investments with an aggregate net book value of approximately $963.8 million at December 31, 2010. Such

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investments may or may not be recourse obligations of the borrower and are not insured or guaranteed by governmental agencies or otherwise. In the event of a default under these obligations, we may have to take possession of the collateral securing these interests. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against such enforcement and/or bring claims for lender liability in response to actions to enforce their obligations to us. Relatively high loan-to-value ratios and declines in the value of the property may prevent us from realizing an amount equal to our investment upon foreclosure or realization even if we make substantial improvements or repairs to the underlying real estate in order to maximize such property's investment potential.

        We maintain and regularly evaluate financial reserves to protect against potential future losses. Our reserves reflect management's judgment of the probability and severity of losses and the value of the underlying collateral. We cannot be certain that our judgment will prove to be correct and that our reserves will be adequate over time to protect against future losses because of unanticipated adverse changes in the economy or events adversely affecting specific properties, assets, tenants, borrowers, industries in which our tenants and borrowers operate or markets in which our tenants and borrowers or their properties are located. We believe the increase in our non-performing loans in 2008 through 2010 was driven by the recent credit crisis, which adversely impacted the ability of many of our borrowers to service their debt and refinance our loans to them at maturity. We significantly increased our provision for loan losses to $93.8 million and our direct write-offs to $69.1 million in 2009 based upon the performance of our assets and conditions in the financial markets and overall economy, which continued to deteriorate in 2009. We recorded approximately $19.8 million in loan loss reserves and charge offs in 2010 on debt and preferred equity investments being held to maturity and $1.0 million on debt and preferred equity investments held for sale in 2010. If our reserves for credit losses prove inadequate, we could suffer losses which would have a material adverse affect on our financial performance and our ability to service debt and make distributions to SL Green.

Special servicing activities could result in liability to us.

        We provide special servicing activities on behalf of third parties. We have been rated by Fitch and S&P to provide such services. An intended or unintended breach of the servicing standards and/or our fiduciary duties to bondholders could result in material liability to us.

Joint investments could be adversely affected by our lack of sole decision-making authority and reliance upon a co-venturer's financial condition.

        We co-invest with third parties through partnerships, joint ventures, co-tenancies or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a property, partnership, joint venture, co-tenancy or other entity. Therefore, we will not be in a position to exercise sole decision-making authority regarding such property, partnership, joint venture or other entity. Investments in partnerships, joint ventures, or other entities may involve risks not present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, our partners or co-venturers might at any time have economic or other business interests or goals, which are inconsistent with our business interests or goals. These investments may also have the potential risk of impasses on decisions such as a sale, because neither we, nor the partner, co-tenant or co-venturer would have full control over the partnership or joint venture. Consequently, actions by such partner, co-tenant or co-venturer might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in specific circumstances be liable for the actions of our third-party partners, co-tenants or co-venturers. As of December 31, 2010, our unconsolidated joint ventures owned 21 properties and we had an aggregate cost basis in these joint ventures totaling approximately $631.6 million. As of

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December 31, 2010, our share of unconsolidated joint venture debt, which is non-recourse to us, totaled approximately $1.6 billion.

Certain of our joint venture agreements contain terms in favor of our partners that could have an adverse effect on the value of our investments in the joint ventures.

        Each of our joint venture agreements has been individually negotiated with our partner in the joint venture and, in some cases, we have agreed to terms that are more favorable to our partner in the joint venture than to us. For example, our partner may be entitled to a specified portion of the profits of the joint venture before we are entitled to any portion of such profits and our partner may have rights to buy our interest in the joint venture, to force us to buy the partner's interest in the joint venture or to compel the sale of the property owned by such joint venture. These rights may permit our partner in a particular joint venture to obtain a greater benefit from the value or profits of the joint venture than us, which could have an adverse effect on the value of our investment in the joint venture and on our financial condition and results of operations. We may also enter into similar arrangements in the future.

We may incur costs to comply with environmental laws.

        We are subject to various federal, state and local environmental laws. These laws regulate our use, storage, disposal and management of hazardous substances and wastes and can impose liability on property owners or operators for the clean-up of certain hazardous substances released on a property and any associated damage to natural resources without regard to whether the release was legal or whether it was caused by the property owner or operator. The presence of hazardous substances on our properties may adversely affect occupancy and our ability to develop or sell or borrow against those properties. In addition to potential liability for clean-up costs, private plaintiffs may bring claims for personal injury, property damage or for similar reasons. Various laws also impose liability for the clean-up of contamination at any facility (e.g., a landfill) to which we have sent hazardous substances for treatment or disposal, without regard to whether the materials were transported, treated and disposed in accordance with law. Being held responsible for such a clean-up could result in significant cost to us and have a material adverse effect on our financial condition and results of operations.

We may incur significant costs complying with the Americans with Disabilities Act and similar laws.

        Our properties may be subject to risks relating to current or future laws including laws benefiting disabled persons, and other state or local zoning, construction or other regulations. These laws may require significant property modifications in the future, which could result in fines being levied against us in the future. The occurrence of any of these events could have an adverse impact on our cash flows and ability to service debt and make distributions to SL Green.

        Under the Americans with Disabilities Act, or ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Additional federal, state and local laws also may require modifications to our properties, or restrict our ability to renovate our properties. We have not conducted an audit or investigation of all of our properties to determine our compliance. If one or more of our properties is not in compliance with the ADA or other legislation, then we may be required to incur additional costs to bring the property into compliance with the ADA or similar state or local laws. We cannot predict the ultimate amount of the cost of compliance with ADA or other legislation. If we incur substantial costs to comply with the ADA and any other legislation, our financial condition, results of operations and cash flow and/or ability to satisfy our debt service obligations and to make distributions to SL Green could be adversely affected.

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Limitations on our ability to sell or reduce the indebtedness on specific mortgaged properties could adversely affect us.

        On May 15, 2002, we acquired the property located at 1515 Broadway, New York, New York. Under a tax protection agreement established to protect the limited partners of the partnership that transferred 1515 Broadway to us, we have agreed not to take certain action that would adversely affect the limited partners' tax positions before December 31, 2011. We acquired the property located at 625 Madison Avenue, New York, New York on October 19, 2004 and have agreed not to take certain action that would adversely affect the tax positions of certain of the partners who held interests in this property prior to the acquisition, for a period of seven years after the acquisition.

        In connection with future acquisitions of interests in properties, we may agree to similar restrictions on our ability to sell or refinance the acquired properties. These limitations could have adverse consequences on our business and result in a material adverse effect on our financial condition and results of operations.

We face potential conflicts of interest.

There are potential conflicts of interest between SL Green and Mr. Green.

        There is a potential conflict of interest relating to the disposition of certain property contributed to us by Stephen L. Green, and his family in SL Green's initial public offering. Mr. Green serves as the chairman of SL Green's board of directors and is an executive officer. As part of our formation, Mr. Green contributed appreciated property, with a net book value of $73.5 million, to SLGOP in exchange for units of limited partnership interest in SLGOP. He did not recognize any taxable gain as a result of the contribution. SLGOP, however, took a tax basis in the contributed property equal to that of the contributing unitholder. The fair market value of the property contributed by him exceeded his tax basis by approximately $34.0 million at the time of contribution. The difference between fair market value and tax basis at the time of contribution represents a built-in gain. If we sell a property in a transaction in which a taxable gain is recognized, for tax purposes the built-in gain would be allocated solely to him and not to SL Green. As a result, Mr. Green has a conflict of interest if the sale of a property which he contributed is in our best interest but not his.

        There is a potential conflict of interest relating to the refinancing of indebtedness specifically allocated to Mr. Green. Mr. Green would recognize gain if he were to receive a distribution of cash from SLGOP in an amount that exceeds his tax basis in his partnership units. His tax basis includes his share of debt, including mortgage indebtedness, owed by SLGOP. If SLGOP were to retire such debt, then he would experience a decrease in his share of liabilities, which, for tax purposes, would be treated as a distribution of cash to him. To the extent the deemed distribution of cash exceeded his tax basis, he would recognize gain.

Members of management may have a conflict of interest over whether to enforce terms of agreements with entities which senior management, directly or indirectly, has an affiliation.

        Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors. We and our tenants accounted for approximately 25.1% of Alliance's 2010 estimated total revenue. The contracts pursuant to which these services are provided are not the result of arm's length negotiations and, therefore, there can be no assurance that the terms and conditions are not less favorable than those which could be obtained from third parties providing comparable services. In addition, to the

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extent that we choose to enforce our rights under any of these agreements, we may determine to pursue available remedies, such as actions for damages or injunctive relief, less vigorously than we otherwise might because of our desire to maintain our ongoing relationship with Gary Green.

Members of management may have a conflict of interest over whether to enforce terms of senior management's employment and noncompetition agreements.

        Stephen Green, Marc Holliday, Andrew Mathias, Andrew Levine and James Mead entered into employment and noncompetition agreements with SL Green pursuant to which they have agreed not to actively engage in the acquisition, development or operation of office real estate in the New York Metropolitan area. For the most part, these restrictions apply to the executive both during his employment and for a period of time thereafter. Each executive is also prohibited from otherwise disrupting or interfering with our business through the solicitation of our employees or clients or otherwise. To the extent that SL Green chooses to enforce its rights under any of these agreements, SL Green may determine to pursue available remedies, such as actions for damages or injunctive relief, less vigorously than it otherwise might because of its desire to maintain an ongoing relationship with the individual involved. Additionally, the non-competition provisions of these agreements despite being limited in scope and duration, could be difficult to enforce, or may be subject to limited enforcement, should litigation arise over them in the future. Mr. Green also has interests in two properties in Manhattan, which are exempt from the non-competition provisions of his employment and non-competition agreement.

SL Green's failure to qualify as a REIT would be costly.

        We believe that SL Green has operated in a manner to qualify as a REIT for federal income tax purposes and SL Green intends to continue to so operate. Many of these requirements, however, are highly technical and complex. The determination that SL Green is a REIT requires an analysis of factual matters and circumstances. These matters, some of which may not be totally within our or SL Green's control, can affect its qualification as a REIT. For example, to qualify as a REIT, at least 95% of SL Green's gross income must come from designated sources that are listed in the REIT tax laws. SL Green is also required to distribute to stockholders at least 90% of its REIT taxable income excluding capital gains. The fact that SL Green holds its assets through subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize SL Green's REIT status. Furthermore, Congress and the Internal Revenue Service, which we refer to as the IRS, might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible, for SL Green to remain qualified as a REIT.

        If SL Green fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates. Also, unless the IRS grants SL Green relief under specific statutory provisions, it would remain disqualified as a REIT for four years following the year it first failed to qualify. If SL Green failed to qualify as a REIT, we would have to pay significant income taxes and we would therefore have less money available to service indebtedness.

We are dependent on external sources of capital.

        Because of distribution requirements imposed on us in order to allow SL Green to qualify as a REIT, it is not likely that we will be able to fund all future capital needs, including acquisitions, from income from operations. We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the market's perception of our growth potential and our current and potential future earnings. In addition, we anticipate having to raise money in the public equity and debt markets with some regularity and our ability to do so will depend upon the general conditions prevailing in these markets. At any time conditions may exist which effectively prevent

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SL Green and its subsidiaries, including us, or REITs in general, from accessing these markets. Moreover, additional equity offerings may result in substantial dilution of SL Green's stockholders' interests, and additional debt financing may substantially increase our leverage.

We face significant competition for tenants.

        The leasing of real estate is highly competitive. The principal means of competition are rent, location, services provided and the nature and condition of the facility to be leased. We directly compete with all lessors and developers of similar space in the areas in which our properties are located. Demand for retail space has been affected by the recent bankruptcy of a number of retail companies and a general trend toward consolidation in the retail industry, which could adversely affect the ability of our company to attract and retain tenants.

        Our commercial office properties are concentrated in highly developed areas of midtown Manhattan and certain Suburban central business districts, or CBDs. Manhattan is the largest office market in the United States. The number of competitive office properties in Manhattan and CBDs in which our Suburban properties are located (which may be newer or better located than our properties) could have a material adverse effect on our ability to lease office space at our properties, and on the effective rents we are able to charge.

Loss of our key personnel could harm our operations.

        We are dependent on the efforts of Marc Holliday, SL Green's chief executive officer, and Andrew Mathias, SL Green's president. These officers have employment agreements which expire in January 2013 and December 2013, respectively. A loss of the services of either of these individuals could adversely affect our operations.

Our business and operations would suffer in the event of system failures.

        Despite system redundancy, the implementation of security measures and the existence of a Disaster Recovery Plan for our internal information technology systems, our systems are vulnerable to damages from any number of sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. We may also incur additional costs to remedy damages caused by such disruptions.

Compliance with changing or new regulation applicable to corporate governance and public disclosure may result in additional expenses, affect our operations and affect our reputation.

        Changing or new laws, regulations and standards relating to corporate governance and public disclosure, including SEC regulations and New York Stock Exchange rules, can create uncertainty for public companies. These changed or new laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal controls over financial reporting and our

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external auditors' audit of that assessment have required the commitment of significant financial and managerial resources. In addition, it has become more difficult and expensive for SL Green to obtain director and officer liability insurance. We expect these efforts to require the continued commitment of significant resources. Further, SL Green's directors, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, SL Green may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business.

Forward-Looking Statements May Prove Inaccurate

        See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Forward-looking Information" for additional disclosure regarding forward-looking statements.


ITEM 1B.    UNRESOLVED STAFF COMMENTS

        As of December 31, 2010, we did not have any unresolved comments with the staff of the SEC.


ITEM 2.    PROPERTIES

Our Portfolio

General

        As of December 31, 2010, we owned or held interests in 22 consolidated and eight unconsolidated commercial office properties encompassing approximately 15.1 million rentable square feet and approximately 7.2 million rentable square feet, respectively, located primarily in midtown Manhattan. Certain of these properties include at least a small amount of retail space on the lower floors, as well as basement/storage space. As of December 31, 2010, our portfolio also included ownership interests in 25 consolidated and six unconsolidated commercial office properties located in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, or the Suburban assets, encompassing approximately 3.9 million rentable square feet and approximately 2.9 million rentable square feet, respectively. As of December 31, 2010, our portfolio also included 11 consolidated and unconsolidated retail properties encompassing approximately 405,362 square feet, four development properties encompassing approximately 465,441 square feet and three land interests.

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        The following table sets forth certain information with respect to each of the Manhattan and Suburban office and retail properties in the portfolio as of December 31, 2010:

Manhattan Properties
  Year Built/
Renovated
  SubMarket   Approximate
Rentable
Square Feet
  Percentage
of Portfolio
Rentable
Square
Feet (%)
  Percent
Leased (%)
  Annualized
Rent
($'s)(1)
  Percentage
of Portfolio
Annualized
Rent
(%)(2)
  Number
of
Tenants
  Annualized
Rent Per
Leased
Square
Foot ($)(3)
  Annualized
Net Effective
Rent Per
Leased
Square Foot
($)(4)
 

CONSOLIDATED PROPERTIES

                                                 

"Same Store"(13)

                                                           

120 West 45th Street

   
1998
 

Midtown

   
440,000
   
1
   
99.0
   
26,024,988
   
2
   
27
   
58.89
   
56.33
 

220 East 42nd Street

    1929  

Grand Central

    1,135,000     4     92.4     46,124,292     5     34     44.02     39.66  

28 West 44th Street

    1919/2003  

Midtown

    359,000     1     94.0     15,528,576     1     65     47.11     38.44  

317 Madison Avenue

    1920/2004  

Grand Central

    450,000     2     89.5     21,189,252     2     80     47.41     38.65  

420 Lexington Ave (Graybar)(5)

    1927/1999  

Grand Central

    1,188,000     4     89.9     60,895,788     6     216     48.98     41.34  

461 Fifth Avenue(5)(6)

    1988  

Midtown

    200,000     1     96.9     14,198,928     1     16     77.94     75.43  

485 Lexington Avenue

    1956/2006  

Grand Central

    921,000     3     93.9     49,130,400     5     21     55.12     47.37  

555 West 57th Street(6)

    1971  

Midtown West

    941,000     3     96.1     30,636,204     3     10     32.18     24.74  

609 Fifth Avenue

    1925/1990  

Rockefeller Center

    160,000     1     85.0     12,947,520     1     12     95.11     94.26  

625 Madison Avenue(5)

    1956/2002  

Plaza District

    563,000     2     99.0     43,464,096     4     25     77.05     68.35  

673 First Avenue(5)(6)

    1928/1990  

Grand Central

    422,000     1     99.7     17,853,348     2     9     39.86     38.91  

711 Third Avenue(5)(6)(7)

    1955  

Grand Central

    524,000     2     87.6     25,790,304     3     15     52.01     41.44  

750 Third Avenue

    1958/2006  

Grand Central

    780,000     3     97.2     39,151,560     4     31     50.75     46.26  

810 Seventh Avenue

    1970  

Times Square

    692,000     2     80.4     36,899,292     4     36     59.47     51.09  

919 Third Avenue

    1970  

Grand Central

    1,454,000     5     99.9     83,659,788     4     14     57.59     50.73  

1185 Avenue of the Americas(5)

    1969  

Rockefeller Center

    1,062,000     4     97.6     72,482,004     7     16     69.09     63.22  

1350 Avenue of the Americas

    1966  

Rockefeller Center

    562,000     2     86.1     29,511,348     3     39     58.58     56.82  

1 Madison Avenue

    1960/2002  

Park Avenue South

    1,176,900     4     99.8     61,715,976     6     2     52.57     52.37  

331 Madison Avenue

    1923  

Grand Central

    114,900     0     99.5     4,849,572     0     18     42.93     41.49  
                                                 
 

Subtotal / Weighted Average

    13,144,800     45     94.4     692,053,236     63     686              

Adjustments

                                                           

333 West 34th Street

    1954/2000  

Penn Station

    345,400     1     78.5     11,158,920     1     2     40.61     38.97  

100 Church Street

    1959/2010  

Downtown

    1,047,500     4     59.9     23,998,572     3     9     38.14     36.91  

125 Park Avenue

    1923/2006  

Grand Central

    604,245     2     99.1     33,178,848     3     21     55.70     52.55  
                                                 
 

Subtotal / Weighted Average

    1,997,145     7     74.9     68,336,340     7     32              

Total / Weighted Average Consolidated Properties(8)

   
15,141,945
   
52
   
91.8
   
760,389,576
   
70
   
718
             

UNCONSOLIDATED PROPERTIES

                                                 

"Same Store"

                                                           

100 Park Avenue—50%

    1950/1980  

Grand Central

    834,000     3     91.9     48,804,000     3     33     60.33     47.33  

521 Fifth Avenue(5)—50.1%

    1929/2000  

Grand Central

    460,000     2     80.7     20,374,416     1     44     53.75     45.71  

800 Third Avenue—42.95%

    1972/2006  

Grand Central

    526,000     2     80.8     24,860,424     1     34     52.33     46.11  

1515 Broadway—55%(6)

    1972  

Times Square

    1,750,000     6     98.0     104,418,588     7     11     61.93     44.16  

388 & 390 Greenwich Street—50.6%(12)

    1986-1990  

Downtown

    2,635,000     9     100.0     102,945,936     5     1     39.07     39.07  

1745 Broadway—32.3%(12)

    2003  

Midtown

    674,000     2     100.0     36,538,044     1     1     56.68     56.68  
                                                 

              6,879,000     24     95.8     337,941,408     18     124              

Adjustments

                                                           

600 Lexington Avenue—55.0%

    1983/2009  

Plaza District

    303,515     1     84.6     16,411,080     1     28     64.73     52.21  
                                                 
 

Subtotal / Weighted Average

    303,515     1     84.6     16,411,080     1     28              

Total / Weighted Average Unconsolidated Properties(9)

    7,182,515     25     95.3     354,352,488     19     152              
                                                 

Manhattan Grand Total / Weighted Average

    22,324,460     77     92.9     1,114,742,064           870              

Manhattan Grand Total—SLG share of Annualized Rent

                                                 

Manhattan Same Store Occupancy %—Combined

    20,023,800     90     94.8     909,061,849     89                    
                                                   

Suburban Properties

                                                 

CONSOLIDATED PROPERTIES

                                                           

Adjustments

                                                           

1100 King Street—1-6 International Drive

    1983-1986  

Rye Brook, Westchester

    540,000     2     74.7     11,671,968     1     27     29.13     26.16  

520 White Plains Road

    1979  

Tarrytown, Westchester

    180,000     1     72.5     3,466,920         8     27.32     27.11  

115-117 Stevens Avenue

    1984  

Valhalla, Westchester

    178,000     1     84.9     2,923,860         13     22.12     12.69  

100 Summit Lake Drive

    1988  

Valhalla, Westchester

    250,000     1     60.6     3,423,819         8     22.59     26.45  

200 Summit Lake Drive

    1990  

Valhalla, Westchester

    245,000     1     92.4     6,277,236     1     7     28.28     27.63  

500 Summit Lake Drive

    1986  

Valhalla, Westchester

    228,000     1     76.2     4,081,776     1     6     25.45     19.89  

140 Grand Street

    1991  

White Plains, Westchester

    130,100         94.4     4,062,888     1     10     36.66     28.56  

360 Hamilton Avenue

    2000  

White Plains, Westchester

    384,000     1     90.5     12,006,192     1     15     34.83     31.62  
                                                 
 

Westchester, NY Subtotal

    2,135,100     8     80.0     47,914,659     5     94              

1-6 Landmark Square

    1973/1984  

Stamford, Connecticut

    826,000     3     88.7     20,445,756     2     101     31.34     26.60  

680 Washington Boulevard

    1989  

Stamford, Connecticut

    133,000         84.5     3,512,364         6     40.15     30.74  

750 Washington Boulevard

    1989  

Stamford, Connecticut

    192,000     1     95.4     6,774,792     1     7     38.20     31.55  

1055 Washington Boulevard(5)

    1987  

Stamford, Connecticut

    182,000     1     86.6     5,488,560     1     20     34.68     33.13  

300 Main Street

    2002  

Stamford, Connecticut

    130,000         89.0     1,802,328         17     15.99     14.59  

1010 Washington Boulevard

    1988  

Stamford, Connecticut

    143,400         50.2     2,097,300         15     31.58     26.60  

500 West Putnam Avenue

    1973  

Greenwich, Connecticut

    121,500         68.2     3,507,348         10     42.31     40.86  
                                                 
 

Connecticut Subtotal

    1,727,900     5     84.3     43,628,448     4     176              
                                                 

Total / Weighted Average Consolidated Properties(10)

    3,863,000     13     81.9     91,543,107     9     270              

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ITEM 2.    PROPERTIES


Suburban Properties
  Year Built/
Renovated
  SubMarket   Approximate
Rentable
Square Feet
  Percentage
of Portfolio
Rentable
Square
Feet (%)
  Percent
Leased (%)
  Annualized
Rent
($'s)(1)
  Percentage
of Portfolio
Annualized
Rent
(%)(2)
  Number
of
Tenants
  Annualized
Rent Per
Leased
Square
Foot ($)(3)
  Annualized
Net Effective
Rent Per
Leased
Square Foot
($)(4)
 

UNCONSOLIDATED PROPERTIES

                                                           

Adjustments

                                                           

One Court Square—30%

    1987  

Long Island City, New York

    1,402,000     5     100.0     39,819,192     1     1     28.41     28.41  

The Meadows—50%

    1981  

Rutherford, New Jersey

    582,100     2     83.2     12,697,116     1     53     27.32     25.88  

16 Court Street—35%

    1928  

Brooklyn, New York

    317,600     1     87.5     9,697,680         66     38.70     33.09  

Jericho Plaza—20.26%

    1980  

Jericho, New York

    640,000     2     95.3     21,126,564         34     36.46     34.27  

Total / Weighted Average Unconsolidated Properties(11)

    2,941,700     10     94.3     83,340,552     2     154              
                                                 

Grand Total / Weighted Average

    29,129,160     100     91.6   $ 1,289,625,723           1,294              
                                                 

Grand Total—SLG share of Annualized Rent

                    $ 1,021,532,995     100                    
                                                 

Retail, Development and Land

                                                           

125 Chubb Way(13)

    2008  

Lyndhurst, New Jersey

    278,000     32     10.7     642,012     1     1     21.50      

150 Grand Street(13)

    1962/2001  

White Plains, New York

    85,000     10     15.8     130,015         8     9.90     9.90  

7 Renaissance Square—50%(13)

    2008  

White Plains, New York

    65,641     8                          

141 Fifth Avenue—45%

    1879  

Flat Iron

    13,000     1     100.0     2,525,424     3     2     242.06     175.17  

1551-1555 Broadway—10%

    2009  

Times Square

    25,600     3     100.0     16,263,864     4     1     635.31     673.18  

1604 Broadway—63%

    1912/2001  

Times Square

    29,876     3     23.7     2,001,912     3     2     283.28     189.71  

180-182 Broadway—25.5%

    1902  

Cast Iron/Soho

    70,580     8                          

11 West 34th Street—30%

    1920/2010  

Herald Square/Penn Station

    17,150     2     100.0     1,750,000     1     1     102.04     102.04  

21-25 West 34th Street—50%

    2009  

Herald Square/Penn Station

    30,100     3     100.0     6,438,444     7     1     320.29     304.77  

27-29 West 34th Street—50%

    2009  

Herald Square/Penn Station

    15,600     2     100.0     4,080,372     5     2     261.34     283.28  

379 West Broadway—45%

    1853/1987  

Cast Iron/Soho

    62,006     7     100.0     3,716,196     4     5     61.39     57.78  

717 Fifth Avenue—32.75%

    1958/2000  

Midtown/Plaza District

    119,550     14     75.8     20,069,244     15     6     203.80     156.98  

7 Landmark Square(13)

    2007  

Stamford, Connecticut

    36,800     4     10.8     285,888     1     1     71.83     71.83  

Williamsburg Terrace(6)

    2010  

Brooklyn, New York

    21,900     3     100.0     1,421,796     3     2     64.94     64.92  

2 Herald Square(14)

     

Herald Square/Penn Station

    N/A     N/A     N/A     9,000,000     20     1          

885 Third Avenue(14)

     

Midtown/Plaza District

    N/A     N/A     N/A     11,095,000     25     1          

292 Madison Avenue(14)

     

Grand Central

    N/A     N/A     N/A     3,150,000     7     1          
                                                 

Total / Weighted Average Retail/Development Properties

    870,803     100     N/A   $ 82,570,167     100     35              

(1)
Annualized Rent represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2010 for the 12 months ending December 31, 2011 are approximately $0.2 million for our consolidated properties and $0.8 million for our unconsolidated properties.

(2)
Includes our share of unconsolidated joint venture annualized rent calculated on a consistent basis.

(3)
Annualized Rent Per Leased Square Foot represents Annualized Rent, as described in footnote (1) above, presented on a per leased square foot basis.

(4)
Annual Net Effective Rent Per Leased Square Foot represents (a) for leases in effect at the time an interest in the relevant property was first acquired by us, the remaining lease payments under the lease from the acquisition date divided by the number of months remaining under the lease multiplied by 12 and (b) for leases entered into after an interest in the relevant property was first acquired by us, all lease payments under the lease divided by the number of months in the lease multiplied by 12, minus, in the case of both (a) and (b), tenant improvement costs and leasing commissions, if any, paid or payable by us and presented on a per leased square foot basis. Annual Net Effective Rent Per Leased Square Foot includes future contractual increases in rental payments and therefore, in certain cases, may exceed Annualized Rent Per Leased Square Foot.

(5)
We hold a leasehold interest in this property.

(6)
Includes a parking garage.

(7)
We hold a leasehold mortgage interest, a net sub-leasehold interest and a co-tenancy interest in this property.

(8)
Includes approximately 13.8 million square feet of rentable office space, 1.1 million square feet of rentable retail space and 0.3 million square feet of garage space.

(9)
Includes approximately 6.9 million square feet of rentable office space, 0.2 million square feet of rentable retail space and 0.1 million square feet of garage space.

(10)
Includes approximately 3.6 million square feet of rentable office space and 0.2 million square feet of rentable retail space.

(11)
Includes approximately 2.9 million square feet of rentable office space.

(12)
The rent per square foot is presented on a triple-net basis.

(13)
This is a development property.

(14)
This is a land investment.

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ITEM 2.    PROPERTIES

        Historical Occupancy.    We have historically achieved consistently higher occupancy rates in our Manhattan portfolio in comparison to the overall midtown markets, as shown over the last five years in the following table:

 
  Percent of
Manhattan
Portfolio
Leased(1)
  Occupancy Rate of
Class A
Office Properties
In The Midtown
Markets(2)(3)
  Occupancy Rate of
Class B
Office Properties
In The Midtown
Markets(2)(3)
 

December 31, 2010

    92.9 %   88.6 %   90.9 %

December 31, 2009

    95.0 %   86.8 %   90.3 %

December 31, 2008

    96.7 %   90.8 %   92.1 %

December 31, 2007

    96.6 %   94.1 %   93.5 %

December 31, 2006

    97.0 %   95.7 %   93.7 %

(1)
Includes space for leases that were executed as of the relevant date in our wholly-owned and joint venture properties in Manhattan owned by us as of that date.

(2)
Includes vacant space available for direct lease and sublease. Source: Cushman & Wakefield.

(3)
The term "Class B" is generally used in the Manhattan office market to describe office properties that are more than 25 years old but that are in good physical condition, enjoy widespread acceptance by high-quality tenants and are situated in desirable locations in Manhattan. Class B office properties can be distinguished from Class A properties in that Class A properties are generally newer properties with higher finishes and frequently obtain the highest rental rates within their markets.

Lease Expirations

        Leases in our Manhattan portfolio, as at many other Manhattan office properties, typically have an initial term of seven to fifteen years, compared to typical lease terms of five to ten years in other large U.S. office markets. For the five years ending December 31, 2015, the average annual rollover at our Manhattan consolidated and unconsolidated properties is expected to be approximately 0.9 million square feet and 0.4 million square feet, respectively, representing an average annual expiration rate of 6.2% and 6.3%, respectively, per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

        The following tables set forth a schedule of the annual lease expirations at our Manhattan consolidated and unconsolidated properties, respectively, with respect to leases in place as of December 31, 2010 for each of the

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ITEM 2.    PROPERTIES


next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):

Manhattan Consolidated Properties
Year of Lease Expiration
  Number
of
Expiring
Leases
  Square
Footage
of
Expiring
Leases
  Percentage
of
Total
Leased
Square
Feet (%)
  Annualized
Rent
of
Expiring
Leases(1)
  Annualized
Rent
Per
Leased
Square
Foot of
Expiring
Leases(2)
 

2011(3)

    133     952,854     6.64 % $ 50,251,056   $ 52.74  

2012

    108     644,258     4.49     35,254,560     54.72  

2013

    107     1,228,162     8.55     65,625,924     53.43  

2014

    65     949,351     6.61     49,970,784     52.64  

2015

    82     656,005     4.57     33,185,940     50.59  

2016

    44     1,071,518     7.46     56,482,944     52.71  

2017

    60     1,700,701     11.84     90,281,460     53.08  

2018

    28     566,517     3.94     42,147,135     74.40  

2019

    20     590,584     4.11     34,515,717     58.44  

2020 & thereafter

    90     6,002,976     41.79     302,674,056     50.42  
                       

Total/weighted average

    737     14,362,926     100.00 % $ 760,389,576   $ 52.94  
                       

(1)
Annualized Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2010 for the 12 months ending December 31, 2011, are approximately $3.9 million for the properties.

(2)
Annualized Rent Per Leased Square Foot of Expiring Leases represents Annualized Rent of Expiring Leases, as described in footnote (1) above, presented on a per leased square foot basis.

(3)
Includes 84,497 square feet occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2010.

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ITEM 2.    PROPERTIES

Manhattan Unconsolidated Properties
Year of Lease Expiration
  Number
of
Expiring
Leases
  Square
Footage
of
Expiring
Leases
  Percentage
of
Total
Leased
Square
Feet (%)
  Annualized
Rent
of
Expiring
Leases(1)
  Annualized
Rent
Per
Leased
Square
Foot
of
Expiring
Leases(2)
 

2011(3)

    21     231,319     3.36 % $ 11,612,148   $ 50.20  

2012

    21     169,767     2.47     9,722,544     57.27  

2013

    11     115,527     1.68     6,519,540     56.43  

2014

    17     122,206     1.78     9,105,036     74.51  

2015

    23     1,533,210     22.27     89,815,680     58.58  

2016

    11     126,874     1.84     6,844,008     53.94  

2017

    9     126,393     1.84     7,924,284     62.70  

2018

    14     780,227     11.33     46,139,532     59.14  

2019

    5     174,362     2.53     11,228,916     64.40  

2020 & thereafter

    22     868,916     12.62     52,494,864     60.41  
                       

Sub-Total/weighted average

    154     4,248,801     61.72     251,406,552   $ 59.17  
                               

    2 (4)   2,634,670     38.28     102,945,936        
                         

Total

    156     6,883,471     100.00 % $ 354,352,488        
                         

(1)
Annualized Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2010 for the 12 months ending December 31, 2011 are approximately $0.8 million for the joint venture properties.

(2)
Annualized Rent Per Leased Square Foot of Expiring Leases represents Annualized Rent of Expiring Leases, as described in footnote (1) above, presented on a per leased square foot basis.

(3)
Includes 76,619 square feet occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2010.

(4)
Represents Citigroup's 13-year net lease at 388-390 Greenwich Street. The current net rent is $39.07 per square foot with annual CPI escalation.

        Leases in our Suburban portfolio, as at many other suburban office properties, typically have an initial term of five to ten years. For the five years ending December 31, 2015, the average annual rollover at our Suburban consolidated and unconsolidated properties is expected to be approximately 0.3 million square feet and 0.2 million square feet, respectively, representing an average annual expiration rate of 10.6% and 6.7% respectively, per year (assuming no tenants exercise renewal or cancellation options and there are no tenant bankruptcies or other tenant defaults).

        The following tables set forth a schedule of the annual lease expirations at our Suburban consolidated and unconsolidated properties, respectively, with respect to leases in place as of December 31, 2010 for each of the

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next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):

Suburban Consolidated Properties
Year of Lease Expiration
  Number
of
Expiring
Leases
  Square
Footage
of
Expiring
Leases
  Percentage
of
Total
Leased
Square
Feet (%)
  Annualized
Rent
of
Expiring
Leases(1)
  Annualized
Rent
Per
Leased
Square
Foot
of
Expiring
Leases(2)
 

2011(3)

    75     488,893     16.37 % $ 13,719,746   $ 28.06  

2012

    32     226,807     7.59     7,659,888     33.77  

2013

    38     317,664     10.64     10,404,948     32.75  

2014

    27     269,247     9.01     8,451,024     31.39  

2015

    34     286,432     9.59     9,234,996     32.24  

2016

    25     541,365     18.13     16,698,948     30.85  

2017

    7     62,336     2.09     1,860,336     29.84  

2018

    12     144,965     4.85     4,835,484     33.36  

2019

    9     241,387     8.08     7,025,064     29.10  

2020 & thereafter

    19     407,663     13.65     11,652,673     28.58  
                       

Total/weighted average

    278     2,986,759     100.00 % $ 91,543,107   $ 30.65  
                       

(1)
Annualized Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2010 for the 12 months ending December 31, 2011, are approximately $4.1 million for the properties.

(2)
Annualized Rent Per Leased Square Foot of Expiring Leases represents Annualized Rent of Expiring Leases, as described in footnote (1) above, presented on a per leased square foot basis.

(3)
Includes 103,164 square feet occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2010.

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Suburban Unconsolidated Properties
Year of Lease Expiration
  Number
of
Expiring
Leases
  Square
Footage
of
Expiring
Leases
  Percentage
of
Total
Leased
Square
Feet (%)
  Annualized
Rent
of
Expiring
Leases(1)
  Annualized
Rent
Per
Leased
Square
Foot
of
Expiring
Leases(2)
 

2011(3)

    28     120,891     4.48 % $ 3,842,604   $ 31.79  

2012

    22     256,225     9.50     9,130,308     35.63  

2013

    21     98,463     3.65     3,171,328     32.21  

2014

    28     294,927     10.94     10,324,068     35.01  

2015

    19     135,561     5.03     4,149,372     30.61  

2016

    5     86,787     3.22     2,690,580     31.00  

2017

    7     63,196     2.34     2,360,856     37.36  

2018

    4     61,523     2.28     2,205,480     35.85  

2019

    6     38,432     1.43     1,385,824     36.06  

2020 & thereafter

    14     1,540,384     57.13     44,080,132     28.62  
                       

Total/weighted average

    154     2,696,389     100.00 % $ 83,340,552   $ 30.91  
                       

(1)
Annualized Rent of Expiring Leases represents the monthly contractual rent under existing leases as of December 31, 2010 multiplied by 12. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimated as of such date. Total rent abatements for leases in effect as of December 31, 2010 for the 12 months ending December 31, 2011, are approximately $1,500 for the joint venture properties.

(2)
Annualized Rent Per Leased Square Foot of Expiring Leases represents Annualized Rent of Expiring Leases, as described in footnote (1) above, presented on a per leased square foot basis.

(3)
Includes 17,222 square feet occupied by month-to-month holdover tenants whose leases expired prior to December 31, 2010.

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ITEM 2.    PROPERTIES

Tenant Diversification

        At December 31, 2010, our portfolio was leased to approximately 1,294 tenants, which are engaged in a variety of businesses, including professional services, financial services, media, apparel, business services and government/non-profit. The following table sets forth information regarding the leases with respect to the 30 largest tenants in our portfolio, based on the amount of square footage leased by our tenants as of December 31, 2010:

Tenant(1)
  Properties   Remaining
Lease Term
in Months(2)
  Total
Leased
Square Feet
  Percentage
of
Aggregate
Portfolio
Leased
Square
Feet (%)
  Percentage
of
Aggregate
Portfolio
Annualized
Rent (%)
 

Citigroup, N.A. 

 

388 & 390 Greenwich Street, 485 Lexington Avenue, 750 Third Avenue, 800 Third Avenue, 750 Washington Blvd & Court Square

    120     4,451,237     15.3 %   8.0 %

Viacom International, Inc. 

 

1515 Broadway

    53     1,271,812     4.4 %   5.3 %

Credit Suisse Securities (USA), Inc. 

 

1 Madison Avenue

    120     1,150,207     3.9 %   5.9 %

Random House, Inc. 

 

1745 Broadway

    90     644,598     2.2 %   1.2 %

Debevoise & Plimpton, LLP

 

919 Third Avenue

    132     586,533     2.0 %   1.9 %

Omnicom Group, Inc. 

 

220 East 42nd Street & 420 Lexington Avenue

    76     496,876     1.7 %   2.0 %

The City of New York

 

16 Court Street & 100 Church Street

    34     345,903     1.2 %   1.3 %

Advance Magazine Group, Fairchild Publications

 

750 Third Avenue & 485 Lexington Avenue

    122     342,720     1.2 %   1.3 %

C.B.S. Broadcasting, Inc. 

 

555 West 57th Street

    156     282,385     1.0 %   1.0 %

Polo Ralph Lauren Corporation

 

625 Madison Avenue

    108     269,269     0.9 %   1.6 %

Schulte, Roth & Zabel LLP

 

919 Third Avenue

    126     263,186     0.9 %   0.7 %

The Travelers Indemnity Company

 

485 Lexington Avenue & 2 Jericho Plaza

    68     255,156     0.9 %   1.1 %

The Metropolitan Transportation Authority

 

333 West 34th Street & 420 Lexington Avenue

    121     246,381     0.8 %   0.8 %

The City University of New York—CUNY

 

555 West 57th Street & 28 West 44th Street

    63     239,717     0.8 %   0.9 %

New York Presbyterian Hospital

 

28 West 44th Street & 673 First Avenue

    128     238,798     0.8 %   0.9 %

BMW of Manhattan

 

555 West 57th Street

    139     227,782     0.8 %   0.5 %

Verizon

 

120 West 45th Street, 1100 King Street Bldg 1, 1 Landmark Square, 2 Landmark Square & 500 Summit Lake Drive

    108     226,311     0.8 %   0.7 %

D.E. Shaw and Company L.P. 

 

120 West 45th Street

    53     187,484     0.6 %   1.1 %

Amerada Hess Corp. 

 

1185 Avenue of the Americas

    204     181,569     0.6 %   1.2 %

HF Management Services LLC

 

100 Church Street

    243     172,577     0.6 %   0.5 %

Fuji Color Processing Inc. 

 

200 Summit Lake Drive

    27     165,880     0.6 %   0.5 %

King & Spalding

 

1185 Avenue of the Americas

    178     162,243     0.6 %   0.9 %

News America Incorporated

 

1185 Avenue of the Americas

    119     161,722     0.6 %   1.3 %

National Hockey League

 

1185 Avenue of the Americas

    143     148,217     0.5 %   1.1 %

New York Hospitals Center/Mount Sinai

 

625 Madison Avenue & 673 First Avenue

    190     146,917     0.5 %   0.6 %

Banque National De Paris

 

919 Third Avenue

    67     145,834     0.5 %   0.4 %

The Segal Company

 

333 West 34th Street

    170     144,307     0.5 %   0.7 %

Meredith Corporation

 

125 Park Avenue

    12     143,075     0.5 %   0.7 %

Draft Worldwide

 

919 Third Avenue

    35     141,260     0.5 %   0.4 %

RSM McGladrey, Inc. 

 

1185 Avenue of the Americas & 100 Summit Lake Drive

    91     136,868     0.5 %   0.9 %
                         

Total Weighted Average(3)

              13,576,824     46.6 %   45.4 %
                         

(1)
This list is not intended to be representative of our tenants as a whole.

(2)
Lease term from December 31, 2010 until the date of the last expiring lease for tenants with multiple leases.

(3)
Weighted average calculation based on total rentable square footage leased by each tenant.

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ITEM 2.    PROPERTIES

Environmental Matters

        We engaged independent environmental consulting firms to perform Phase I environmental site assessments on our portfolio, in order to assess existing environmental conditions. All of the Phase I assessments met the ASTM Standard. Under the ASTM Standard, a Phase I environmental site assessment consists of a site visit, an historical record review, a review of regulatory agency data bases and records, and interviews with on-site personnel, with the purpose of identifying potential environmental concerns associated with real estate. These environmental site assessments did not reveal any known environmental liability that we believe will have a material adverse effect on our results of operations or financial condition.


ITEM 3.    LEGAL PROCEEDINGS

        As of December 31, 2010, we were not involved in any material litigation nor, to management's knowledge, was any material litigation threatened against us or our portfolio other than routine litigation arising in the ordinary course of business or litigation that is adequately covered by insurance.


ITEM 4.    (REMOVED AND RESERVED)

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ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
                   AND ISSUER PURCHASES OF EQUITY SECURITIES

        There is no established public trading market for the common units. On February 28, 2011, there were approximately 49 holders of record and 82,139,264 common units outstanding, 80,594,429 of which were held by SL Green. The table below sets forth the quarterly distributions paid by us to holders of common operating partnership units with respect to the periods indicated.

 
  2010   2009  
Quarter Ended
  Distributions   Distributions  

March 31

  $ 0.100   $ 0.375  

June 30

  $ 0.100   $ 0.100  

September 30

  $ 0.100   $ 0.100  

December 31

  $ 0.100   $ 0.100  

        SL Green expects to pay dividends to its stockholders on a quarterly basis based on the distributions we make to it primarily from property revenues net of operating expenses or, if necessary, from working capital or borrowings. If SL Green declares a dividend, such dividend is paid in the subsequent quarter.

        In order to enable SL Green to maintain its qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (not including net capital gains). SL Green has adopted a policy of paying regular quarterly dividends on its common stock, and we have adopted a policy of paying regular quarterly distributions on our common units corresponding to dividends paid by SL Green. Cash distributions have been paid on the common stock of SL Green and our common units since the initial public offering of SL Green. Distributions are declared at the discretion of the board of directors of SL Green and depend on actual and anticipated cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors SL Green's board of directors may consider relevant.

        Each time SL Green issues shares of stock (other than in exchange for OP Units when such OP Units are presented for redemption), it contributes the proceeds of such issuance to us in return for an equivalent number of partnership units with rights and preferences analogous to the shares issued.

ISSUER PURCHASES OF EQUITY SECURITIES

        None.

SALE OF UNREGISTERED AND REGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES

        During the years ended December 31, 2010, 2009 and 2008, SL Green issued 278,865, 378,344 and no shares of common stock, respectively, to holders of our units of limited partnership in the Operating Partnership upon the redemption of such units pursuant to the partnership agreement of the operating partnership. The issuance of such shares was exempt from registration under the Securities Act, pursuant to the exemption contemplated by Section 4(2) thereof for transactions not involving a public offering. The units were converted into an equal number of shares of common stock.

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ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
                   AND ISSUER PURCHASES OF EQUITY SECURITIES

        The following table summarizes information, as of December 31, 2010, relating to SL Green's equity compensation plans pursuant to which shares of SL Green common stock or other equity securities may be granted from time to time.

Plan category
  Number of securities
to be issued
upon exercise
of outstanding
options, warrants
and rights
  Weighted
average
exercise
price of
outstanding
options,
warrants and
rights
  Number of securities
remaining available
for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
 
 
  (a)
  (b)
  (c)
 

Equity compensation plans approved by security holders(1)

  $ 1,353,002     58.85     4,173,255 (2)

Equity compensation plans not approved by security holders

             
               
 

Total

  $ 1,353,002     58.85     4,173,255  
               

(1)
Includes information related to SL Green's 2005 Amended and Restated Stock Option and Incentive Plan and Amended 1997 Stock Option and Incentive Plan, as amended.

(2)
Balance is after reserving for shares to be issued under SL Green's 2005 Long-Term Outperformance Compensation Program, 2010 Notional Units Long-Term Compensation Plan and Deferred Stock Compensation Plan for Directors.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following table sets forth our selected financial data and should be read in conjunction with our Financial Statements and notes thereto included in Item 8, "Financial Statements and Supplementary Data" and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K.

        In connection with this Annual Report on Form 10-K, we are restating our historical audited consolidated financial statements as a result of classifying certain properties as held for sale. As a result, we have reported revenue and expenses from these properties as discontinued operations for each period presented in our Annual Report on Form 10-K. These reclassifications had no effect on our reported net income or funds from operations.

        We are also providing updated summary selected financial information, which is included below reflecting the prior period reclassification as discontinued operations of the property sold during 2010.

 
  Year Ended December 31,  
Operating Data
  2010   2009   2008   2007   2006  
(In thousands, except per unit data)
   
   
   
   
   
 

Total revenue

  $ 1,101,246   $ 995,847   $ 1,065,015   $ 961,375   $ 438,345  
                       

Operating expenses

    229,305     214,049     224,434     204,368     99,107  

Real estate taxes

    148,828     139,523     124,479     119,307     61,402  

Ground rent

    31,191     31,826     31,494     32,389     20,150  

Interest expense, net of interest income

    233,647     236,300     291,536     256,941     89,394  

Amortization of deferred finance costs

    9,928     7,947     6,433     15,893     4,424  

Depreciation and amortization

    228,893     224,147     214,201     172,082     60,522  

Loan loss and other investment reserves, net of recoveries

    20,501     150,510     115,882          

Transaction related costs

    11,875                  

Marketing, general and administration

    75,946     73,992     104,583     93,045     57,850  
                       

Total expenses

    990,114     1,078,294     1,113,042     894,025     392,849  
                       

Equity in net income from unconsolidated joint ventures

    39,607     62,878     59,961     46,765     40,780  

Equity in net gain on sale of interest in unconsolidated joint venture/real estate

    128,922     6,691     103,056     31,509     3,451  

Gain (loss) on investment in marketable securities

    490     (396 )   (147,489 )        

Gain(loss) on early extinguishment of debt

    (1,900 )   86,006     77,465          
                       

Income from continuing operations

    278,251     72,732     44,966     145,624     89,727  

Discontinued operations

    40,905     (1,067 )   359,082     537,073     147,631  
                       

Net income

    319,156     71,665     404,048     682,697     237,358  

Net income attributable to noncontrolling interests in other partnerships

    (14,007 )   (12,900 )   (8,677 )   (10,383 )   (5,210 )
                       

Net income attributable to SLGOP

    305,149     58,765     395,371     672,314     232,148  

Preferred dividends

    (29,749 )   (19,875 )   (19,875 )   (19,875 )   (19,875 )
                       

Net income attributable to SLGOP common unitholders

  $ 275,400   $ 38,890   $ 375,496   $ 652,439   $ 212,273  
                       

Net income per common unit—Basic

  $ 3.47   $ 0.54   $ 6.22   $ 10.66   $ 4.50  
                       

Net income per common unit—Diluted

  $ 3.45   $ 0.54   $ 6.20   $ 10.54   $ 4.38  
                       

Cash dividends declared per common unit

  $ 0.40   $ 0.6750   $ 2.7375   $ 2.89   $ 2.50  
                       

Basic weighted average common units outstanding

    79,422     71,965     60,336     61,188     47,104  
                       

Diluted weighted average common units and common unit equivalents outstanding

    79,761     72,044     60,598     61,885     48,495  
                       

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ITEM 6.    SELECTED FINANCIAL DATA


 
  As of December 31,  
Balance Sheet Data
  2010   2009   2008   2007   2006  
 
  (In thousands)
 

Commercial real estate, before accumulated depreciation

  $ 8,890,064   $ 8,257,100   $ 8,201,789   $ 8,622,496   $ 3,055,159  

Total assets

    11,300,294     10,487,577     10,984,353     11,430,078     4,632,227  

Mortgages and other loans payable, revolving credit facility, term loans, unsecured notes and trust preferred securities

    5,251,013     4,892,688     5,581,559     5,658,149     1,815,379  

Total capital

    5,481,882     4,997,747     4,569,290     4,606,215     2,522,776  

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        SL Green Realty Corp., which is referred to as SL Green or the Company, a Maryland corporation, and SL Green Operating Partnership, L.P., which is referred to as SLGOP or the Operating Partnership, a Delaware limited partnership, were formed in June 1997 for the purpose of combining the commercial real estate business of S.L. Green Properties, Inc. and its affiliated partnerships and entities. SL Green is a self-managed real estate investment trust, or REIT, with in-house capabilities in property management, acquisitions, financing, development, construction and leasing. Unless the context requires otherwise, all references to "we," "our" and "us" in this section mean SLGOP and all entities owned or controlled by SLGOP.

        Reckson Associates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P., or ROP, are subsidiaries of SLGOP.

        The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements appearing in Item 8 of this Annual Report on Form 10-K.

        After nearly three years of severe constraints on lending activity, resulting in a stall in sales transactions and reduced asset values, the commercial real estate market began to reawaken in 2010. This occurred primarily in the nation's gateway cities, led by New York City, where SL Green is located and focused, and also Washington, D.C.

        Credit spreads continued to be wider than they were during the previous period and cautious lenders were unwilling to fund high loan-to-value ratios. However, loan originations funded by commercial mortgage-backed securities began a modest improvement and foreign-based institutional lenders looking for U.S.-based investment opportunities either entered our market for the first time or increased their existing activity.

        As a result, New York City real estate sales activity in 2010 increased by approximately $10.1 billion when compared to 2009, as total volume reached approximately $13.6 billion.

        As New York City's largest owner of office properties, and as one of its most active buyers and sellers during the past several years, SL Green is made aware of a large portion of appropriate equity investment possibilities, including those that are not being marketed broadly. We also have strong long-term relationships with several large lenders, and in 2010 we found that some of the newer lenders in the market were attracted to our investment platform. These factors, along with our available capital, which had been held undeployed during the downturn, enabled us to move quickly to take advantage of several investment opportunities. In all, we made nine full or joint venture equity investments during the year, totaling $1.4 billion.

        In 2009, when the market was still in distress, we recognized that the market's distress was creating attractive new strategic investment opportunities for those with the capital available to take new debt positions. Such opportunities sometimes involved investing in debt at attractive discounts—which offered the potential to control and benefit from restructuring efforts and potentially even acquire equity ownership in the collateral under attractive terms. We made new debt and preferred equity investments totaling $254.3 million in 2009. Our debt and preferred equity portfolio included a position in the debt backed by 100 Church Street in Manhattan, New York City, which we subsequently converted to full operational control and then full ownership in 2010.

        Our debt and preferred equity investment activity accelerated in 2010, with the year's investments totaling $520.7 million. We continued to take advantage of our strong capital availability to acquire additional debt positions that were underwritten to provide attractive returns when performing, and which have enabled, and will continue to enable, us to take advantage of possible opportunities created by owners' needs to refinance or recapitalize. The most visible of these investments were the senior and mezzanine debt positions backed by a new

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


office property at 510 Madison Avenue, which were repaid in 2010, resulting in additional income being recognized upon the repayment of approximately $64.8 million in less than a year.

        Following a two-year period in which the New York City real estate market saw an increase in the direct vacancy rate, as well as an increase in the amount of sublease space on the market, conditions stabilized in certain submarkets in late 2009 and began to improve during 2010. SL Green's occupancy rate has historically outperformed the rest of the Manhattan office market, and it did so in 2010 as well.

        Leasing activity for Manhattan totaled approximately 26.3 million square feet compared to approximately 16.3 million square feet in 2009. Of the total 2010 leasing activity in Manhattan, the midtown submarket accounted for approximately 18.9 million square feet, or 71.7%. Midtown's overall vacancy decreased from 12.0% at December 31, 2009 to 10.6% at December 31, 2010.

        When the market absorbs sublease space and overall occupancy increases, rents tend to stabilize and eventually begin to rise, as long as substantial new office space isn't added to the market. During 2010, minimal new office space was added to the midtown office inventory. In a supply-constrained market, only 25.6 million square feet of new midtown office space became available in 2010 and only another 2.0 million square feet is currently under construction. Therefore, overall the midtown office market is believed to have reached its inflection point in 2010. Asking rents for direct space in midtown increased from $64.24 at year-end 2009 to $64.40 at year-end 2010, an increase of 0.25%.

        That trend was evident in SL Green's portfolio. For select properties, we were able to begin increasing asking rents. In addition, we began to see a reduction in the need to provide long free-rent periods and large tenant improvement allowances. We expect this positive momentum to continue in 2011.

        We saw fluctuations in short-term interest rates, although they still remain low compared to historical levels. The 30-day LIBOR rate ended 2010 at 0.30%, a 7 basis point increase from the end of 2009. Ten-year US Treasuries ended 2010 at 3.30%, a 53 basis point decrease from the end of 2009.

        Our significant activities for 2010 included:

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        As of December 31, 2010, we owned the following interests in commercial office properties in the New York Metropolitan area, primarily in midtown Manhattan. Our investments in the New York Metropolitan area also include investments in Brooklyn, Queens, Long Island, Westchester County, Connecticut and New Jersey, which are collectively known as the Suburban assets:

Location
  Ownership   Number of
Properties
  Square Feet   Weighted
Average
Occupancy(1)
 

Manhattan

  Consolidated properties     22     15,141,945     91.8 %

  Unconsolidated properties     8     7,182,515     95.3 %

Suburban

 

Consolidated properties

   
25
   
3,863,000
   
81.9

%

  Unconsolidated properties     6     2,941,700     94.3 %
                   

        61     29,129,160     91.6 %
                   

(1)
The weighted average occupancy represents the total leased square feet divided by total available rentable square feet.

        We also own investments in 11 retail properties encompassing approximately 405,362 square feet, four development properties encompassing approximately 465,441 square feet and three land interests. In addition, we manage four office properties owned by third parties and affiliated companies encompassing approximately 1.3 million rentable square feet.

Critical Accounting Policies

        Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making

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judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Investment in Commercial Real Estate Properties

        On a periodic basis, we assess whether there are any indicators that the value of our real estate properties may be impaired or that its carrying value may not be recoverable. A property's value is considered impaired if management's estimate of the aggregate future cash flows (undiscounted and without interest charges for consolidated properties) to be generated by the property are less than the carrying value of the property. To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property. In addition, we assess our investments in unconsolidated joint ventures for recoverability, and if it is determined that a loss in value of the investment is other than temporary, we write down the investment to its fair value. We evaluate our equity investments for impairment based on the joint venture's projected discounted cash flows. During 2010, we recorded a $2.8 million impairment charge on one of our equity investments which is included in loan loss and other investment reserves. We do not believe that the value of any of our consolidated properties was impaired at December 31, 2010 and 2009, respectively.

        A variety of costs are incurred in the development and leasing of our properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and building under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. We cease capitalization on the portions substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portions under construction.

        We allocate the purchase price of real estate to land and building and, if determined to be material, intangibles, such as the value of above-, below-, and at-market leases and origination costs associated with the in-place leases. We depreciate the amount allocated to building and other intangible assets over their estimated useful lives, which generally range from three to 40 years and from one to 14 years, respectively. The values of the above- and below-market leases are amortized and recorded as either an increase (in the case of below-market leases) or a decrease (in the case of above-market leases) to rental income over the remaining term of the associated lease, which generally range from one to 14 years. The value associated with in-place leases are amortized over the expected term of the associated lease, which generally range from one to 14 years. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and market/economic conditions that may affect the property.

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Investment in Unconsolidated Joint Ventures

        We account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over, but do not control, these entities and are not considered to be the primary beneficiary. We consolidate those joint ventures which are VIEs and where we are considered to be the primary beneficiary. In all these joint ventures, the rights of the minority investor are both protective as well as participating. Unless we are determined to be the primary beneficiary, these rights preclude us from consolidating these investments. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in net income (loss) of unconsolidated joint ventures over the lesser of the joint venture term or 10 years. Equity income (loss) from unconsolidated joint ventures is allocated based on our ownership or economic interest in each joint venture. When a capital event (as defined in each joint venture agreement) such as a refinancing occurs, if return thresholds are met, future equity income will be allocated at our increased economic percentage. We recognize incentive income from unconsolidated real estate joint ventures as income to the extent it is earned and not subject to a clawback feature. Distributions we receive from unconsolidated real estate joint ventures in excess of our basis in the investment are recorded as offsets to our investment balance if we remain liable for future obligations of the joint venture or may otherwise be committed to provide future additional financial support. None of the joint venture debt is recourse to us, except for $200.0 million which we guarantee at one joint venture.

Revenue Recognition

        Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in deferred rents receivable on the accompanying balance sheets. We establish, on a current basis, an allowance for future potential tenant credit losses, which may occur against this account. The balance reflected on the balance sheet is net of such allowance.

        Interest income on debt and preferred equity investments is recognized over the life of the investment using the effective interest method and recognized on the accrual basis. Fees received in connection with loan commitments are deferred until the loan is funded and are then recognized over the term of the loan as an adjustment to yield. Anticipated exit fees, whose collection is expected, are also recognized over the term of the loan as an adjustment to yield. Fees on commitments that expire unused are recognized at expiration.

        Income recognition is generally suspended for debt and preferred equity investments at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Allowance for Doubtful Accounts

        We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our tenants to make required rent payments. If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required.

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Reserve for Possible Credit Losses

        The expense for possible credit losses in connection with debt and preferred equity investments is the charge to earnings to increase the allowance for possible credit losses to the level that we estimate to be adequate, based on Level 3 data, considering delinquencies, loss experience and collateral quality. Other factors considered relate to geographic trends and product diversification, the size of the portfolio and current economic conditions. Based upon these factors, we establish the provision for possible credit losses on each individual investment. When it is probable that we will be unable to collect all amounts contractually due, the investment is considered impaired.

        Where impairment is indicated on an investment that is held to maturity, a valuation allowance is measured based upon the excess of the recorded investment amount over the net fair value of the collateral. Any deficiency between the carrying amount of an asset and the calculated value of the collateral is charged to expense. We recorded approximately $19.8 million, $38.4 million and $45.8 million in loan loss reserves and charge offs during the years ended December 31, 2010, 2009 and 2008, respectively, on investments being held to maturity, and $1.0 million, $69.1 million and none against our held for sale investment during the years ended December 31, 2010, 2009 and 2008, respectively. We also recorded approximately $3.7 million in recoveries during the year ended December 31, 2010 in connection with the sale of an investment.

        Debt and preferred equity investments held for sale are carried at the lower of cost or fair market value using available market information obtained through consultation with dealers or other originators of such investments as well as discounted cash flow models based on Level 3 data pursuant to ASC 820-10. As circumstances change, management may conclude not to sell an investment designated as held for sale. In such situations, the loan will be reclassified at its net carrying value to debt and preferred equity investments held to maturity. For these reclassified loans, the difference between the current carrying value and the expected cash to be collected at maturity will be accreted into income over the remaining term of the loan.

Derivative Instruments

        In the normal course of business, we use a variety of derivative instruments to manage, or hedge, interest rate risk. We require that hedging derivative instruments be effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. Some derivative instruments are associated with an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.

        To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option-pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.

Results of Operations

Comparison of the year ended December 31, 2010 to the year ended December 31, 2009

        The following comparison for the year ended December 31, 2010, or 2010, to the year ended December 31, 2009, or 2009, makes reference to the following: (i) the effect of the "Same-Store Properties," which represents all operating properties owned by us at January 1, 2009 and at December 31, 2010 and total 44 of our

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47 consolidated properties, representing approximately 79% of our share of annualized rental revenue, (ii) the effect of the "Acquisitions," which represents all properties or interests in properties acquired subsequent to January 2009 and all non-Same-Store Properties, including properties deconsolidated during the period, and (iii) "Other," which represents corporate level items not allocable to specific properties, the Service Corporation and eEmerge. Assets classified as held for sale, are excluded from the following discussion.

Rental Revenues (in millions)
  2010   2009   $ Change   % Change  

Rental revenue

  $ 796.7   $ 761.4   $ 35.3     4.6 %

Escalation and reimbursement revenue

    120.5     121.4     (0.9 )   (0.7 )
                   
 

Total

  $ 917.2   $ 882.8   $ 34.4     3.9 %
                   

Same-Store Properties

  $ 871.5   $ 868.4   $ 3.1     0.4 %

Acquisitions

    43.7     8.5     35.2     414.1  

Other

    2.0     5.9     (3.9 )   (66.1 )
                   
 

Total

  $ 917.2   $ 882.8   $ 34.4     3.9 %
                   

        Our consolidated rental revenue increased primarily from the Acquisitions, which included 100 Church Street (January 2010) and 125 Park Avenue (August 2010). Occupancy in the Same-Store Properties was 91.5% at December 31, 2010 and 93.5% at December 31, 2009.

        During the year ended December 31, 2010, we commenced 232 leases in the Manhattan portfolio totaling 2.4 million square feet, of which 194 leases and 2.3 million square feet represented office leases. Average starting Manhattan office rents of $43.17 per rentable square foot on 1.8 million square feet of office leases commenced during the year ended December 31, 2010 represented a 2.8% decrease over the previously fully escalated rents. The average lease term was 10.6 years and average tenant concessions were 4.8 months of free rent with a tenant improvement allowance of $35.04 per rentable square foot.

        During the year ended December 31, 2010, we commenced 117 leases in the Suburban portfolio totaling 899,000 square feet, of which 99 leases and 857,000 square feet represented office leases. Average starting Suburban office rents of $29.30 per rentable square foot on 695,000 square feet of office leases commenced during for the year ended December 31, 2010 represented a 9.8% decrease over the previously fully escalated rents. The average lease term was 6.8 years and average tenant concessions were 3.7 months of free rent with a tenant improvement allowance of $14.98 per rentable square foot.

        At December 31, 2010, we estimated that the current market rents on our consolidated Manhattan properties and consolidated Suburban properties were approximately 5.0% and 5.1% higher, respectively, than then existing in-place fully escalated rents. Approximately 8.3% of the space leased at our consolidated properties expires during 2011.

        The decrease in escalation and reimbursement revenue was due to lower recoveries at the Same-Store Properties ($4.1 million) which was partially offset by an increase in recoveries from the Acquisitions ($3.5 million). The decrease in recoveries at the Same-Store Properties was primarily due to lower electric

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reimbursements ($4.0 million) and operating expense and real estate tax escalations ($0.8 million) which were partially offset by other reimbursed expenses ($0.7 million).

Investment and Other Income (in millions)
  2010   2009   $ Change   % Change  

Equity in net income from unconsolidated joint ventures

  $ 39.6   $ 62.9   $ (23.3 )   (37.0 )%

Preferred equity and investment income

    147.9     65.6     82.3     125.5  

Other income

    36.2     47.4     (11.2 )   (23.6 )
                   
 

Total

  $ 223.7   $ 175.9   $ 47.8     27.2 %
                   

        The decrease in equity in net income of unconsolidated joint ventures was primarily due to lower net income contributions from 1221 Avenue of the Americas due to the sale of our 45% beneficial interest in this joint venture in May 2010 ($21.2 million), 521 Fifth Avenue ($1.2 million), 600 Lexington Avenue due to the expensing of transaction related costs ($3.6 million) and 1515 Broadway ($5.2 million). This was partially offset by higher net income contributions primarily from our investments in 100 Park Avenue ($3.8 million, 141 Fifth Avenue ($1.2 million), 29 West 34th Street ($1.0 million) and Gramercy ($3.5 million).

        Occupancy at our joint venture properties was 95.0% at December 31, 2010 and 95.1% at December 31, 2009. At December 31, 2010, we estimated that current market rents at our Manhattan and Suburban joint venture properties were approximately 16.3% and 9.3% higher, respectively, than then existing in-place fully escalated rents. Approximately 3.7% of the space leased at our joint venture properties expires during 2011.

        Preferred equity and investment income increased primarily due to additional income generated upon the repayment of loans as well as new investment activity. In addition, in September 2010, 510 Madison Avenue was sold by the owner. The first mortgage loan and senior mezzanine loan, which we had purchased in December 2009 and February 2010 for $180.5 million in the aggregate, were repaid at par. We recognized additional income upon the repayment of the loans of approximately $64.8 million. The income was recorded in preferred equity and investment income on the accompanying statement of income. In addition, the weighted average investment balance outstanding and weighted average yield were $862.0 million and 8.5%, respectively, for 2010 compared to $652.9 million and 8.4%, respectively, for 2009.

        The decrease in other income was primarily due to lower fee income earned ($11.2 million).

Property Operating Expenses (in millions)
  2010   2009   $ Change   % Change  

Operating expenses

  $ 229.3   $ 214.0   $ 15.3     7.2 %

Real estate taxes

    148.8     139.5     9.3     6.7  

Ground rent

    31.2     31.8     (0.6 )   (1.9 )
                   
 

Total

  $ 409.3   $ 385.3   $ 24.0     6.2 %
                   

Same-Store Properties

  $ 372.6   $ 366.8   $ 5.8     1.6 %

Acquisitions

    24.6     4.2     20.4     485.7  

Other

    12.1     14.3     (2.2 )   (15.4 )
                   
 

Total

  $ 409.3   $ 385.3   $ 24.0     6.2 %
                   

        Same-Store Properties operating expenses, excluding real estate taxes, increased approximately $1.5 million. There were increases in payroll costs ($3.1 million) and repairs and maintenance ($1.5 million). This was partially offset by decreases in utilities ($2.3 million) and ground rent ($0.7 million).

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        The increase in real estate taxes attributable to the Same-Store Properties ($4.3 million) due to higher assessed property values and increased tax rates.

Other Expenses (in millions)
  2010   2009   $ Change   % Change  

Interest expense, net of interest income

  $ 243.6   $ 244.2   $ (0.6 )   (0.3 )%

Depreciation and amortization expense

    228.9     224.1     4.8     2.1  

Loan loss and other investment reserves, net of recoveries

    20.5     150.5     (130.0 )   (86.4 )

Transaction related costs

    11.9         11.9     100.0  

Marketing, general and administrative expense

    75.9     74.0     1.9     2.6  
                   
 

Total

  $ 580.8   $ 692.8   $ (112.0 )   (16.2 )%
                   

        The decrease in interest expense was primarily attributable to the early repurchase of our exchangeable and non-exchangeable notes and the reduction of the outstanding balance on our 2007 unsecured revolving credit facility which was partially offset by the issuance of new exchangeable and non-exchangeable notes. The weighted average debt balance decreased from $5.1 billion as of December 31, 2009 to $4.8 billion as of December 31, 2010, while the weighted average interest rate increased from 4.3% for the year ended December 31, 2009 to 4.76% for the year ended December 31, 2010.

        We expensed approximately $11.9 million of transaction related costs during the year ended December 31, 2010. Transaction related costs included approximately $1.8 million for non-recoverable costs incurred in connection with the pursuit of a redevelopment project.

        Marketing, general and administrative expense represented 6.9% of total revenues in 2010 compared to 7.4% in 2009.

Comparison of the year ended December 31, 2009 to the year ended December 31, 2008

        The following comparison for the year ended December 31, 2009, or 2009, to the year ended December 31, 2008, or 2008, makes reference to the following: (i) the effect of the "Same-Store Properties," which represents all operating properties owned by us at January 1, 2008 and at December 31, 2009 and total 45 of our 46 consolidated properties, representing approximately 74% of our share of annualized rental revenue, (ii) the effect of the "Acquisitions," which represents all properties or interests in properties acquired subsequent to January 2008 and all non-Same-Store Properties, including properties deconsolidated during the period, and (iii) "Other," which represents corporate level items not allocable to specific properties, the Service Corporation and eEmerge. Assets classified as held for sale are excluded from the following discussion.

Rental Revenues (in millions)
  2009   2008   $ Change   % Change  

Rental revenue

  $ 761.4   $ 762.2   $ (0.8 )   (0.1 )%

Escalation and reimbursement revenue

    121.4     120.4     1.0     0.8  
                   
 

Total

  $ 882.8   $ 882.6   $ 0.2     %
                   

Same-Store Properties

  $ 869.8   $ 851.4   $ 18.4     2.2 %

Acquisitions

    7.0     25.7     (18.7 )   (72.8 )

Other

    6.0     5.5     0.5     9.1  
                   
 

Total

  $ 882.8   $ 882.6   $ 0.2     %
                   

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        Occupancy in the Same-Store Properties was 93.2% at December 31, 2009 and 95.3% at December 31, 2008. The decrease in the Acquisitions is primarily due to certain properties being deconsolidated in 2008, and therefore, not included in the 2009 consolidated results.

        At December 31, 2009, we estimated that the current market rents on our consolidated Manhattan properties and consolidated Suburban properties were approximately 4.9% and 4.5% higher, respectively, than the existing in-place fully escalated rents. Approximately 9.0% of the space leased at our consolidated properties was scheduled to expire during 2009.

        The increase in escalation and reimbursement revenue was due to the recoveries at the Same-Store Properties ($1.3 million) and the Acquisitions and Other ($0.2 million). The increase in recoveries at the Same-Store Properties was primarily due to increases in real estate tax escalations ($10.1 million). This was partially offset by reductions in operating expense escalations ($7.0 million) and electric reimbursements ($1.8 million).

        During the year ended December 31, 2009, we signed or commenced 140 leases in the Manhattan portfolio totaling 1,366,625 square feet, of which 113 leases and 1,301,358 square feet represented office leases. Average starting Manhattan office rents of $44.85 per rentable square foot on the 1,301,358 square feet of leases signed or commenced during the year ended December 31, 2009 represented a 14.8% increase over the previously fully escalated rents. The average lease term was 8.5 years and average tenant concessions were 3.6 months of free rent with a tenant improvement allowance of $33.36 per rentable square foot.

Investment and Other Income (in millions)
  2009   2008   $ Change   % Change  

Equity in net income of unconsolidated joint ventures

  $ 62.9   $ 60.0   $ 2.9     4.8 %

Preferred equity and investment income

    65.6     110.9     (45.3 )   (40.9 )

Other income

    47.4     71.5     (24.1 )   (33.7 )
                   
 

Total

  $ 175.9   $ 242.4   $ (66.5 )   (27.4 )%
                   

        The increase in equity in net income of unconsolidated joint ventures was primarily due to higher net income contributions from 1515 Broadway ($8.5 million), 16 Court Street ($1.3 million), 521 Fifth Avenue ($1.6 million), 100 Park Avenue ($1.4 million), 1 Madison Avenue ($0.8 million), Mack-Green ($2.8 million), 1221 Avenue of the Americas ($4.3 million) and 1604 Broadway ($1.3 million). This was partially offset by lower net income contributions primarily from our investments in Gramercy ($13.6 million), 388 Greenwich Street ($3.1 million), 1250 Broadway ($2.6 million) and 717 Fifth Avenue ($1.7 million). Occupancy at our joint venture properties was 95.1% at December 31, 2009 and 95.0% at December 31, 2008. At December 31, 2009, we estimated that current market rents at our Manhattan and Suburban joint venture properties were approximately 10.4% and 0.3% higher, respectively, than then existing in-place fully escalated rents. Approximately 6.5% of the space leased at our joint venture properties was scheduled to expire during 2010.

        Investment and preferred equity income decreased during 2009 when compared to the prior year. The weighted average investment balance outstanding and weighted average yields were $652.9 million and 8.4%, respectively, for 2009 compared to $816.9 million and 10.5%, respectively, for 2008. The decrease was primarily due to the sale of debt and preferred equity investments as well as certain loans being placed on non-accrual status in 2009.

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        The decrease in other income was primarily due to reduced fee income earned by GKK Manager, a former affiliate of ours and the former external manager of Gramercy ($5.1 million). In addition, in 2008, we earned an incentive distribution upon the sale of 1250 Broadway ($25.0 million) as well as an advisory fee paid to us in connection with Gramercy closing its acquisition of AFR (approximately $6.6 million). This was partially offset by the recognition in 2009 of an incentive fee ($4.8 million) upon the final resolution of our original Bellemead investment and other fee income ($11.0 million).

Property Operating Expenses (in millions)
  2009   2008   $ Change   % Change  

Operating expenses

  $ 214.0   $ 224.4   $ (10.4 )   (4.6 )%

Real estate taxes

    139.5     124.5     15.0     12.1  

Ground rent

    31.8     31.5     0.3     1.0  
                   
 

Total

  $ 385.3   $ 380.4   $ 4.9     1.3 %
                   

Same-Store Properties

  $ 367.3   $ 361.9   $ 5.4     1.5 %

Acquisitions

    3.6     2.9     0.7     24.1  

Other

    14.4     15.6     (1.2 )   (7.7 )
                   
 

Total

  $ 385.3   $ 380.4   $ 4.9     1.3 %
                   

        Same-Store Properties operating expenses decreased approximately $9.2 million. There were decreases in repairs and maintenance ($2.9 million), insurance costs ($0.8 million), utilities ($6.6 million) and various other costs ($0.7 million). This was partially offset by an increase in payroll costs ($1.0 million) and ground rent ($0.8 million).

        The increase in real estate taxes was primarily attributable to the Same-Store Properties ($14.8 million) due to higher assessed property values and increased rates.

Other Expenses (in millions)
  2009   2008   $ Change   % Change  

Interest expense, net of interest income

  $ 244.2   $ 298.0   $ (53.8 )   (18.1 )%

Depreciation and amortization expense

    224.1     214.2     9.9     4.6  

Loan loss reserves

    150.5     115.9     34.6     29.9  

Marketing, general and administrative expense

    74.0     104.6     (30.6 )   (29.3 )
                   
 

Total

  $ 692.8   $ 732.7   $ (39.9 )   (5.5 )%
                   

        The decrease in interest expense was primarily attributable to lower LIBOR rates in 2009 compared to 2008 as well as the early repurchase of certain of our outstanding senior unsecured notes. The weighted average interest rate decreased from 5.24% for the year ended December 31, 2008 to 4.30% for the year ended December 31, 2010. As a result of the note repurchases and repayments, the weighted average debt balance decreased from $5.7 billion during the year ended December 31, 2008 compared to $5.1 billion during the year ended December 31, 2010.

        In 2009, we repurchased approximately $564.6 million of our exchangeable and non-exchangeable bonds and a portion of our 2007 unsecured revolving credit facility, realizing gains on early extinguishment of debt of approximately $86.0 million.

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        The increase in loan loss reserves was primarily due to the realized loss on the sale of a debt investment (approximately $38.4 million) in 2009 as well as additional reserves recorded on loans being held to maturity as well as held for sale.

        Marketing, general and administrative expenses represented 7.4% of total revenues in 2009 compared to 9.8% in 2008. The decrease is primarily due to reduced stock-based compensation costs in 2009.

Liquidity and Capital Resources

        Although positive signs have started to materialize, we continue to experience the effects of a global economic downturn and difficult credit environment. As a result, many financial industry participants, including commercial real estate owners, operators, investors and lenders continue to find it difficult to obtain cost-effective debt capital to finance new investment activity or to refinance maturing debt. When debt is available, it is generally at a cost higher than may have been available in the past.

        We currently expect that our principal sources of working capital and funds for acquisition and redevelopment of properties, tenant improvements, leasing costs and for debt and preferred equity investments will include:

        Cash flow from operations is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates achieved on our leases, the collectability of rent and operating escalations and recoveries from our tenants and the level of operating and other costs. Additionally, we believe that our joint venture investment programs will also continue to serve as a source of capital.

        Our combined aggregate principal maturities of our property mortgages and other loans payable, corporate obligations and our share of joint venture debt, including as-of-right extension options, as of December 31, 2010 are as follows (in thousands):

 
  2011   2012   2013   2014   2015   Thereafter   Total  

Property Mortgages

  $ 246,615   $ 143,646   $ 656,863   $ 208,025   $ 260,433   $ 1,884,886   $ 3,400,468  

Corporate obligations

    84,823     773,171         98,578     657     893,316     1,850,545  

Joint venture debt-our share

    207,738     61,491     41,415     339,184     96,786     857,305     1,603,919  
                               

Total

  $ 539,176   $ 978,308   $ 698,278   $ 645,787   $ 357,876   $ 3,635,507   $ 6,854,932  
                               

        As of December 31, 2010, we had approximately $366.9 million of cash on hand, inclusive of approximately $34.1 million of marketable securities. We expect to generate positive cash flow from operations for the foreseeable future. We may seek to access private and public debt and equity capital when the opportunity

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presents itself, although there is no guarantee that this capital will be made available to us at efficient levels or at all. Management believes that these sources of liquidity, if we are able to access them, along with potential refinancing opportunities for secured debt, will allow us to satisfy our debt obligations, as described above, upon maturity, if not before.

        We also have investments in several real estate joint ventures with various partners who we consider to be financially stable and who have the ability to fund a capital call when needed. Most of our joint ventures are financed with non-recourse debt. We believe that property level cash flows along with unfunded committed indebtedness and proceeds from the refinancing of outstanding secured indebtedness will be sufficient to fund the capital needs of our joint venture properties.

Cash Flows

        The following summary discussion of our cash flows is based on our consolidated statements of cash flows in "Item 8. Financial Statements" and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

        Cash and cash equivalents were $332.8 million and $343.7 million at December 31, 2010 and 2009, respectively, representing a decrease of $10.9 million. The decrease was a result of the following increases and decreases in cash flows (in thousands):

 
  Year ended December 31,  
 
  2010   2009   Increase
(Decrease)
 

Net cash provided by operating activities

  $ 321,058   $ 275,211   $ 45,847  

Net cash (used in) provided by investing activities

  $ 18,815   $ (345,379 ) $ 364,194  

Net cash used in financing activities

  $ (350,758 ) $ (313,006 ) $ (37,752 )

        Our principal source of operating cash flow is related to the leasing and operating of the properties in our portfolio. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend and distribution payment requirements. At December 31, 2010, our portfolio was 91.6% occupied. Our debt and preferred equity and joint venture investments also provide a steady stream of operating cash flow to us.

        Cash is used in investing activities to fund acquisitions, redevelopment projects and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings that meet our

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investment criteria. During the year ended December 31, 2010, when compared to the year ended December 31, 2009, we used cash primarily for the following investing activities (in thousands):

Acquisitions of real estate   $ (254,555 )

Capital expenditures and capitalized interest

    (17,174 )

Escrow cash-capital improvements/acquisition deposits

    (34,897 )

Joint venture investments

    19,872  

Distributions from joint ventures

    14,074  

Proceeds from sales of real estate/partial interest in property

    595,175  

Debt and preferred equity and other investments

    41,699  
       

Increase in net cash provided by investing activities

  $ 364,194  
       

        We generally fund our investment activity through property-level financing, our 2007 unsecured revolving credit facility, senior unsecured notes, construction loans, and from time to time, we issue common or preferred stock. During the year ended December 31, 2010, when compared to the year ended December 31, 2009, we used cash for the following financing activities (in thousands):

Proceeds from our debt obligations   $ 616,520  

Repayments under our debt obligations

    (380,453 )

Proceeds from issuance of common stock

    (387,138 )

Proceeds from issuance of preferred stock

    122,041  

Redemption of noncontrolling interests

    (13,012 )

Noncontrolling interests, contributions in excess of distributions

    10,575  

Other financing activities

    (25,622 )

Dividends and distributions paid

    19,337  
       

Increase in cash used in financing activities

  $ (37,752 )
       

Capitalization

        As of December 31, 2010, we had 78,306,702 general and limited partner common units, 1,249,274 limited partner common units, 11,700,000 units of our 7.625% Series C cumulative redeemable preferred units, or Series C preferred units, and 4,000,000 units of our 7.875% Series D cumulative redeemable preferred units, or Series D preferred units, outstanding. Whenever SL Green issues common or preferred stock, the net proceeds received are contributed to us in exchange for an equivalent number of operating partnership units of a corresponding class.

        In January 2010, SL Green sold 5,400,000 shares of its Series C preferred stock in an underwritten public offering. Following this offering, SL Green had 11,700,000 shares of the Series C preferred stock outstanding. The shares of Series C preferred stock have a liquidation preference of $25.00 per share and are redeemable at par, plus accrued and unpaid dividends, at any time at SL Green's option. The shares were priced at $23.53 per share including accrued dividends equating to a yield of 8.101%. SL Green contributed the net offering proceeds of approximately $122.0 million to us in exchange for an equivalent number of operating partnership units of a corresponding class. We used the net offering proceeds for general corporate and/or working capital purposes, including purchases of the indebtedness of our subsidiaries and investment opportunities.

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        In May 2009, SL Green sold 19,550,000 shares of its common stock. The net proceeds from this offering (approximately $387.1 million), which were contributed to us in exchange for an equivalent number of common units, were primarily used to repurchase unsecured debt and for other corporate purposes.

Compensation Plans

        All employees of SL Green are compensated through a subsidiary of SLGOP. SL Green's employee and director compensation plans are described below. Under each plan, whenever SL Green issues common or preferred stock, we issue an equivalent number of operating partnership units of a corresponding class to SL Green.

Dividend Reinvestment and Stock Purchase Plan

        SL Green filed a registration statement with the SEC registering 2,000,000 shares of its common stock under its dividend reinvestment and stock purchase plan, or DRIP. The DRIP commenced on September 24, 2001.

        During the years ended December 31, 2010 and 2009, approximately 250,900 and 180 shares of SL Green's common stock were issued and approximately $11.3 million and $5,000 of proceeds were received, respectively, from dividend reinvestments and/or stock purchases under the DRIP. The $11.3 million in proceeds received during the year ended December 31, 2010 were contributed to us by SL Green in exchange for an equivalent number of common units. DRIP shares may be issued at a discount to the market price.

Second Amended and Restated 2005 Stock Option and Incentive Plan

        Subject to adjustments upon certain corporate transactions or events, up to a maximum of 10,730,000 fungible units may be granted as options, restricted stock, phantom shares, dividend equivalent rights and other equity-based awards under the Second Amended and Restated 2005 Stock Option and Incentive Plan, or the 2005 Plan. At December 31, 2010, approximately 5.0 million fungible units, calculated on a weighted basis, were available for issuance under the 2005 Plan, or 6.3 million shares of SL Green's common stock if all shares available under the 2005 Plan were issued as five-year stock options.

2003 Long-Term Outperformance Compensation Program

        SL Green's board of directors adopted a long-term, seven-year compensation program for certain members of senior management. The program provided for restricted stock awards to be made to plan participants if the holders of its common equity achieved a total return in excess of 40% over a 48-month period commencing April 1, 2003. In April 2007, SL Green's compensation committee determined that under the terms of the 2003 Outperformance Plan, as of March 31, 2007, the performance hurdles had been met and the maximum performance pool of $22,825,000, taking into account forfeitures, was established. In connection with this event, approximately 166,312 shares of restricted stock (as adjusted for forfeitures) were allocated under the 2005 Plan. In accordance with the terms of the program, 40% of each award vested on March 31, 2007 and the remainder was scheduled to vest ratably over the subsequent three years based on continued employment. The fair value of the awards under this program on the date of grant was determined to be $3.2 million. This fair value is expensed over the term of the restricted stock award. Forty percent of the value of the award was amortized over four years from the date of grant and the balance was amortized, in equal parts, over five, six and seven years (i.e., 20% of the total value was amortized over five years (20% per year), 20% of the total value was amortized over six years (16.67% per year) and 20% of the total value was amortized over seven years (14.29% per year). We recorded

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compensation expense of $23,000, $0.1 million and $0.2 million related to this plan during the years ended December 31, 2010, 2009 and 2008, respectively.

2005 Long-Term Outperformance Compensation Program

        In December 2005, the compensation committee of SL Green's board of directors approved a long-term incentive compensation program, the 2005 Outperformance Plan. Participants in the 2005 Outperformance Plan were entitled to earn LTIP Units in SLGOP if SL Green's total return to stockholders for the three-year period beginning December 1, 2005 exceeded a cumulative total return to stockholders of 30%.; provided that participants were entitled to earn LTIP Units earlier in the event that SL Green achieved maximum performance for 30 consecutive days. The total number of LTIP Units that could be earned was to be a number having an assumed value equal to 10% of the outperformance amount in excess of the 30% benchmark, subject to a maximum dilution cap equal to the lesser of 3% of SL Green's outstanding shares and units of limited partnership interest as of December 1, 2005 or $50.0 million. On June 14, 2006, SL Green's compensation committee determined that under the terms of the 2005 Outperformance Plan, as of June 8, 2006, the performance period had accelerated and the maximum performance pool of $49,250,000, taking into account forfeitures, had been earned. Under the terms of the 2005 Outperformance Plan, participants also earned additional LTIP Units with a value equal to the distributions that would have been paid with respect to the LTIP Units earned if such LTIP Units had been earned at the beginning of the performance period. The total number of LTIP Units earned under the 2005 Outperformance Plan by all participants as of June 8, 2006 was 490,475. Under the terms of the 2005 Ouperformance Plan, all LTIP Units that were earned remained subject to time-based vesting, with one-third of the LTIP Units earned scheduled to vest on each of November 30, 2008 and the first two anniversaries thereafter based on continued employment. The earned LTIP Units received regular quarterly distributions on a per unit basis equal to the dividends per share paid on SL Green's common stock, whether or not they were vested.

        The cost of the 2005 Outperformance Plan (approximately $8.0 million, subject to adjustment for forfeitures) was amortized into earnings through the final vesting period. We recorded approximately $1.6 million, $2.3 million and $3.9 million of compensation expense during the years ended December 31, 2010, 2009 and 2008, respectively, in connection with the 2005 Outperformance Plan.

2006 Long-Term Outperformance Compensation Program

        On August 14, 2006, the compensation committee of SL Green's board of directors approved a long-term incentive compensation program, the 2006 Outperformance Plan. Participants in the 2006 Outperformance Plan were entitled to earn LTIP Units in SLGOP if SL Green's total return to stockholders for the three-year period beginning August 1, 2006 exceeded a cumulative total return to stockholders of 30%.; provided that participants were entitled to earn LTIP Units earlier in the event that SL Green achieved maximum performance for 30 consecutive days. The total number of LTIP Units that could be earned was to be a number having an assumed value of 10% of the outperformance amount in excess of the 30% benchmark, subject to a maximum dilution cap equal to $60.0 million. The 2006 Outperformance Plan provided that if the LTIP Units were earned, each participant would also have been entitled to the distributions that would have been paid had the number of earned LTIP Units been issued at the beginning of the performance period. Those distributions would have been paid in the form of additional LTIP Units. Thereafter, distributions would have been paid currently with respect to all earned LTIP Units, whether vested or unvested. Any LTIP Units earned under the 2006 Outperformance Plan were to remain subject to time-based vesting, with one-third of the awards vesting on each of July 31, 2009 and the first two anniversaries thereafter based on continued employment.

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        The cost of the 2006 Outperformance Plan (approximately $16.4 million, subject to adjustment for forfeitures) will be amortized into earnings through the final vesting period. We recorded approximately $0.2 million, $0.4 million and $12.2 million of compensation expense during the years ended December 31, 2010, 2009 and 2008, respectively, in connection with the 2006 Outperformance Plan. During the fourth quarter of 2008, SL Green and certain of its employees, including its executive officers, mutually agreed to cancel a portion of the 2006 Outperformance Plan. The charge of approximately $9.2 million is included in the compensation expense above. The performance criteria under the 2006 Outperformance Plan were not met and, accordingly, no LTIP Units have been earned under the 2006 Outperformance Plan.

SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Plan

        In December 2009, the compensation committee of SL Green's board of directors approved the general terms of the SL Green Realty Corp. 2010 Notional Unit Long-Term Compensation Program, the 2010 Long Term Compensation Plan. The 2010 Long-Term Compensation Plan is a long-term incentive compensation plan pursuant to which award recipients may earn, in the aggregate, from approximately $15 million up to approximately $75 million of LTIP Units in SLGOP based on SL Green's stock price appreciation over three years beginning on December 1, 2009; provided that, if maximum performance has been achieved, approximately $25 million of awards may be earned at any time after the beginning of the second year and an additional approximately $25 million of awards may be earned at any time after the beginning of the third year. The amount of awards earned will range from approximately $15 million if SL Green's aggregate stock price appreciation during the performance period is 25% to the maximum amount of approximately $75 million if SL Green's aggregate stock price appreciation during the performance period is 50% or greater. No awards will be earned if SL Green's aggregate stock price appreciation is less than 25%. After the awards are earned, they will remain subject to vesting, with 50% of any LTIP Units earned vesting on January 1, 2013 and an additional 25% vesting on each of January 1, 2014 and 2015 based, in each case, on continued employment through the vesting date. We will not pay distributions on any LTIP Units until they are earned, at which time we will pay all distributions that would have been paid on the earned LTIP Units since the beginning of the performance period.

        Overall, the 2010 Long Term Compensation Plan contemplates maximum potential awards of 1,179,987 LTIP Units and a cap of approximately $75 million when earned. However, sufficient shares were not available under the 2005 Plan to fund the entire 2010 Long Term Compensation Plan in December 2009, and the awards granted at that time, in the aggregate, were limited to 744,128 LTIP Units, subject to performance-based and time-based vesting, unless and until additional shares became available under the 2005 Plan prior to the end of the performance period for the 2010 Long Term Compensation Plan. At SL Green's annual meeting of stockholders on June 15, 2010, SL Green's stockholders approved the adoption of the 2005 Plan which, among other things, increased the number of shares available under the plan. That increase allowed us to award the balance of the LTIP Units due under the 2010 Long-Term Compensation Plan. The remaining awards were granted in June 2010. The cost of the 2010 Long Term Compensation Plan (approximately $29.3 million, subject to forfeitures) will be amortized into earnings through the final vesting period. We recorded compensation expense of approximately $4.0 million and $0.6 million during the years ended December 31, 2010 and 2009, respectively, related to this program.

Deferred Stock Compensation Plan for Directors

        Under SL Green's Independent Director's Deferral Program, which commenced July 2004, SL Green's non-employee directors may elect to defer up to 100% of their annual retainer fee, chairman fees and meeting fees. Unless otherwise elected by a participant, fees deferred under the program shall be credited in the form of

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phantom stock units. The phantom stock units are convertible into an equal number of shares of SL Green's common stock upon such directors' termination of service from SL Green's board of directors or a change in control by SL Green, as defined by the program. Phantom stock units are credited to each non-employee director quarterly using the closing price of SL Green's common stock on the applicable dividend record date for the respective quarter. Each participating non-employee director's account is also credited for an equivalent amount of phantom stock units based on the dividend rate for each quarter.

        During the year ended December 31, 2010, approximately 10,255 phantom stock units were earned. As of December 31, 2010, there were approximately 58,666 phantom stock units outstanding.

Employee Stock Purchase Plan

        On September 18, 2007, SL Green's board of directors adopted the 2008 Employee Stock Purchase Plan, or ESPP, to encourage its employees to increase their efforts to make our business more successful by providing equity-based incentives to eligible employees. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and has been adopted by the board to enable eligible employees to purchase SL Green's shares of common stock through payroll deductions. The ESPP became effective on January 1, 2009 with a maximum of 500,000 shares of the common stock available for issuance, subject to adjustment upon a merger, reorganization, stock split or other similar corporate change. SL Green filed a registration statement on Form S-8 with the Securities and Exchange Commission with respect to the ESPP. The common stock will be offered for purchase through a series of successive offering periods. Each offering period will be three months in duration and will begin on the first day of each calendar quarter, with the first offering period having commenced on January 1, 2009. The ESPP provides for eligible employees to purchase the common stock at a purchase price equal to 85% of the lesser of (1) the market value of the common stock on the first day of the offering period or (2) the market value of the common stock on the last day of the offering period. The ESPP was approved by SL Green's stockholders at its 2008 annual meeting of stockholders. As of December 31, 2010, approximately 47,900 shares of SL Green's common stock had been issued under the ESPP. SL Green contributed the proceeds from the sale of those shares to us in exchange for an equivalent number of our common units.

Market Capitalization

        At December 31, 2010, borrowings under our mortgages and other loans payable, our 2007 unsecured revolving credit facility, senior unsecured notes and trust preferred securities (including our share of joint venture debt of approximately $1.6 billion) represented 54.4% of SL Green's combined market capitalization of approximately $12.6 billion (based on a common stock price of $67.51 per share, the closing price of SL Green's common stock on the New York Stock Exchange on December 31, 2010). Market capitalization includes our consolidated debt, SL Green common and preferred stock and the conversion of all our units of limited partnership interest into SL Green common stock, and our share of joint venture debt.

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Indebtedness

        The table below summarizes our consolidated mortgages and other loans payable, our 2007 unsecured revolving credit facility, senior unsecured notes and trust preferred securities outstanding at December 31, 2010 and 2009, respectively (dollars in thousands):

Debt Summary:
  December 31,
2010
  December 31,
2009
 

Balance

             

Fixed rate

  $ 4,136,362   $ 3,256,081  

Variable rate—hedged

        60,000  
           
 

Total fixed rate

    4,136,362     3,316,081  
           

Variable rate

    674,318     1,110,391  

Variable rate—supporting variable rate assets

    440,333     466,216  
           
 

Total variable rate

    1,114,651     1,576,607  
           

Total

  $ 5,251,013   $ 4,892,688  
           

Percent of Total Debt:

             
 

Total fixed rate

    78.8 %   67.8 %
 

Variable rate

    21.2 %   32.2 %
           

Total

    100.0 %   100.0 %
           

Effective Interest Rate for the Year:

             
 

Fixed rate

    5.95 %   5.60 %
 

Variable rate

    1.79 %   1.45 %
           

Effective interest rate

    4.76 %   4.30 %
           

        The variable rate debt shown above generally bears interest at an interest rate based on 30-day LIBOR (0.30% and 0.23% at December 31, 2010 and 2009, respectively). Our consolidated debt at December 31, 2010 had a weighted average term to maturity of approximately 4.9 years.

        Certain of our debt and preferred equity investments, with a face amount net of discount, of approximately $440.3 million, are variable rate investments which mitigate our exposure to interest rate changes on our unhedged variable rate debt at December 31, 2010.

Mortgage Financing

        As of December 31, 2010, our total mortgage debt (excluding our share of joint venture debt of approximately $1.6 billion) consisted of approximately $2.9 billion of fixed rate debt, including hedged variable rate debt, with an effective weighted average interest rate of approximately 5.91% and approximately $464.7 million of variable rate debt with an effective weighted average interest rate of approximately 3.28%.

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Corporate Indebtedness

2007 Unsecured Revolving Credit Facility

        We have a $1.5 billion unsecured revolving credit facility, or the 2007 unsecured revolving credit facility. The 2007 unsecured revolving credit facility bears interest at a spread ranging from 70 basis points to 110 basis points over the 30-day LIBOR which, based on our leverage ratio at December 31, 2010, was 90 basis points. This facility matures in June 2011 and has a one-year as-of-right extension option which we expect to exercise. The 2007 unsecured revolving credit facility also requires a 12.5 to 20 basis point fee on the unused balance payable annually in arrears. The 2007 unsecured revolving credit facility had approximately $650.0 million outstanding at December 31, 2010. Availability under the 2007 unsecured revolving credit facility was further reduced at December 31, 2010 by the issuance of approximately $25.1 million in letters of credit. The 2007 unsecured revolving credit facility includes certain restrictions and covenants (see restrictive covenants below) and is guaranteed by certain of SLGOP's subsidiaries and debt and preferred equity investment entities. ROP and certain of its subsidiaries also provide a limited senior guaranty of SLGOP's obligations under the 2007 unsecured revolving credit facility. As of December 31, 2010, the maximum amount of ROP and its subsidiaries' guaranty obligation was approximately $435.7 million.

        In August 2009, we amended our 2007 unsecured revolving credit facility to provide us with the ability to acquire a portion of the loans outstanding under our 2007 unsecured revolving credit facility. Such repurchases reduced our availability under the 2007 unsecured revolving credit facility. In August 2009, one of our subsidiaries repurchased approximately $48.0 million of the total commitment, and we realized gains on early extinguishment of debt of approximately $7.1 million.

Senior Unsecured Notes

        The following table sets forth our senior unsecured notes and other related disclosures by scheduled maturity date as of December 31, 2010 (in thousands):

Issuance
  Unpaid
Principal
Balance
  2010
Accreted
Balance
  2009
Accreted
Balance
  Coupon
Rate(4)
  Effective
Rate
  Term
(in Years)
  Maturity  

January 22, 2004(1)(5)

  $ 84,823   $ 84,823   $ 123,607     5.15 %   5.900 %   7     January 15, 2011  

August 13, 2004(1)(5)

    98,578     98,578     150,000     5.875 %   6.100 %   10     August 15, 2014  

March 31, 2006(1)

    275,000     274,764     274,727     6.00 %   6.200 %   10     March 31, 2016  

March 16, 2010

    250,000     250,000         7.75 %   7.750 %   10     March 15, 2020  

June 27, 2005(1)(2)(5)

    657     657     114,821     4.00 %   4.000 %   20     June 15, 2025  

March 26, 2007(3)(5)

    126,937     123,171     159,905     3.00 %   5.460 %   20     March 30, 2027  

October 12, 2010(6)

    345,000     268,552         3.00 %   7.125 %   7     October 15, 2017  
                                       

  $ 1,180,995   $ 1,100,545   $ 823,060                          
                                       

(1)
Issued by ROP.

(2)
Exchangeable senior debentures which are currently callable at 100% of par. In addition, the debentures can be put to us, at the option of the holder at par plus accrued and unpaid interest, on June 15, 2015 and 2020 and upon the occurrence of certain change of control transactions. As a result of the Reckson Merger, the adjusted exchange rate for the debentures is 7.7461 shares of SL Green's common stock per $1,000 of principal amount of debentures and the adjusted reference dividend for the debentures is $1.3491. During the year ended December 31, 2010, we and SL Green repurchased approximately $115.4 million of these bonds, inclusive of notes purchased in

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(3)
In March 2007, we issued $750.0 million of these exchangeable notes. Interest on these notes is payable semi-annually on March 30 and September 30. The notes have an initial exchange rate representing an exchange price that was set at a 25.0% premium to the last reported sale price of SL Green's common stock on March 20, 2007, or $173.30. The initial exchange rate is subject to adjustment under certain circumstances. The notes are our senior unsecured obligation and are exchangeable upon the occurrence of specified events, and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green common stock, if any, at our option. The notes are redeemable, at our option, on and after April 15, 2012. We may be required to repurchase the notes on March 30, 2012, 2017 and 2022, and upon the occurrence of certain designated events. The net proceeds from the offering were approximately $736.0 million, after deducting estimated fees and expenses. The proceeds of the offering were used to repay certain of our existing indebtedness, make investments in additional properties, and make open market purchases of SL Green common stock and for general corporate purposes. During the year ended December 31, 2010, we and SL Green repurchased approximately $41.7 million of these bonds, inclusive of notes purchased in the tender offer discussed in note (5) below, and realized a net loss on early extinguishment of debt of approximately $0.5 million. On the issuance date, $66.6 million was recorded in equity. As of December 31, 2010, approximately $3.7 million of equity remained unamortized.

(4)
Interest on the senior unsecured notes is payable semi-annually with principal and unpaid interest due on the scheduled maturity dates.

(5)
In April 2010, SL Green completed a cash tender offer and purchased $13.0 million of our outstanding 3.000% Exchangeable Senior Notes due 2027, and $13.2 million of the outstanding 4.000% Exchangeable Senior Debentures due 2025, $38.8 million of the 5.150% Notes due 2011 and $50.0 million of the 5.875% Notes due 2014 issued by ROP.

(6)
In October 2010, we issued $345.0 million of these exchangeable notes. Interest on these notes is payable semi-annually on April 15 and October 15. The notes have an initial exchange rate representing an exchange price that was set at a 30.0% premium to the last reported sale price of SL Green's common stock on October 6, 2010, or $85.81. The initial exchange rate is subject to adjustment under certain circumstances. The notes are our senior unsecured obligation and are exchangeable upon the occurrence of specified events, and during the period beginning on the twenty-second scheduled trading day prior to the maturity date and ending on the second business day prior to the maturity date, into cash or a combination of cash and shares of SL Green's common stock, if any, at our option. The notes are guaranteed by ROP. The net proceeds from the offering were approximately $336.5 million, after deducting fees and expenses. The proceeds of the offering were used to repay certain of our existing indebtedness, make investments in additional properties, and for general corporate purposes. On the issuance date, $78.3 million was recorded in equity. As of December 31, 2010, approximately $76.4 million of equity remained unamortized.

        In March 2009, $200.0 million aggregate principal amount of the 7.75% unsecured notes issued by ROP were repaid at par upon their maturity.

Junior Subordinate Deferrable Interest Debentures

        In June 2005, we and SL Green issued $100.0 million of Trust Preferred Securities, which are reflected on the balance sheet as Junior Subordinate Deferrable Interest Debentures. The proceeds were used to repay our unsecured revolving credit facility. The $100.0 million of junior subordinate deferrable interest debentures have a 30-year term ending July 2035. They bear interest at a fixed rate of 5.61% for the first 10 years ending July 2015. Thereafter, the rate will float at three month LIBOR plus 1.25%. The securities are currently redeemable at par.

Restrictive Covenants

        The terms of our 2007 unsecured revolving credit facility and certain of our senior unsecured notes include certain restrictions and covenants which may limit, among other things, the payment of dividends (as discussed below), the incurrence of additional indebtedness, the incurrence of liens and the disposition of assets, and which require compliance with financial ratios relating to the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of unsecured indebtedness, the minimum amount of unencumbered property debt service coverage and certain

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investment limitations. The dividend restriction referred to above provides that, except to enable SL Green to continue to qualify as a REIT for Federal income tax purposes, it will not during any four consecutive fiscal quarters make distributions with respect to common stock or other equity interests in an aggregate amount in excess of 95% of funds from operations for such period, subject to certain other adjustments. As of December 31, 2010 and 2009, we were in compliance with all such covenants.

Market Rate Risk

        We are exposed to changes in interest rates primarily from our floating rate borrowing arrangements. We use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point increase in interest rates along the entire interest rate curve for 2010 and 2009, would increase our annual interest cost by approximately $11.0 million and $15.2 million and would increase our share of joint venture annual interest cost by approximately $6.7 million and $6.4 million, respectively.

        We recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized immediately in earnings.

        Approximately $4.1 billion of our long-term debt bore interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. The interest rate on our variable rate debt and joint venture debt as of December 31, 2010 ranged from LIBOR plus 75 basis points to LIBOR plus 400 basis points.

Contractual Obligations

        Combined aggregate principal maturities of mortgages and other loans payable, our 2007 unsecured revolving credit facility, senior unsecured notes (net of discount), trust preferred securities, our share of joint venture debt, including as-of-right extension options, estimated interest expense (based on weighted average interest rates for the quarter), and our obligations under our capital lease and ground leases, as of December 31, 2010 are as follows (in thousands):

 
  2011   2012   2013   2014   2015   Thereafter   Total  

Property Mortgages

  $ 246,615   $ 143,646   $ 656,863   $ 208,025   $ 260,433   $ 1,884,885   $ 3,400,467  

Revolving Credit Facility

        650,000                     650,000  

Trust Preferred Securities

                        100,000     100,000  

Senior Unsecured Notes

    84,823     123,171         98,578     657     793,316     1,100,545  

Capital lease

    1,555     1,555     1,555     1,555     1,593     44,056     51,869  

Ground leases

    28,929     28,179     28,179     28,179     28,179     552,421     694,066  

Estimated interest expense

    265,242     245,545     221,161     197,128     177,565     355,143     1,461,784  

Joint venture debt

    207,738     61,491     41,415     339,184     96,786     857,305     1,603,919  
                               

Total

  $ 834,902   $ 1,253,587   $ 949,173   $ 872,649   $ 565,213   $ 4,587,126   $ 9,062,650  
                               

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Off-Balance Sheet Arrangements

        We have a number of off-balance sheet investments, including joint ventures and debt and preferred equity investments. These investments all have varying ownership structures. Substantially all of our joint venture arrangements are accounted for under the equity method of accounting as we have the ability to exercise significant influence, but not control over the operating and financial decisions of these joint venture arrangements. Our off-balance sheet arrangements are discussed in Note 5, "Debt and Preferred Equity Investments" and Note 6, "Investments in Unconsolidated Joint Ventures" in the accompanying consolidated financial statements. Additional information about the debt of our unconsolidated joint ventures is included in "Contractual Obligations" above.

Capital Expenditures

        We estimate that for the year ending December 31, 2011, we will incur, approximately $120.5 million of capital expenditures which are net of loan reserves, (including tenant improvements and leasing commissions) on existing wholly-owned properties, and our share of capital expenditures at our joint venture properties, net of loan reserves, will be approximately $23.4 million. We expect to fund these capital expenditures with operating cash flow, additional property level mortgage financings and cash on hand. Future property acquisitions may require substantial capital investments for refurbishment and leasing costs. We expect that these financing requirements will be met in a similar fashion. We believe that we will have sufficient resources to satisfy our capital needs during the next 12-month period. Thereafter, we expect our capital needs will be met through a combination of cash on hand, net cash provided by operations, borrowings, potential asset sales or additional equity or debt issuances by us or SL Green.

Distributions

        SL Green expects to pay dividends to its stockholders on a quarterly basis based on the distributions we make to it primarily from property revenues net of operating expenses or, if necessary, from working capital or borrowings. If SL Green declares a dividend, such dividend is paid in the subsequent quarter.

        In order to enable SL Green to maintain its qualification as a REIT, it must make annual distributions to its stockholders of at least 90% of its taxable income (not including net capital gains). SL Green has adopted a policy of paying regular quarterly dividends on its common stock, and we have adopted a policy of paying regular quarterly distributions on our common units corresponding to dividends paid by SL Green. Cash distributions have been paid on the common stock of SL Green and our common units since the initial public offering of SL Green. Distributions are declared at the discretion of the board of directors of SL Green and depend on actual and anticipated cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and other factors SL Green's board of directors may consider relevant.

        Based on SL Green's current annual dividend rate of $0.40 per share, it would pay approximately $31.6 million in dividends on an annual basis. Before SL Green pays any dividend, whether for Federal income tax purposes or otherwise, which would only be paid out of available cash to the extent permitted under our unsecured revolving credit facility and senior unsecured notes, we must first meet both our operating requirements and scheduled debt service on our mortgages and loans payable.

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Related Party Transactions

        Through Alliance Building Services, or Alliance, First Quality Maintenance, L.P., or First Quality, provides cleaning, extermination and related services, Classic Security LLC provides security services, Bright Star Couriers LLC provides messenger services, and Onyx Restoration Works provides restoration services with respect to certain properties owned by us. Alliance is partially owned by Gary Green, a son of Stephen L. Green, the chairman of SL Green's board of directors. In addition, First Quality has the non-exclusive opportunity to provide cleaning and related services to individual tenants at our properties on a basis separately negotiated with any tenant seeking such additional services. The Service Corp. has entered into an arrangement with Alliance whereby it will receive a profit participation above a certain threshold for services provided by Alliance to certain tenants at certain buildings above the base services specified in their lease agreements. Alliance paid the Service Corporation approximately $2.2 million, $1.8 million and $1.4 million for the years ended December 31, 2010, 2009 and 2008, respectively. We paid Alliance approximately $14.2 million, $14.9 million and $15.1 million for three years ended December 31, 2010, respectively, for these services (excluding services provided directly to tenants).

        Nancy Peck and Company leases 1,003 square feet of space at 420 Lexington Avenue under a lease that ends in August 2015. Nancy Peck and Company is owned by Nancy Peck, the wife of Stephen L. Green. The rent due under the lease is $35,516 per year.

        Cushman & Wakefield Sonnenblick-Goldman, LLC, or Sonnenblick, a nationally recognized real estate investment banking firm, provided mortgage brokerage services to us. Mr. Morton Holliday, the father of Mr. Marc Holliday, was a Managing Director of Sonnenblick at the time of the financings. In 2009, we paid approximately $428,000 to Sonnenblick in connection with the purchase of a sub-leasehold interest and the refinancing of 420 Lexington Avenue.

        S.L. Green Management Corp., a consolidated entity, receives property management fees from an entity in which Stephen L. Green owns an interest. The aggregate amount of fees paid to S.L. Green Management Corp. from such entity was approximately $390,700 in 2010, $351,700 in 2009 and $353,500 in 2008.

        Our related party transactions with Gramercy are discussed in Note 11, "Related Party Transactions" in the accompanying financial statements.

        We maintain "all-risk" property and rental value coverage (including coverage regarding the perils of flood, earthquake and terrorism) within two property insurance portfolios and liability insurance. The first property portfolio maintains a blanket limit of $750.0 million per occurrence, including terrorism, for the majority of the New York City properties in our portfolio. This policy expires on December 31, 2011. The second portfolio

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maintains a limit of $600.0 million per occurrence, including terrorism, for some New York City properties and the majority of the Suburban properties. The second property policy expires on December 31, 2011. Additional coverage may be purchased on a stand-alone basis for certain assets. We maintain liability policies which cover all our properties and provide limits of $201.0 million per occurrence and in the aggregate per location. The liability policies expire on October 31, 2011.

        In October 2006, SL Green formed a wholly-owned taxable REIT subsidiary, Belmont Insurance Company, or Belmont, to act as a captive insurance company and be one of the elements of its overall insurance program. Belmont is a subsidiary of ours. Belmont was formed in an effort to, among other reasons, stabilize to some extent the fluctuations of insurance market conditions. Belmont is licensed in New York to write Terrorism, NBCR (nuclear, biological, chemical, and radiological), General Liability, Environmental Liability and D&O coverage.

        As long as we own Belmont, we are responsible for its liquidity and capital resources, and the accounts of Belmont are part of our consolidated financial statements. If we experience a loss and Belmont is required to pay under its insurance policy, we would ultimately record the loss to the extent of Belmont's required payment. Therefore, insurance coverage provided by Belmont should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.

        The Terrorism Risk Insurance Act, or TRIA, which was enacted in November 2002, was renewed on December 31, 2007. Congress extended TRIA, now called TRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007) until December 31, 2014. The law extends the federal Terrorism Insurance Program that requires insurance companies to offer terrorism coverage and provides for compensation for insured losses resulting from acts of certified terrorism, subject to the current program trigger of $100.0 million. Our debt instruments, consisting of mortgage loans secured by our properties (which are generally non-recourse to us), mezzanine loans, ground leases, our 2007 unsecured revolving credit facility and other corporate obligations, contain customary covenants requiring us to maintain insurance. Although we believe that

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we currently maintain sufficient insurance coverage to satisfy these obligations, there is no assurance that in the future we will be able to procure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or ground lessors under these instruments will not take the position that a total or partial exclusion from "all-risk" insurance coverage for losses due to terrorist acts is a breach of these debt and ground lease instruments allowing the lenders or ground lessors to declare an event of default and accelerate repayment of debt or recapture of ground lease positions. In addition, if lenders prevail in asserting that we are required to maintain full coverage for these risks, it could result in substantially higher insurance premiums.

        We have a 49.9% interest in the property at 100 Park Avenue, where we participate with Prudential, which carries a blanket policy of $500.0 million of "all-risk" property insurance, including terrorism coverage. We own One Madison Avenue, which is under a triple net lease with insurance provided by the tenant, Credit Suisse Securities (USA) LLC, or CS. We have a 50.6% interest in the property at 388 and 390 Greenwich Street, where we participate with SITQ, which is leased on a triple net basis to Citigroup, N.A., which provides insurance coverage directly. We monitor all triple net leases to ensure that tenants are providing adequate coverage. Other joint ventures may be covered under policies separate from our policies, at coverage limits which we deem to be adequate. We continually monitor these policies. Although we consider our insurance coverage to be appropriate, in the event of a major catastrophe, such as an act of terrorism, we may not have sufficient coverage to replace certain properties.

Inflation

        Substantially all of the office leases provide for separate real estate tax and operating expense escalations as well as operating expense recoveries based on increases in the Consumer Price Index or other measures such as porters' wage. In addition, many of the leases provide for fixed base rent increases. We believe that inflationary increases may be at least partially offset by the contractual rent increases and expense escalations described above.

Accounting Standards Updates

        The Accounting Standards Updates are discussed in Note 2, "Significant Accounting Policies- Accounting Standards Updates" in the accompanying consolidated financial statements.

Forward-Looking Information

        This report includes certain statements that may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. All statements, other than statements of historical facts, included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), development trends of the real estate industry and the Manhattan, Brooklyn, Queens, Westchester County, Connecticut, Long Island and New Jersey office markets, business strategies, expansion and growth of our operations and other similar matters, are forward-looking statements. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate.

        Forward-looking statements are not guarantees of future performance and actual results or developments may differ materially,, and we caution you not to place undue reliance on such statements. Forward-looking statements are generally identifiable by the use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "project," "continue," or the negative of these words, or other similar words or terms.

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        Forward-looking statements contained in this report are subject to a number of risks and uncertainties that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by forward-looking statements made by us. These risks and uncertainties include:

        Other factors and risks to our business, many of which are beyond our control, are described in other sections of this report and in our other filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSUE ABOUT MARKET RISK

        See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Rate Risk" for additional information regarding our exposure to interest rate fluctuations.

        The table below presents the principal cash flows based upon maturity dates of SLGOP's debt obligations and debt and preferred equity investments and the related weighted-average interest rates by expected maturity dates, including as-of-right extension options, as of December 31, 2010 (in thousands):

 
   
  Long-Term Debt    
  Debt and Preferred
Equity Investments
 
Date
  Fixed
Rate
  Average
Interest
Rate
  Variable
Rate
  Average
Interest
Rate
  Amount   Weighted
Yield
 

2011

  $ 329,860     6.12 % $ 1,579     2.02 % $ 272,374     10.85 %

2012

    154,944     6.12 %   761,872     2.43 %   115,686     3.06 %

2013

    335,662     6.13 %   321,200     2.90 %   39,037     4.47 %

2014

    306,603     6.20 %       3.27 %   84,804     11.75 %

2015

    361,090     6.26 %       3.27 %       %

Thereafter

    2,648,203     6.49 %   30,000     3.27 %   451,871     7.13 %
                           

Total

  $ 4,136,362     6.49 % $ 1,114,651     2.27 % $ 963,772     7.99 %
                           

Fair Value

  $ 4,312,600         $ 1,060,500                    
                                   

(1)
Our debt and preferred equity investments had an estimated fair value ranging between $578.3 million and $867.4 million at December 31, 2010.

        The table below presents the principal cash flows based upon maturity dates of SLGOP's share of its joint venture debt obligations and the related weighted-average interest rates by expected maturity dates as of December 31, 2010 (in thousands):

 
  Long Term Debt