Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2010**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For the transition period from              to                .**

 

**Commission File Number: 33-167793-02**

 

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**SL GREEN OPERATING PARTNERSHIP, L.P.**

(Exact name of registrant as specified in its charter)

 

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

 

**420 Lexington Avenue, New York, New York 10170**

(Address of principal executive offices) (Zip Code)

 

**(212) 594-2700**

(Registrant’s telephone number, including area code)

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. YES o NO x

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  YES o NO o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  YES o NO x

 

Asof October 31, 2010, 133,661 common units of limited partnership interestof the Registrant were held by non-affiliates of the Registrant. There is noestablished trading market for such units.

 

 

 

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Table ofContents

 

**SL GREEN OPERATING PARTNERSHIP, L.P.**

 

**INDEX**

 
| ** **                                                                                                                     | **PAGE**                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
| ** **                                                                                                                     | ** **                                                                                      |
| **PART I.**                                                                                                               | **FINANCIAL INFORMATION**                                                                       | ** ** |
| ** **                                                                                                                     | ** **                                                                                      | ** ** |
| **ITEM 1.**                                                                                                                    | **FINANCIAL STATEMENTS**                                                                        | ** ** |
| ** **                                                                                                                     | ** **                                                                                      |
| Condensed  Consolidated Balance Sheets as of September 30, 2010 (unaudited) and  December 31, 2009                   | 3                                                                                               |
|                                                                                                                           |                                                                                            |
| Condensed  Consolidated Statements of Income for the three and nine months ended  September 30, 2010 and 2009 (unaudited) | 4                                                                                               |
|                                                                                                                           |                                                                                            |
| Condensed  Consolidated Statement of Capital for the nine months ended  September 30, 2010 (unaudited)                    | 5                                                                                               |
|                                                                                                                           |                                                                                            |
| Condensed  Consolidated Statements of Cash Flows for the nine months ended  September 30, 2010 and 2009 (unaudited)       | 6                                                                                               |
|                                                                                                                           |                                                                                            |
| Notes to Condensed  Consolidated Financial Statements (unaudited)                                                              | 7                                                                                               |
|                                                                                                                           |                                                                                            |
| **ITEM 2.**                                                                                                                    | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** | 33 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 3.**                                                                                                                    | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                 | 51 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 4.**                                                                                                                    | **CONTROLS AND PROCEDURES**                                                                     | 52 |
|                                                                                                                           |                                                                                            |   |
| **PART II.**                                                                                                              | **OTHER INFORMATION**                                                                           | 53 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 1.**                                                                                                                    | **LEGAL PROCEEDINGS**                                                                           | 53 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 1A.**                                                                                                                   | **RISK FACTORS**                                                                                | 53 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 2.**                                                                                                                    | **UNREGISTERED SALES OF EQUITY  SECURITIES AND USE OF PROCEEDS**                                | 63 |
| ** **                                                                                                                     | ** **                                                                                      |   |
| **ITEM 3.**                                                                                                                    | **DEFAULTS UPON SENIOR SECURITIES**                                                             | 63 |
| ** **                                                                                                                     | ** **                                                                                      |   |
| **ITEM 4.**                                                                                                                    | **(REMOVED AND RESERVED)**                                                                      | 63 |
| ** **                                                                                                                     | ** **                                                                                      |   |
| **ITEM 5.**                                                                                                                    | **OTHER INFORMATION**                                                                           | 63 |
|                                                                                                                           |                                                                                            |   |
| **ITEM 6.**                                                                                                                    | **EXHIBITS**                                                                                    | 63 |
|                                                                                                                           |                                                                                            |
| **SIGNATURES**                                                                                                                 | 65                                                                                              |

 

2

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Table ofContents

 

**PART I.****                         ****FINANCIAL INFORMATION**

**ITEM 1.****                       ****FinancialStatements**

 

**SL Green Operating Partnership, L.P.**

**Condensed Consolidated BalanceSheets**

**(Amounts in thousands, except per unit data)**

 
| ** **                                                                                                                                                                                                       | ** ** | **September 30,********2010** | ** **     | **December 31,****2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|----------------|-------------------------------|------------|
| ** **                                                                                                                                                                                                       | ** ** | **(Unaudited)**                    | ** **     | ** **                    | ** ** |
| **Assets**                                                                                                                                                                                                       |       |                               |           |                          |       |
| Commercial real estate properties, at cost:                                                                                                                                                                      |       |                               |           |                          |       |
| Land and land interests                                                                                                                                                                                          | ** ** | **$**                              | **1,459,690**  |                          | $          | 1,379,052 |   |
| Building and improvements                                                                                                                                                                                        | ** ** | **5,838,978**                      |           | 5,585,584                     |       |
| Building leasehold and improvements                                                                                                                                                                              | ** ** | **1,288,798**                      |           | 1,280,256                     |       |
| Property under capital lease                                                                                                                                                                                     | ** ** | **12,208**                         |           | 12,208                        |       |
| ** **                                                                                                                                                                                                       | ** ** | **8,599,674**                      |           | 8,257,100                     |       |
| Less: accumulated depreciation                                                                                                                                                                                   | ** ** | **(871,910**                       | **)**          | (738,422                      | )          |
| ** **                                                                                                                                                                                                       | ** ** | **7,727,764**                      |           | 7,518,678                     |       |
| Assets held for sale                                                                                                                                                                                             | ** ** | **—**                         |           | 992                           |       |
| Cash and cash equivalents                                                                                                                                                                                        | ** ** | **270,803**                        |           | 343,715                       |       |
| Restricted cash                                                                                                                                                                                                  | ** ** | **153,667**                        |           | 94,495                        |       |
| Investment in marketable securities                                                                                                                                                                              | ** ** | **72,090**                         |           | 58,785                        |       |
| Tenant and other receivables, net of allowance of  $14,402 and $14,271 in 2010 and 2009, respectively                                                                                                            | ** ** | **29,470**                         |           | 22,483                        |       |
| Related party receivables                                                                                                                                                                                        | ** ** | **7,088**                          |           | 8,570                         |       |
| Deferred rents receivable, net of allowance of  $24,785 and $24,347 in 2010 and 2009, respectively                                                                                                               | ** ** | **190,481**                        |           | 166,981                       |       |
| Structured finance investments, net of discount of  $40,822 and $46,802 and allowance of $87,768 and $93,844 in 2010 and 2009,  respectively                                                                     | ** ** | **907,936**                        |           | 784,620                       |       |
| Investments in unconsolidated joint ventures                                                                                                                                                                     | ** ** | **777,556**                        |           | 1,058,369                     |       |
| Deferred costs, net                                                                                                                                                                                              | ** ** | **156,502**                        |           | 139,257                       |       |
| Other assets                                                                                                                                                                                                     | ** ** | **294,518**                        |           | 290,632                       |       |
| Total assets                                                                                                                                                                                                     | ** ** | **$**                              | **10,587,875** |                          | $          | 10,487,577 |   |
|                                                                                                                                                                                                             |       |                               |           |                          |       |
| **Liabilities**                                                                                                                                                                                                  |       |                               |           |                          |       |
| Mortgage notes and other loans payable                                                                                                                                                                           | ** ** | **$**                              | **2,896,946**  |                          | $          | 2,595,552 |   |
| Revolving credit facility                                                                                                                                                                                        | ** ** | **800,000**                        |           | 1,374,076                     |       |
| Senior unsecured notes                                                                                                                                                                                           | ** ** | **831,261**                        |           | 823,060                       |       |
| Accrued interest payable and other liabilities                                                                                                                                                                   | ** ** | **21,357**                         |           | 34,734                        |       |
| Accounts payable and accrued expenses                                                                                                                                                                            | ** ** | **144,814**                        |           | 125,982                       |       |
| Deferred revenue/gains                                                                                                                                                                                           | ** ** | **320,712**                        |           | 349,669                       |       |
| Capitalized lease obligation                                                                                                                                                                                     | ** ** | **17,028**                         |           | 16,883                        |       |
| Deferred land leases payable                                                                                                                                                                                     | ** ** | **18,204**                         |           | 18,013                        |       |
| Dividend and distributions payable                                                                                                                                                                               | ** ** | **14,203**                         |           | 12,006                        |       |
| Security deposits                                                                                                                                                                                                | ** ** | **38,019**                         |           | 39,855                        |       |
| Junior subordinate deferrable interest debentures  held by trusts that issued trust preferred securities                                                                                                         | ** ** | **100,000**                        |           | 100,000                       |       |
| Total liabilities                                                                                                                                                                                                | ** ** | **5,202,544**                      |           | 5,489,830                     |       |
|                                                                                                                                                                                                             |       |                               |           |                          |       |
| Commitments and contingencies                                                                                                                                                                                    | ** ** | **—**                         |           | —                        |       |
|                                                                                                                                                                                                             |       |                               |           |                          |       |
| **Capital**                                                                                                                                                                                                      |       |                               |           |                          |       |
| SLGOP partners’ capital:                                                                                                                                                                                    | ** ** | ** **                         |           |                          |       |
| Series C preferred units, 11,700 and 6,300  outstanding at September 30, 2010 and December 31, 2009,  respectively                                                                                | ** ** | **274,000**                        |           | 151,981                       |       |
| Series D preferred units, 4,000 outstanding  at September 30, 2010 and December 31, 2009, respectively                                                                                            | ** ** | **96,321**                         |           | 96,321                        |       |
| SL Green partners’ capital (795 and 792 general  partner common units and 77,457 and 76,723 limited partner common units  outstanding at September 30, 2010 and December 31, 2009,  respectively) | ** ** | **4,484,096**                      |           | 4,196,891                     |       |
| Limited partner interests in Operating Partnership  (1,249, and 1,684 limited partner common units outstanding at  September 30, 2010 and December 31, 2009, respectively)                             | ** ** | **44,567**                         |           | 60,723                        |       |
| Accumulated other comprehensive loss                                                                                                                                                                             | ** ** | **(31,469**                        | **)**          | (32,860                       | )          |
| Total SLGOP partners’ capital                                                                                                                                                                               | ** ** | **4,867,515**                      |           | 4,473,056                     |       |
| Noncontrolling interests in other partnerships                                                                                                                                                                   | ** ** | **517,816**                        |           | 524,691                       |       |
| Total capital                                                                                                                                                                                                    | ** ** | **5,385,331**                      |           | 4,997,747                     |       |
| Total liabilities and capital                                                                                                                                                                                    | ** ** | **$**                              | **10,587,875** |                          | $          | 10,487,577 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

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Table ofContents

 

**SL Green Operating Partnership, L.P.**

**Condensed Consolidated Statementsof Income**

**(Unaudited, and amounts in thousands, except per unit data)**

 
| ** **                                                                                                                                                     | ** ** | **Three Months Ended** | ** **  | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                     | ** ** | **September 30,**           | ** **  | **September 30,**          | ** ** |
| ** **                                                                                                                                                     | ** ** | **2010**                         | ** **  | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Revenues**                                                                                                                                                   |       |                             |        |                            |       |   |   |   |   |
| Rental revenue, net                                                                                                                                            | ** ** | **$**                            | **199,347** |                            | $          | 189,454 | ** ** | **$** | **591,664** |   | $ | 571,094 |   |
| Escalation and reimbursement                                                                                                                                   | ** ** | **31,491**                       |        | 29,061                          | ** ** | **91,344** |   | 92,595 |   |
| Preferred equity and investment income                                                                                                                         | ** ** | **84,377**                       |        | 16,266                          | ** ** | **125,543** |   | 48,697 |   |
| Other income                                                                                                                                                   | ** ** | **8,065**                        |        | 10,988                          | ** ** | **25,450** |   | 40,421 |   |
| Total revenues                                                                                                                                                 | ** ** | **323,280**                      |        | 245,769                         | ** ** | **834,001** |   | 752,807 |   |
| **Expenses**                                                                                                                                                   | ** ** | ** **                       |        |                            | ** ** | ** ** |   |   |   |
| Operating expenses (including approximately $3,391  and $9,572 (2010) and $3,316 and $11,042 (2009) paid to affiliates)                                        | ** ** | **59,320**                       |        | 54,315                          | ** ** | **170,998** |   | 159,809 |   |
| Real estate taxes                                                                                                                                              | ** ** | **36,534**                       |        | 34,220                          | ** ** | **112,259** |   | 106,344 |   |
| Ground rent                                                                                                                                                    | ** ** | **7,860**                        |        | 7,912                           | ** ** | **23,360** |   | 24,004 |   |
| Interest expense, net of interest income                                                                                                                       | ** ** | **57,225**                       |        | 65,366                          | ** ** | **172,353** |   | 182,105 |   |
| Amortization of deferred financing costs                                                                                                                       | ** ** | **2,802**                        |        | 3,069                           | ** ** | **7,110** |   | 5,981 |   |
| Depreciation and amortization                                                                                                                                  | ** ** | **56,932**                       |        | 56,364                          | ** ** | **169,668** |   | 164,477 |   |
| Loan loss and other investment reserves, net of  recoveries                                                                                                    | ** ** | **1,338**                        |        | 16,100                          | ** ** | **12,323** |   | 123,677 |   |
| Transaction related costs                                                                                                                                      | ** ** | **3,254**                        |        | —                          | ** ** | **8,416** |   | — |   |
| Marketing, general and administrative                                                                                                                          | ** ** | **18,474**                       |        | 18,869                          | ** ** | **55,251** |   | 54,736 |   |
| Total expenses                                                                                                                                                 | ** ** | **243,739**                      |        | 256,215                         | ** ** | **731,738** |   | 821,133 |   |
| Income (loss) from continuing operations before  equity in net income of unconsolidated joint ventures, noncontrolling  interests, and discontinued operations | ** ** | **79,541**                       |        | (10,446                         | )          | **102,263** |   | (68,326 | ) |
| Equity in net income from unconsolidated joint  ventures                                                                                                       | ** ** | **7,544**                        |        | 16,585                          | ** ** | **32,925** |   | 46,486 |   |
| Equity in net gain on sale of interest in  unconsolidated joint ventures/ real estate                                                                          | ** ** | **520**                          |        | —                          | ** ** | **127,289** |   | 6,848 |   |
| Gain (loss) on equity investment in marketable  securities                                                                                                     | ** ** | **—**                       |        | 52                              | ** ** | **(285** | **)** | (629 | ) |
| Gain (loss) on early extinguishment of debt                                                                                                                    | ** ** | **(511**                         | )           | 8,368                           | ** ** | **(1,900** | **)** | 85,401 |   |
| Income from continuing operations                                                                                                                              | ** ** | **87,094**                       |        | 14,559                          | ** ** | **260,292** |   | 69,780 |   |
| Net income from discontinued operations                                                                                                                        | ** ** | **1,987**                        |        | 1,863                           | ** ** | **5,420** |   | 4,180 |   |
| Gain (loss) on sale of discontinued operations                                                                                                                 | ** ** | **35,485**                       |        | (11,829                         | )          | **35,485** |   | (5,257 | ) |
| Net income                                                                                                                                                     | ** ** | **124,566**                      |        | 4,593                           | ** ** | **301,197** |   | 68,703 |   |
| Net income attributable  to noncontrolling interests in other partnerships                                                                                     | ** ** | **(3,735**                       | )           | (2,358                          | )          | **(10,831** | **)** | (9,518 | ) |
| Net income attributable  to SLGOP                                                                                                                              | ** ** | **120,831**                      |        | 2,235                           | ** ** | **290,366** |   | 59,185 |   |
| Preferred unit  distributions                                                                                                                                  | ** ** | **(7,545**                       | )           | (4,969                          | )          | **(22,205** | **)** | (14,906 | ) |
| Net income attributable  to SLGOP common unitholders                                                                                                           | ** ** | **$**                            | **113,286** |                            | $          | (2,734 | ) | **$** | **268,161** |   | $ | 44,279 |   |
|                                                                                                                                                           |       |                             |        |                            |       |   |   |   |   |
| **Amounts attributable to SLGOP  common unitholders:**                                                                                                         | ** ** | ** **                       |        |                            | ** ** | ** ** |   |   |   |
| Income from continuing operations                                                                                                                              | ** ** | **$**                            | **75,294**  |                            | $          | 7,232 | ** ** | **$** | **99,967** |   | $ | 38,508 |   |
| Discontinued operations                                                                                                                                        | ** ** | **1,987**                        |        | 1,863                           | ** ** | **5,420** |   | 4,180 |   |
| Gain (loss) on sale of discontinued operations                                                                                                                 | ** ** | **35,485**                       |        | (11,829                         | )          | **35,485** |   | (5,257 | ) |
| Gain on sale of unconsolidated joint ventures/  real estate                                                                                                    | ** ** | **520**                          |        | —                          | ** ** | **127,289** |   | 6,848 |   |
| Net income                                                                                                                                                     | ** ** | **$**                            | **113,286** |                            | $          | (2,734 | ) | **$** | **268,161** |   | $ | 44,279 |   |
|                                                                                                                                                           |       |                             |        |                            |       |   |   |   |   |
| **Basic earnings per unit:**                                                                                                                                   | ** ** | ** **                       |        |                            | ** ** | ** ** |   |   |   |
| Net income from continuing operations before gain  on sale and discontinued operations                                                                         | ** ** | **$**                            | **0.95**    |                            | $          | 0.09 | ** ** | **$** | **1.26** |   | $ | 0.56 |   |
| Net income from discontinued operations                                                                                                                        | ** ** | **0.03**                         |        | 0.03                            | ** ** | **0.07** |   | 0.06 |   |
| Gain (loss) on sale of discontinued operations                                                                                                                 | ** ** | **0.44**                         |        | (0.15                           | )          | **0.45** |   | (0.08 | ) |
| Gain on sale of unconsolidated joint ventures/  real estate                                                                                                    | ** ** | **0.01**                         |        | —                          | ** ** | **1.60** |   | 0.10 |   |
| Net income (loss)  attributable to SLGOP common unitholders                                                                                                    | ** ** | **$**                            | **1.43**    |                            | $          | (0.03 | ) | **$** | **3.38** |   | $ | 0.64 |   |
|                                                                                                                                                           |       |                             |        |                            |       |   |   |   |   |
| **Diluted earnings per unit:**                                                                                                                                 | ** ** | ** **                       |        |                            | ** ** | ** ** |   |   |   |
| Net income from continuing operations before gain  on sale and discontinued operations                                                                         | ** ** | **$**                            | **0.94**    |                            | $          | 0.09 | ** ** | **$** | **1.24** |   | $ | 0.56 |   |
| Net income from discontinued operations                                                                                                                        | ** ** | **0.03**                         |        | 0.03                            | ** ** | **0.07** |   | 0.06 |   |
| Gain (loss) on sale of discontinued operations                                                                                                                 | ** ** | **0.44**                         |        | (0.15                           | )          | **0.45** |   | (0.08 | ) |
| Gain on sale of unconsolidated joint ventures/  real estate                                                                                                    | ** ** | **0.01**                         |        | —                          | ** ** | **1.60** |   | 0.10 |   |
| Net income (loss)  attributable to SLGOP common unitholders                                                                                                    | ** ** | **$**                            | **1.42**    |                            | $          | (0.03 | ) | **$** | **3.36** |   | $ | 0.64 |   |
|                                                                                                                                                           |       |                             |        |                            |       |   |   |   |   |
| Dividends per unit                                                                                                                                             | ** ** | **$**                            | **0.10**    |                            | $          | 0.10 | ** ** | **$** | **0.30** |   | $ | 0.575 |   |
| Basic weighted average common units outstanding                                                                                                                | ** ** | **79,437**                       |        | 79,168                          | ** ** | **79,379** |   | 69,533 |   |
| Diluted weighted average common units and common  unit equivalents outstanding                                                                                 | ** ** | **79,781**                       |        | 79,168                          | ** ** | **79,722** |   | 69,580 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

4

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Table ofContents

 

**SL GreenOperating Partnership, L.P.**

**Consolidated Statement of Capital**

**(Unaudited,and amounts in thousands, except per unit data)**

 
| ** **                                                                                                                          | ** ** | **SL Green Operating Partnership Unitholders** | ** ** | ** **           | ** ** | ** **               | ** ** | ** **                | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------|------------|--------------------------|------------|---------------------------|------------|
| ** **                                                                                                                          | ** ** | **Series C**                                                  | ** ** | **Series D**    | ** ** | **General Partner** | ** ** | **Limited Partners** | ** ** | **Accumulated  Other** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                          | ** ** | **Preferred  Units**                                               | ** ** | **Preferred  Units** | ** ** | **Common  Units**        | ** ** | **Common  Unitholders**   | ** ** | **Common  Units** | ** ** | **Common  Unitholders** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** | **Comprehensive  Income** | ** ** |
| **Balance at December 31, 2009**                                                                                               |       | $                                                                  | 151,981    |                 | $          | 96,321                   |       | 77,515                    |       | $ | 4,196,891 |   | 1,684 |   | $ | 60,723 |   | $ | (32,860 | ) | $ | 524,691 |   | $ | 4,997,747 |   |   |   |
| Comprehensive Income:                                                                                                               |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                                                                          |       | 16,298                                                             |       | 5,907                |       |                     |       | 263,617                   |       |   |   | 4,544 |   |   |   | 10,831 |   | 301,197 |   | $ | 301,197 |   |
| Net unrealized gain on derivative instruments                                                                                       |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   | (5,107 | ) |   |   | (5,107 | ) | (5,107 | ) |
| SL Green’s share of joint venture net unrealized  loss on derivative instruments                                               |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   | (2,430 | ) |   |   | (2,430 | ) | (2,430 | ) |
| Unrealized gain on investments                                                                                                      |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   | 8,928 |   |   |   | 8,928 |   | 8,928 |   |
| Preferred distributions                                                                                                             |       | (16,298                                                            | )          | (5,907               | )          |                     |       |                      |       |   |   |   |   |   |   |   |   | (22,205 | ) |   |   |
| Redemption of units and DRIP proceeds                                                                                               |       |                                                               |       |                 |       | 470                      |       | 23,342                    |       | (285 | ) | (23,187 | ) |   |   |   |   | 155 |   |   |   |
| Deferred compensation plan & stock award,  net                                                                             |       |                                                               |       |                 |       | 169                      |       | 474                       |       | (195 | ) |   |   |   |   |   |   | 474 |   |   |   |
| Amortization of deferred compensation plan                                                                                          |       |                                                               |       |                 |       |                     |       | 18,043                    |       |   |   |   |   |   |   |   |   | 18,043 |   |   |   |
| Deferred compensation — treasury stock                                                                                         |       |                                                               |       |                 |       |                     |       | (517                      | )          |   |   |   |   |   |   |   |   | (517 | ) |   |   |
| Deconsolidation of real estate investment                                                                                           |       |                                                               |       |                 |       |                     |       | 3,011                     |       |   |   |   |   |   |   | (9,532 | ) | (6,521 | ) |   |   |
| Contributions—net proceeds from preferred stock  offering                                                                      |       | 122,019                                                            |       |                 |       |                     |       |                      |       |   |   |   |   |   |   |   |   | 122,019 |   |   |   |
| Contributions—proceeds from stock options  exercised                                                                           |       |                                                               |       |                 |       | 98                       |       | 3,000                     |       |   |   |   |   |   |   |   |   | 3,000 |   |   |   |
| Cash contributions from noncontrolling interests                                                                                    |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   |   |   | 2,782 |   | 2,782 |   |   |   |
| Issuance of common units                                                                                                            |       |                                                               |       |                 |       |                     |       |                      |       | 45 |   | 2,874 |   |   |   |   |   | 2,874 |   |   |   |
| Distributions to noncontrolling interests                                                                                           |       |                                                               |       |                 |       |                     |       |                      |       |   |   |   |   |   |   | (10,956 | ) | (10,956 | ) |   |   |
| Cash distribution declared ($0.30 per common unit,  none of which represented a return of capital for federal income tax  purposes) |       |                                                               |       |                 |       |                     |       | (23,765                   | )          |   |   | (387 | ) |   |   |   |   | (24,152 | ) |   |   |
| **Balance at September 30, 2010**                                                                                                   |       | $                                                                  | 274,000    |                 | $          | 96,321                   |       | 78,252                    |       | $ | 4,484,096 |   | 1,249 |   | $ | 44,567 |   | $ | (31,469 | ) | $ | 517,816 |   | $ | 5,385,331 |   | $ | 302,588 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

 

5

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Tableof Contents

 

**SL Green Operating Partnership, L.P.**

**Condensed Consolidated Statementsof Cash Flows**

**(Unaudited, and amounts in thousands, except per share data)**

 
| ** **                                                                         | ** ** | **Nine Months**              | ** **  |
|------------------------------------------------------------------------------------|------------|-----------------------------------|-------------|
| ** **                                                                         | ** ** | **Ended September 30,** | ** **  |
| ** **                                                                         | ** ** | **2010**                          | ** **  | **2009** | ** ** |
| **Operating Activities**                                                           |       |                              |        |   |   |
| Net income                                                                         | ** ** | **$**                             | **301,197** | ** ** | $ | 68,703 |   |
| Adjustment to reconcile net income to net cash  provided by operating activities:  | ** ** | ** **                        | ** **  |   |   |
| Depreciation and amortization                                                      | ** ** | **178,404**                       | ** **  | 172,996 |   |
| (Gain) loss on sale of discontinued operations                                     | ** ** | **(35,485**                       | **)**       | 5,257 |   |
| Equity in net income from unconsolidated joint  ventures                           | ** ** | **(32,925**                       | **)**       | (46,486 | ) |
| Distributions of cumulative earnings from  unconsolidated joint ventures           | ** ** | **19,423**                        | ** **  | 28,890 |   |
| Equity in net gain on sale of unconsolidated joint  ventures                       | ** ** | **(127,289**                      | **)**       | (6,848 | ) |
| Loan loss and other investment reserves                                            | ** ** | **12,323**                        | ** **  | 123,677 |   |
| Loss on equity investment in marketable securities                                 | ** ** | **285**                           | ** **  | 629 |   |
| (Gain) loss on early extinguishment of debt                                        | ** ** | **1,900**                         | ** **  | (85,401 | ) |
| Deferred rents receivable                                                          | ** ** | **(30,472**                       | **)**       | (19,132 | ) |
| Other non-cash adjustments                                                         | ** ** | **(12,607**                       | **)**       | 1,163 |   |
| Changes in operating assets and liabilities:                                       | ** ** | ** **                        | ** **  |   |   |
| Restricted cash – operations                                                  | ** ** | **(5,717**                        | **)**       | 19,878 |   |
| Tenant and other receivables                                                       | ** ** | **(3,352**                        | **)**       | 6,210 |   |
| Related party receivables                                                          | ** ** | **1,609**                         | ** **  | (909 | ) |
| Deferred lease costs                                                               | ** ** | **(27,331**                       | **)**       | (15,497 | ) |
| Other assets                                                                       | ** ** | **(1,404**                        | **)**       | (27,601 | ) |
| Accounts payable, accrued expenses and other  liabilities                          | ** ** | **10,272**                        | ** **  | (6,441 | ) |
| Deferred revenue and land leases payable                                           | ** ** | **5,218**                         | ** **  | (4,276 | ) |
| Net cash provided by operating activities                                          | ** ** | **254,049**                       | ** **  | 214,812 |   |
| **Investing Activities**                                                           | ** ** | ** **                        | ** **  |   |   |
| Acquisitions of real estate property                                               | ** ** | **(183,750**                      | **)**       | (8,340 | ) |
| Additions to land, buildings and improvements                                      | ** ** | **(55,389**                       | **)**       | (62,815 | ) |
| Escrowed cash – capital improvements/acquisition  deposits                    | ** ** | **(5,979**                        | **)**       | (5,837 | ) |
| Investments in unconsolidated joint ventures                                       | ** ** | **(83,355**                       | **)**       | (14,522 | ) |
| Distributions in excess of cumulative earnings  from unconsolidated joint ventures | ** ** | **15,160**                        | ** **  | 26,631 |   |
| Net proceeds from disposition of real estate/  partial interest in property        | ** ** | **623,121**                       | ** **  | 27,946 |   |
| Other investments                                                                  | ** ** | **(7,811**                        | **)**       | (41,082 | ) |
| Structured finance and other investments net of  repayments/participations         | ** ** | **(127,007**                      | **)**       | 40,606 |   |
| Net cash provided by (used in) investing  activities                               | ** ** | **174,990**                       | ** **  | (37,413 | ) |
| **Financing Activities**                                                           | ** ** | ** **                        | ** **  |   |   |
| Proceeds from mortgage notes and other loans  payable                              | ** ** | **166,892**                       | ** **  | 186,399 |   |
| Repayments of mortgage notes and other loans  payable                              | ** ** | **(133,887**                      | **)**       | (159,824 | ) |
| Proceeds from revolving credit facility and senior  unsecured notes                | ** ** | **303,306**                       | ** **  | 30,433 |   |
| Repayments of revolving credit facility and senior  unsecured notes                | ** ** | **(873,940**                      | **)**       | (626,207 | ) |
| Contributions of proceeds from stock options  exercised and DRIP issuance          | ** ** | **14,245**                        | ** **  | 278 |   |
| Contributions of net proceeds from sale of stock                                   | ** ** | **122,019**                       | ** **  | 387,230 |   |
| Deferred compensation – treasury stock                                        | ** ** | **(517**                          | **)**       | — |   |
| Distributions to noncontrolling interests in other  partnerships                   | ** ** | **(10,952**                       | **)**       | (14,030 | ) |
| Contributions from noncontrolling interests in  other partnerships                 | ** ** | **2,782**                         | ** **  | — |   |
| Redemption of limited partners in the Operating Partnership                        | ** ** | **(11,096**                       | **)**       | — |   |
| Distributions to limited partners in Operating Partnership                         | ** ** | **(387**                          | **)**       | (1,985 | ) |
| Distributions paid on common and preferred units                                   | ** ** | **(43,607**                       | **)**       | (65,574 | ) |
| Deferred loan costs and capitalized lease  obligation                              | ** ** | **(36,809**                       | **)**       | (6,936 | ) |
| Net cash used in financing activities                                              | ** ** | **(501,951**                      | **)**       | (270,216 | ) |
| Net decrease in cash and cash equivalents                                          | ** ** | **(72,912**                       | **)**       | (92,817 | ) |
| Cash and cash equivalents at beginning of period                                   | ** ** | **343,715**                       | ** **  | 726,889 |   |
| Cash and cash equivalents at end of period                                         | ** ** | **$**                             | **270,803** | ** ** | $ | 634,072 |   |

 

The accompanying notes are an integral part of these financialstatements.

 

6

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Table ofContents

 

**SL Green OperatingPartnership, L.P.**

**Notesto Condensed Consolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**1.  Organization and Basis of Presentation**

 

SL Green Realty Corp., also referred to as theCompany or SL Green, a Maryland corporation, and SL Green Operating Partnership,L.P., which is referred to as SLGOP or the Operating Partnership, a Delawarelimited partnership, were formed in June 1997 for the purpose of combiningthe commercial real estate business of S.L. Green Properties, Inc. and itsaffiliated partnerships and entities. The Operating Partnership received a contribution of interest in thereal estate properties, as well as 95% of the economic interest in themanagement, leasing and construction companies which are referred to as theService Corporation.  All of themanagement, leasing and construction services with respect to the propertieswholly-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 investmenttrust, or REIT, under the Internal Revenue Code of 1986, as amended, or theCode, and operates as a self-administered, self-managed REIT.  A REIT is a legal entity that holds realestate interests and, through payments of dividends to stockholders, ispermitted to reduce or avoid the payment of Federal income taxes at thecorporate level.  Unless thecontext requires otherwise, all references to “we,” “our” and “us” means SLGOPand all entities owned or controlled by SLGOP.

 

Substantiallyall of SL Green’s assets are held by, and its operations are conducted through,the Operating Partnership. The Company is the sole managing general partner ofthe Operating Partnership.  As ofSeptember 30, 2010, noncontrolling investors held, in the aggregate, a 1.6%limited partnership interest in the Operating Partnership. See Note 12.

 

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

 

Asof September 30, 2010, we owned the following interests in commercial officeproperties in the New York Metro area, primarily in midtown Manhattan, aborough of New York City.  Ourinvestments in the New York Metro area also include investments in Brooklyn,Queens, Long Island, Westchester County, Connecticut and New Jersey, which arecollectively known as the Suburban assets:

 
| **Location** | ** ** | **Ownership**              | ** ** | **Number of  Properties** | ** ** | **Square Feet** | ** ** | **Weighted Average  Occupancy ****(1)** | ** ** |
|--------------|------------|----------------------------|------------|--------------------------------|------------|----------------------|------------|---------------------------------------------------|------------|
| Manhattan    |       | Consolidated  properties   |       | 22                             |       | 15,141,945           |       | 91.0                                              | %          |
|         |       | Unconsolidated  properties |       | 8                              |       | 7,182,515            |       | 94.1                                              | %          |
|         |       |                       |       |                           |       |                 |       |                                              |       |
| Suburban     |       | Consolidated  properties   |       | 25                             |       | 3,863,000            |       | 81.8                                              | %          |
|         |       | Unconsolidated  properties |       | 6                              |       | 2,941,700            |       | 93.8                                              | %          |
|         |       |                       |       | 61                             |       | 29,129,160           |       | 90.9                                              | %          |

 

----

(1)          The weighted averageoccupancy represents the total leased square feet divided by total availablerentable square feet.

 

Wealso own investments in eight retail properties encompassing approximately366,312 square feet, three development properties encompassing approximately399,800 square feet and two land interests. In addition, we manage four office properties owned by third parties andaffiliated companies encompassing approximately 1.3 million rentable squarefeet.

 

**PartnershipAgreement**

 

Inaccordance with our partnership agreement, or the operating partnershipagreement, we allocate all distributions and profits and losses in proportionto the percentage ownership interests of the respective partners. As themanaging general partner of the Operating Partnership, SL Green is required totake such reasonable efforts, as determined by it in its sole discretion, tocause the Operating Partnership to distribute sufficient amounts to enable thepayment of sufficient dividends by the Company to avoid any Federal income orexcise tax at the Company level. Under the operating partnership agreement,each limited partner will have the right to redeem units of limited partnershipinterests for cash, or if the Company so elects, shares of SL Green’s commonstock on a one-for-one basis.

 

**Basis of Quarterly Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for fair presentation have been included.  The 2010 operating results for the periodpresented are not necessarily indicative of the results that may be expectedfor the year ending December 31, 2010.

 

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Table ofContents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

Thebalance sheet at December 31, 2009 has been derived from the audited financialstatements at that date but does not include all the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

Theseconsolidated financial statements and related notes should be read inconjunction with the audited consolidated financial statements appearing inAmendment No. 2 to our Registration Statement on Form S-4, filed with the SECon September 14, 2010.

 

**2.  Significant Accounting Policies**

 

**Principles of Consolidation**

 

Theconsolidated financial statements include our accounts and those of oursubsidiaries, which are wholly-owned or controlled by us. Entities which we donot control through our voting interest and entities which are variableinterest entities, but where we are not the primary beneficiary, are accountedfor under the equity method or as structured finance investments.  See Note 5 and Note 6.  All significant intercompany balances andtransactions have been eliminated.

 

InJune 2009, the FASB amended the guidance for determining whether an entity is avariable interest entity, or VIE, and requires the performance of a qualitativerather than a quantitative analysis to determine the primary beneficiary of aVIE. Under this guidance, an entity would be required to consolidate a VIE ifit has (i) the power to direct the activities that most significantly impactthe entity’s economic performance and (ii) the obligation to absorb losses ofthe VIE or the right to receive benefits from the VIE that could be significantto the VIE. Adoption of this guidance on January 1, 2010 did not have amaterial impact on our consolidated financial statements.

 

Anoncontrolling interest in a consolidated subsidiary is defined as the portionof the equity (net assets) in a subsidiary not attributable, directly orindirectly, to a parent.  Noncontrollinginterests are required to be presented as a separate component of equity in theconsolidated balance sheet and modifies the presentation of net income byrequiring earnings and other comprehensive income to be attributed tocontrolling and noncontrolling interests.

 

Weassess the accounting treatment for each joint venture and structured financeinvestment.  This assessment includes areview of each joint venture or limited liability company agreement todetermine which party has what rights and whether those rights are protectiveor participating.  For all VIE’s, wereview such agreements in order to determine which party has the power todirect the activities that most significantly impact the entity’s economicperformance.  In situations where we orour partner approves, among other things, the annual budget, receives adetailed monthly reporting package from us, meets on a quarterly basis toreview the results of the joint venture, reviews and approves the joint venture’stax return before filing, and approves all leases that cover more than anominal amount of space relative to the total rentable space at each property,we do not consolidate the joint venture as we consider these to be substantiveparticipation rights that result in shared power of the activities that mostsignificantly impact the performance of our joint venture.  Our joint venture agreements also containcertain protective rights such as the requirement of partner approval to sell,finance or refinance the property and the payment of capital expenditures andoperating expenditures outside of the approved budget or operating plan.  We have no VIE’s for which we are the primarybeneficiary.

 

**Investment in Commercial Real Estate Properties**

 

On a periodic basis, we assess whether there are anyindicators that the value of our real estate properties may be impaired or thatits carrying value may not be recoverable. A property’s value is considered impaired if management’s estimate ofthe aggregate future cash flows (undiscounted and without interest charges forconsolidated and unconsolidated properties) to be generated by the property areless than the carrying value of the property. To the extent impairment has occurred and is considered to be other thantemporary, the loss will be measured as the excess of the carrying amount ofthe property over the calculated fair value of the property.  In addition, we assess our investments inunconsolidated joint ventures for recoverability, and if it is determined thata loss in value of the investment is other than temporary, we write down theinvestment to its fair value. We evaluate our equity investments for impairmentbased on the joint venture’s projected cash flows. We do not believe that thevalue of any of our consolidated or unconsolidated real estate properties orinvestments in unconsolidated joint ventures was impaired at September 30, 2010and December 31, 2009, respectively.

 

We allocate the purchase price of real estate toland and building and, if determined to be material, intangibles, such as thevalue of above-, below- and at-market leases and origination costs associatedwith the in-place leases.  We depreciatethe amount allocated to building and other intangible assets over theirestimated useful lives, which generally range from three to 40 years and fromone to 14

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

years, respectively. The values of the above- and below-market leases are amortized andrecorded as either an increase (in the case of below-market leases) or adecrease (in the case of above-market leases) to rental income over theremaining term of the associated lease, which generally range from one to 14years.  The value associated within-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 ofthe lease and no rental payments are being made on the lease, any unamortizedbalance of the related intangible will be written off.  The tenant improvements and origination costsare amortized as an expense over the remaining life of the lease (or chargedagainst earnings if the lease is terminated prior to its contractual expirationdate).  We assess fair value of theleases based on estimated cash flow projections that utilize appropriatediscount and capitalization rates and available market information.  Estimates of future cash flows are based on anumber of factors including the historical operating results, known trends, andmarket/economic conditions that may affect the property.

 

Werecognized an increase of approximately $6.1 million, $18.9 million, $6.1 millionand $16.6 million in rental revenue for the three and nine months endedSeptember 30, 2010 and 2009, respectively, for the amortization of aggregatebelow-market leases in excess of above-market leases and a reduction in leaseorigination costs, resulting from the allocation of the purchase price of theapplicable properties. We recognized a reduction in interest expense for theamortization of the above-market rate mortgages assumed of approximately $0.3million, $1.2 million, $0.3 million and $2.4 million for the three and ninemonths ended September 30, 2010 and 2009, respectively.

 

Thefollowing summarizes our identified intangible assets (acquired above-marketleases and in-place leases) and intangible liabilities (acquired below-marketleases) (amounts in thousands):

 
| ** **                                                         | ** ** | **September  30,  2010** | ** **  | **December 31,  2009** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| Identified intangible assets (included in other  assets):          | ** ** | ** **               |        |                        |       |
| Gross amount                                                       | ** ** | **$**                    | **257,413** |                        | $          | 236,594 |   |
| Accumulated amortization                                           | ** ** | **(121,982**             | **)**       | (98,090                     | )          |
| Net                                                                | ** ** | **$**                    | **135,431** |                        | $          | 138,504 |   |
|                                                               |       |                     |        |                        |       |
| Identified intangible liabilities (included in  deferred revenue): | ** ** | ** **               |        |                        |       |
| Gross amount                                                       | ** ** | **$**                    | **487,750** |                        | $          | 480,770 |   |
| Accumulated amortization                                           | ** ** | **(205,016**             | **)**       | (164,073                    | )          |
| Net                                                                | ** ** | **$**                    | **282,734** |                        | $          | 316,697 |   |

 

**Investmentin Marketable Securities**

 

Weinvest in marketable securities. At the time of purchase, we are required todesignate a security as held-to-maturity, available-for-sale, or tradingdepending on ability and intent. We do not have any securities designated asheld-to-maturity or trading at this time. Securities available-for-sale arereported at fair value pursuant to ASC 820-10, with the net unrealized gains orlosses reported as a component of accumulated other comprehensive loss.  Unrealized losses that are determined to beother-than-temporary are recognized in earnings up to their credit component.Included in accumulated other comprehensive loss at September 30, 2010 isapproximately $5.6 million in net unrealized gains related to marketablesecurities.

 

AtSeptember 30, 2010, we held the following marketable securities (in thousands):

 
| Level 1 – Equity marketable securities    |   | $      | 9,398  |   |
|------------------------------------------------|--------|--------|--------|--------|
| Level 2 – Bonds                           |   | 62,692 |   |
| Total marketable securities available-for-sale |   | $      | 72,090 |   |

 

**Fair Value Measurements**

 

Themethodologies used for valuing financial instruments have been categorized intothree broad levels as follows:

 

Level 1 — Quoted prices in active markets foridentical instruments.

 

Level 2 — Valuations based principally on otherobservable market parameters, including

 

·                  Quoted prices in active markets for similarinstruments,

·                  Quoted prices in less active or inactivemarkets for identical or similar instruments,

 

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

·                  Other observable inputs (such as interestrates, yield curves, volatilities, prepayment speeds, loss severities, creditrisks and default rates), and

·                  Market corroborated inputs (derivedprincipally from or corroborated by observable market data).

 

Level 3 — Valuations based significantly onunobservable inputs.

 

·                  Valuations based on third party indications(broker quotes or counterparty quotes) which were, in turn, based significantlyon unobservable inputs or were otherwise not supportable as Level 2 valuations.

·                  Valuations based on internal models withsignificant unobservable inputs.

 

Theselevels form a hierarchy. We follow this hierarchy for our financial instrumentsmeasured at fair value on a recurring and nonrecurring basis. Theclassifications are based on the lowest level of input that is significant tothe fair value measurement.

 

**Reserve for Possible Credit Losses**

 

Theexpense for possible credit losses in connection with structured financeinvestments is the charge to earnings to increase the allowance for possiblecredit losses to the level that we estimate to be adequate, based on Level 3data, considering delinquencies, loss experience and collateral quality.  Other factors considered relate to geographictrends and product diversification, the size of the portfolio and currenteconomic conditions.  Based upon thesefactors, we establish the provision for possible credit losses by loan.  When it is probable that we will be unable tocollect all amounts contractually due, the investment is considered impaired.

 

Whereimpairment is indicated, a valuation allowance is measured based upon theexcess of the recorded investment amount over the net fair value of the collateral. Any deficiency between the carrying amount of an asset and thecalculated value of the collateral is charged to expense.  We recorded approximately $5.0million, $15.0 million, none and $54.6million in loan loss reserves during the three and nine months ended September30, 2010 and 2009, respectively, on investments being held to maturity andnone, $1.0 million, $16.1 million and $69.1 million on investments held for saleduring the three and nine months ended September 30, 2010 and 2009,respectively. We also recorded approximately $3.7 million in recoveries duringthe three and nine months ended September 30, 2010 in connection with the saleof a loan.

 

Structuredfinance investments held for sale are carried at the lower of cost or fairmarket value using available market information obtained through consultationwith dealers or other originators of such investments as well as discountedcash flow models based on Level 3 data pursuant to ASC 820-10. As circumstanceschange, management may conclude not to sell an investment designated as heldfor sale.  In such situations, the loanwill be reclassified at its net carrying value to structured financeinvestments held to maturity. For these reclassified loans, the differencebetween the current carrying value and the expected cash to be collected atmaturity will be accreted into income over the remaining term of the loan.

 

**Income Taxes**

 

TheOperating Partnership is a partnership and, as a result, all income and lossesof the partnership are allocated to the partners for inclusion in theirrespective income tax returns. The only provision for income taxes in theaccompanying consolidated financial statements relates to the OperatingPartnership’s consolidated taxable REIT subsidiaries. We may also be subject tocertain state, local and franchise taxes.

 

Pursuantto amendments to the Code that became effective January 1, 2001, SL Greenhas elected, and may in the future, elect to treat certain of its existing ornewly created corporate subsidiaries as taxable REIT subsidiaries, or TRS. Ingeneral, a TRS of SL Green may perform non-customary services for its tenants,hold assets that SL Green cannot hold directly and generally may engage in anyreal estate or non-real estate related business. SL Green’s TRS’s generateincome, resulting in Federal income tax liability for these entities. Our TRS’srecorded approximately $0.9 million and $0.7 million in Federal,state and local tax expense for the nine months ended September 30, 2010 and2009, respectively. We made estimated tax payments of approximately$0.3 million and $0.8 million during the nine months ended September30, 2010 and 2009, respectively.

 

Wefollow a two-step approach for evaluating uncertain tax positions. Recognition(step one) occurs when an enterprise concludes that a tax position, basedsolely on its technical merits, is more-likely-than-not to be sustained uponexamination. Measurement (step two) determines the amount of benefit that ismore-likely-than-not to be realized upon settlement. Derecognition of a taxposition that was previously recognized would occur when a company subsequentlydetermines that a tax position no longer meets the more-likely-than-notthreshold of being sustained. The use of a valuation allowance as a substitutefor derecognition of tax positions is prohibited.

 

10

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**Stock-BasedEmployee Compensation Plans**

 

SLGreen has a stock-based employee compensation plan, described more fully inNote 12.

 

TheBlack-Scholes option-pricing model was developed for use in estimating the fairvalue of traded options, which have no vesting restrictions and are fullytransferable.  In addition, optionvaluation models require the input of highly subjective assumptions includingthe expected stock price volatility. Because SL Green’s plan has characteristics significantly different fromthose of traded options and because changes in the subjective input assumptionscan materially affect the fair value estimate, in our opinion, the existingmodels do not necessarily provide a reliable single measure of the fair valueof SL Green’s employee stock options.

 

Compensationcost for stock options, if any, is recognized ratably over the vesting periodof the award. SL Green’s policy is to grant options with an exercise priceequal to the quoted closing market price of SL Green’s stock on the grant date.Awards of stock or restricted stock are expensed as compensation over thebenefit period based on the fair value of the stock on the grant date.

 

Thefair value of each stock option granted is estimated on the date of grant usingthe Black-Scholes option pricing model based on historical information with thefollowing weighted average assumptions for grants during the nine months endedSeptember 30, 2010 and 2009, respectively.

 
| ** **                      | ** ** | **2010**      | ** ** | **2009** | ** ** |
|---------------------------------|------------|---------------|------------|----------|------------|
| Dividend yield                  | ** ** | **2.00**      | **%**      | 5.79     | %          |
| Expected life of option         | ** ** | **5.9 years** |       | 5 years  |       |
| Risk-free interest rate         | ** ** | **2.84**      | **%**      | 1.55     | %          |
| Expected stock price volatility | ** ** | **50.47**     | **%**      | 55.07    | %          |

 

**Earnings per Unit**

 

Wepresent both basic and diluted earnings per unit, or EPU. Basic EPU excludesdilution and is computed by dividing net income attributable to commonunitholders by the weighted average number of common units outstanding duringthe period. Diluted EPU reflects the potential dilution that could occur ifsecurities or other contracts to issue common units were exercised or convertedinto common units, where such exercise or conversion would result in a lowerEPU amount.

 

**Use of Estimates**

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the amounts reported in the financial statementsand accompanying notes. Actual results could differ from those estimates.

 

**Concentrations of Credit Risk**

 

Financialinstruments that potentially subject us to concentrations of credit riskconsist primarily of cash investments, structured finance investments andaccounts receivable.  We place our cashinvestments in excess of insured amounts with high quality financialinstitutions.  The collateral securingour structured finance investments is primarily located in the New York Metroarea. (See Note 5). We perform ongoing credit evaluations of our tenants andrequire certain tenants to provide security deposits or letters of credit.  Though these security deposits and letters ofcredit are insufficient to meet the total value of a tenant’s lease obligation,they are a measure of good faith and a source of funds to offset the economiccosts associated with lost rent and the costs associated with re-tenanting thespace.  Although the properties in ourreal estate portfolio are primarily located in Manhattan, we also haveproperties located in Brooklyn, Queens, Long Island, Westchester County,Connecticut and New Jersey.  The tenantslocated in our buildings operate in various industries.  Other than one tenant who accounts forapproximately 8.1% of our annualized rent, no other tenant in our portfolioaccounts for more than 6.0% of our annualized rent, including our share ofjoint venture annualized rent at September 30, 2010.  Approximately 7%, 6%, 7% and 6% of ourannualized rent, including our share of joint venture annualized rent, wasattributable to 1515 Broadway, 420 Lexington Avenue, 1185 Avenue of theAmericas and One Madison Avenue, respectively, for the quarter ended September30, 2010.  Three investments each accountedfor more than 10.0% of the revenue earned on structured finance investmentsduring the three months ended September 30, 2010.

 

**Reclassification**

 

Certainprior year balances have been reclassified to conform with the current yearpresentation primarily in order to eliminate discontinued operations fromincome from continuing operations.

 

11

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Table ofContents

** **

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**Accounting Standards Updates**

 

InJune 2009, the FASB issued guidance on accounting for transfers offinancial assets. This guidance amends various components of the existingguidance governing sale accounting, including the recognition of assetsobtained and liabilities assumed as a result of a transfer, and considerationsof effective control by a transferor over transferred assets. In addition, thisguidance removes the exemption for qualifying special purpose entities from theconsolidation guidance. While the amended guidance governing sale accounting isapplied on a prospective basis, the removal of the qualifying special purposeentity exception will require us to evaluate certain entities forconsolidation. Adoption of this guidance on January 1, 2010 did not have amaterial impact on our consolidated financial statements.

 

InJuly 2010, the FASB issued updated guidance on disclosures about thecredit quality of financing receivables and the allowance for credit losseswhich will require a greater level of information disclosed about the creditquality of loans and allowance for loan losses, as well as additionalinformation related to credit quality indicators, past due information, andinformation related to loans modified in trouble debt restructuring.  Thisguidance is effective for the fourth quarter of 2010 and as it only amendsexisting disclosure requirements we do not expect the adoption of this guidanceto have a material impact on our consolidated financial statements.

 

InMarch 2010, the FASB issued updated guidance on embedded creditderivatives for contracts containing an embedded credit derivative featurerelated to the transfer of credit risk that is not solely in the form ofsubordination.  This guidance is effective for the third quarter of 2010,though early adoption is permitted. Adoption of this guidance in the thirdquarter of 2010 did not have a material effect on our consolidated financialstatements.

 

InJanuary 2010, the FASB issued updated guidance on fair value measurementsand disclosures, which requires disclosure of details of significant asset orliability transfers in and out of Level 1 and Level 2 measurements within thefair value hierarchy and inclusion of gross purchases, sales, issuances, andsettlements in the rollforward of assets and liabilities valued using Level 3inputs within the fair value hierarchy.  The guidance also clarifies andexpands existing disclosure requirements related to the disaggregation of fairvalue disclosures and inputs used in arriving at fair values for assets andliabilities using Level 2 and Level 3 inputs within the fair value hierarchy. These disclosure requirements were effective for interim and annualreporting periods beginning after December 15, 2009. The grosspresentation of the Level 3 rollforward is required for interim and annualreporting periods beginning after December 15, 2010.

 

**3. Property Acquisitions**

 

InJanuary 2010, we became the sole owner of 100 Church Street, a 1.05million square-foot office tower located in downtown Manhattan, following thesuccessful foreclosure of the senior mezzanine loan at the property. Ourinitial investment totaled $40.9 million which was comprised of a 50% interestin the senior mezzanine loan and two other mezzanine loans at 100 ChurchStreet, which we acquired from Gramercy in the summer of 2007. At closing ofthe foreclosure, we funded an additional $15.0 million of capital into theproject as part of our agreement with Wachovia Bank, N.A. to extend andrestructure the existing financing. Gramercy declined to fund its share of thiscapital and instead transferred its interests in the investment to us atclosing, subject to certain future contingent payments to Gramercy. Therestructured $139.7 million mortgage carries an interest rate of 350 basispoints over the 30-day LIBOR. The restructured mortgage matures in January 2013and has a one-year extension option.

 

Thefollowing summarizes our allocation of the purchase price of the assetsacquired and liabilities assumed upon the completion of the foreclosure of 100Church Street (in thousands):

 
| Land                                   |   | $       | 32,494 |   |
|----------------------------------------|--------|---------|--------|--------|
| Building                               |   | 86,806  |   |
| Acquired above-market leases           |   | 118     |   |
| Acquired in-place leases               |   | 17,380  |   |
| Restricted cash                        |   | 53,735  |   |
| Assets acquired                        |   | 190,533 |   |
|                                   |   |    |   |
| Mortgage note payable                  |   | 139,672 |   |
| Acquired below-market leases           |   | 8,025   |   |
| Other liabilities, net of other assets |   | 1,674   |   |
| Liabilities assumed                    |   | 149,371 |   |
| Net assets                             |   | $       | 41,162 |   |

 

12

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

InAugust 2010, we acquired 125 Park Avenue, or 125 Park, a Manhattan officetower for $330 million. In connection with the acquisition, we assumed $146.25million of in-place financing. The 5.748% interest-only loan matures in October 2014.We have not yet obtained allthe information necessary to finalize our estimates to complete the purchaseprice allocations. The purchase price allocations will be finalized once wereceive the outstanding information, which we expect to occur during the fourthquarter of 2010.

 

**4. PropertyDispositions and Assets Held for Sale**

 

In September 2010, we sold theproperty located at 19 West 44th Street in Manhattan for $123.2 million and realized a gainon the sale of approximately $35.5 million. The sale generated approximately$114.6 million of proceeds for the Company.

 

At September 30, 2010, discontinued operationsincluded the results of operations of real estate assets under contract or soldprior to that date. This included 55 Corporate Drive, NJ, which was sold in January 2009,the membership interests in GKK Manager LLC which were sold in April 2009(See Note 6), 399 Knollwood Road, Westchester, which was sold in August 2009and 19 West 44th Street, which was sold in September 2010.

 

The following table summarizes income (loss) fromdiscontinued operations and the related realized gain (loss) on sale ofdiscontinued operations for the three and nine months ended September 30,2010 and 2009, respectively (in thousands).

 
| ** **                                     | ** ** | **Three Months  Ended** | ** ** | **Three Months  Ended** | ** ** | **Nine Months  Ended** | ** ** | **Nine Months  Ended** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **September 30,**       | ** ** | **September 30,**       | ** ** | **September 30,**      | ** ** | **September 30,**      | ** ** |
| ** **                                     | ** ** | **2010**                     | ** ** | **2009**                     | ** ** | **2010**                    | ** ** | **2009**                    | ** ** |
| Revenues                                       | ** ** | ** **                   |       |                         | ** ** | ** **                  |       |                        |       |
| Rental revenue                                 |       | $                            | 2,785      |                         | $          | 3,645                       |       | $                           | 8,774      |   | $ | 11,792 |   |
| Escalation and reimbursement revenues          |       | 836                          |       | 902                          |       | 2,412                       |       | 2,657                       |       |
| Other income                                   |       | 361                          |       | (1                           | )          | 429                         |       | 6,528                       |       |
| Total revenues                                 |       | 3,982                        |       | 4,546                        |       | 11,615                      |       | 20,977                      |       |
| Operating expense                              |       | 1,081                        |       | 1,123                        |       | 2,791                       |       | 3,625                       |       |
| Real estate taxes                              |       | 509                          |       | 688                          |       | 1,778                       |       | 2,264                       |       |
| Interest expense, net of interest income       |       | —                       |       | 204                          |       | —                      |       | 1,071                       |       |
| Marketing, general and administrative          |       | —                       |       | —                       |       | —                      |       | 7,299                       |       |
| Depreciation and amortization                  |       | 405                          |       | 668                          |       | 1,626                       |       | 2,538                       |       |
| Total expenses                                 |       | 1,995                        |       | 2,683                        |       | 6,195                       |       | 16,797                      |       |
| Income from discontinued operations            |       | 1,987                        |       | 1,863                        |       | 5,420                       |       | 4,180                       |       |
| Gain (loss) on sale of discontinued operations |       | 35,485                       |       | (11,829                      | )          | 35,485                      |       | (5,257                      | )          |
| Income (loss) from discontinued operations     |       | $                            | 37,472     |                         | $          | (9,966                      | )          | $                           | 40,905     |   | $ | (1,077 | ) |

 

**5. Structured Finance Investments**

 

During the nine months ended September 30, 2010and 2009, our structured finance and preferred equity investments (net ofdiscounts), including investments classified as held-for-sale, increasedapproximately $437.7 million and $61.0 million, respectively, due tooriginations, purchases, accretion of discounts and paid-in-kind interest. Werecorded approximately $315.3 million and $193.5 million in repayments,participations, sales, foreclosures and loan loss reserves during thoseperiods, respectively, which offset the increases in structured financeinvestments.

 

13

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Table ofContents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

As of September 30, 2010 and December 31,2009, we held the following structured finance investments, excluding preferredequity investments, with an aggregate weighted average current yield ofapproximately 7.1% (in thousands):

 
| **Loan  Type**                     | ** ** | **Gross  Investment** | ** ** | **Senior  Financing** | ** ** | **2010  Principal  Outstanding** | ** ** | **2009  Principal  Outstanding** | ** **  | **Initial  Maturity  Date** | ** ** |
|------------------------------------|------------|-----------------------|------------|-----------------------|------------|----------------------------------|------------|----------------------------------|-------------|-----------------------------|------------|
| Other Loan(1)                      |       | $                     | 3,500      |                  | $          | 15,000                           | ** ** | **$**                            | **3,500**   |                        | $          | 3,500 |   | September 2021 |   |
| Mezzanine Loan(1)                  |       | 60,000                |       | 205,000               | ** ** | **59,069**                       |       | 58,760                           |        | February 2016          |       |
| Mortgage/ Mezzanine  Loan(1)       |       | 50,000                |       | 174,329               | ** ** | **46,346**                       |       | 25,000                           |        | May 2016               |       |
| Mezzanine Loan(1)                  |       | 35,000                |       | 165,000               | ** ** | **39,669**                       |       | 39,125                           |        | October 2016           |       |
| Mezzanine  Loan(1)(3)(9)(10)(11)   |       | 75,000                |       | 4,273,051             | ** ** | **70,092**                       |       | 70,092                           |        | December 2016          |       |
| Other Loan(1)(5)(9)(11)            |       | —                |       | —                | ** ** | **—**                       |       | 5,350                            |        | —                      |       |
| Whole  Loan(2)(3) (9)(17)     |       | —                |       | —                | ** ** | **—**                       |       | 9,636                            |        | —                      |       |
| Mezzanine  Loan(1)(2)(4)(9)(11)    |       | 25,000                |       | 309,985               | ** ** | **27,422**                       |       | 26,605                           |        | January 2013           |       |
| Mezzanine Loan(1)                  |       | 16,000                |       | 90,000                | ** ** | **15,697**                       |       | 15,697                           |        | August 2017            |       |
| Mezzanine Loan(3)(13)              |       | —                |       | —                | ** ** | **—**                       |       | 40,938                           |        | —                      |       |
| Other Loan(1)                      |       | 1,000                 |       | —                | ** ** | **1,000**                        |       | 1,000                            |        | December 2010          |       |
| Junior  Participation(1)(6)(9)(11) |       | 14,189                |       | —                | ** ** | **9,938**                        |       | 9,938                            |        | April 2008             |       |
| Mezzanine Loan(1)(11)  (12)        |       | 67,000                |       | 1,139,000             | ** ** | **84,062**                       |       | 84,636                           |        | March 2017             |       |
| Mezzanine Loan(14)                 |       | —                |       | —                | ** ** | **—**                       |       | 35,908                           |        | —                      |       |
| Mezzanine Loan(3)(9)(11)           |       | 22,644                |       | —                | ** ** | **—**                       |       | —                           |        | —                      |       |
| Junior  Participation(1)(9)        |       | 11,000                |       | 53,000                | ** ** | **11,000**                       |       | 11,000                           |        | November 2011          |       |
| Junior  Participation(7)(9)        |       | 12,000                |       | 61,250                | ** ** | **10,875**                       |       | 10,875                           |        | June 2012              |       |
| Junior Participation(9)(11)        |       | 9,948                 |       | 48,198                | ** ** | **5,866**                        |       | 5,866                            |        | December 2010          |       |
| Junior  Participation(8)(9)        |       | 50,000                |       | 2,192,522             | ** ** | **47,509**                       |       | 47,691                           |        | April 2011             |       |
| Mortgage/ Mezzanine  Loan(2)(16)   |       | 146,164               |       | 285,000               | ** ** | **137,222**                      |       | 104,431                          |        | July 2012              |       |
| Whole Loan(1)(3)                   |       | 9,375                 |       | —                | ** ** | **9,918**                        |       | 9,902                            |        | February 2015          |       |
| Junior Participation               |       | 35,041                |       | 210,000               | ** ** | **41,113**                       |       | 30,548                           |        | January 2012           |       |
| Mortgage/mezzanine  loan(15)       |       | —                |       | —                | ** ** | **—**                       |       | 167,717                          |        | —                      |       |
| Whole loan(1)                      |       | 11,150                |       | —                | ** ** | **11,150**                       |       | —                           |        | November 2013          |       |
| Junior Participation(18)           |       | 9,113                 |       | 70,800                | ** ** | **9,113**                        |       | —                           |        | October 2011           |       |
| Mezzanine Loan(1)                  |       | 201,375               |       | 755,000               | ** ** | **201,375**                      |       | —                           |        | June 2016              |       |
| Mezzanine Loan(1)                  |       | 15,000                |       | 75,000                | ** ** | **15,000**                       |       | —                           |        | July 2013              |       |
| Mortgage(19)                       |       | 86,339                |       | —                | ** ** | **86,339**                       |       | —                           |        | June 2012              |       |
| Loan loss reserve(9)               |       | —                |       | —                | ** ** | **(105,783**                     | **)**      | (101,866                         | )           | —                      |       |
|                               |       | $                     | 965,838    |                  | $          | 10,122,135                       | ** ** | **$**                            | **837,492** |                        | $          | 712,349 |   |   |   |

 

----

| (1)  |   | This  is a fixed rate loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | The  difference between the pay and accrual rates is included as an addition to  the principal balance outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (3)  |   | Gramercy  holds a pari passu interest in this asset.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (4)  |   | This  loan had been in default since December 2007. We reached an agreement  with the borrower to, among other things, extend the maturity date to  January 2013.                                                                                                                                                                                                                                                                                                                                                                                            |
| (5)  |   | The  original loan which was scheduled to mature in February 2010 was  replaced with two loans which mature in May 2011. The total principal  balance remained unchanged. Approximately $10.4 million was redeemed in  October 2008. We were foreclosed out of this loan in  September 2010.                                                                                                                                                                                                                                                       |
| (6)  |   | This  loan is in default. The lender has begun foreclosure proceedings. Another  participant holds a $12.2 million pari-pasu interest in this loan.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (7)  |   | This  loan was extended for two years to June 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (8)  |   | Gramercy  is the borrower under this loan. This loan consists of mortgage and mezzanine  financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (9)  |   | This  represents specifically allocated loan loss reserves. Our reserves reflect  management’s judgment of the probability and severity of losses based on  Level 3 data. We cannot be certain that our judgment will prove to be correct  or that reserves will be adequate over time to protect against potential  future losses. This includes a $1.0 million and $69.1 million mark-to-market  adjustment against our held for sale investment during the nine months ended  September 30, 2010 and the year ended December 31, 2009, respectively. |
| (10) |   | This  investment which was classified as held for sale at June 30, 2010 and  December 31, 2009 was sold in August 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (11) |   | This  loan is on non-accrual status.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (12) |   | Interest  is added to the principal balance for this accrual only loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (13) |   | This  loan was in default as it was not repaid upon maturity. We were designated as  special servicer for this loan and took over management and leasing of the  property under a forbearance agreement in August 2009. We foreclosed on  this property in January 2010.                                                                                                                                                                                                                                                                                     |
| (14) |   | We  acquired Gramercy’s interest in this investment in July 2009 for  approximately $16.0 million. This investment was sold in February 2010.                                                                                                                                                                                                                                                                                                                                                                                                           |
| (15) |   | In connection with the sale in  September 2010 of 510 Madison Avenue by the owner, the first  mortgage loan and senior mezzanine  loan,                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 
|   |   | which we had purchased in  December 2009 and February 2010 for $180.5 million in the  aggregate, were repaid at par. In connection with the repayment of the loans,  we recognized additional income of approximately $64.8 million. The income  was recorded in preferred equity and investment income on the accompanying  statement of income. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (16)   |   | Gramercy  holds a pari passu interest in the mezzanine loan.                                                                                                                                                                                                                                                                                                |
| (17)   |   | This loan was repaid in  August 2010.                                                                                                                                                                                                                                                                                                                  |
| (18)   |   | The maturity date for this loan  was extended for one year to October 2011.                                                                                                                                                                                                                                                                            |
| (19)   |   | We hold an 88% interest in the  consolidated joint venture that acquired this loan.                                                                                                                                                                                                                                                                         |

 

**PreferredEquity Investments**

 

As of September 30, 2010 and December 31,2009, we held the following preferred equity investments, with an aggregateweighted average current yield of approximately 9.1% (in thousands):

 
| **Type**                     | ** ** | **Gross********Investment** | ** ** | **Senior********Financing** | ** ** | **2010********Amount********Outstanding** | ** ** | **2009********Amount********Outstanding** | ** ** | **Initial********Mandatory  Redemption** | ** ** |
|------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| Preferred equity(1)(3)(5)(8) |       | $                           | —     |                        | $          | —                                    | ** ** | **$**                                     | **—** |                                     | $          | 15,000 |   | — |   |
| Preferred equity(1)(2)(6)(7) |       | 51,000                      |       | 208,181                     | ** ** | **44,972**                                |       | 41,791                                    |       | February 2014                       |       |
| Preferred equity(3)(5)       |       | 34,120                      |       | 88,000                      | ** ** | **31,178**                                |       | 31,178                                    |       | March 2010                          |       |
| Preferred equity(3)(4)       |       | 44,733                      |       | 984,708                     | ** ** | **46,372**                                |       | 46,372                                    |       | August 2012                         |       |
| Loan loss reserve(3)         |       | —                      |       | —                      | ** ** | **(52,078**                               | )          | (61,078                                   | )          | —                                   |       |
|                         |       | $                           | 129,853    |                        | $          | 1,280,889                                 | ** ** | **$**                                     | **70,444** |                                     | $          | 73,263 |   |   |   |

 

----

| (1) |   | This is a fixed rate investment.                                                                                                                                                                                                                                                                                                          |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Gramercy holds a mezzanine loan on the underlying asset.                                                                                                                                                                                                                                                                                  |
| (3) |   | This represents  specifically allocated loan loss reserves. Our reserves reflect management’s  judgment of the probability and severity of losses based on Level 3 data. We  cannot be certain that our judgment will prove to be correct and that  reserves will be adequate over time to protect against potential future  losses. |
| (4) |   | This loan was converted from a mezzanine loan to preferred equity in  July 2009.                                                                                                                                                                                                                                                     |
| (5) |   | This investment is on non-accrual status.                                                                                                                                                                                                                                                                                                 |
| (6) |   | The difference between the pay and accrual rates is included as an  addition to the principal balance outstanding.                                                                                                                                                                                                                        |
| (7) |   | This investment was  classified as held for sale at September 30, 2009, but as  held-to-maturity at December 31, 2009. The reserve previously taken  against this loan is being accreted up to the face amount through the  maturity date.                                                                                      |
| (8) |   | We recovered approximately  $3.7 million from the sale of this loan which had previously been fully  reserved.                                                                                                                                                                                                                            |

 

The following table is a rollforward of our totalallowance for loan loss reserves at September 30, 2010 and December 31,2009 (in thousands):

 
| ** **                    | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Balance at beginning of  year |       | $        | 93,844     |     | $          | 98,916 |   |
| Expensed                      |       | 15,985   |       | 145,855  |       |
| Recoveries                    |       | (3,662   | )          | —   |       |
| Charge-offs                   |       | (18,399  | )          | (150,927 | )          |
| Balance at end of period      |       | $        | 87,768     |     | $          | 93,844 |   |

 

At September 30, 2010 and December 31,2009, all structured finance investments, other than as noted above, wereperforming in accordance with the terms of the loan agreements.

 

**6. Investment in Unconsolidated Joint Ventures**

 

Wehave investments in several real estate joint ventures with various partners,including The City Investment Fund, or CIF, SITQ Immobilier, a subsidiary ofCaisse de depot et placement du Quebec, or SITQ, Canada Pension Plan InvestmentBoard, or CPPIB, a fund managed by JP Morgan Investment Management, or JPMorgan, Prudential Real Estate Investors, or Prudential, Onyx Equities, orOnyx, The Witkoff Group, or Witkoff, Credit Suisse Securities (USA) LLC, orCredit Suisse, Jeff Sutton, or Sutton, and Gramercy Capital Corp. (NYSE: GKK),or Gramercy, as well as private investors. As we do not control these jointventures, we account for them under the equity method of accounting.

 

15

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

In May 2010, Green HillAcquisition LLC, a wholly owned subsidiary of ours, sold its 45% beneficialinterest in the property known as 1221 Avenue of the Americas, located inManhattan, to a wholly owned subsidiary of CPPIB, for total consideration of$577.4 million, of which approximately $95.9 million represented payment forexisting reserves and the assumption of our pro-rata share of in-place financing.The sale generated proceeds to us of approximately $500.9 million. Werecognized a gain of approximately $126.8 million on the sale of our interest.

 

Thetable below provides general information on each of our joint ventures as of September 30,2010 (in thousands):

 
| ** **                             | ** ** | ** **                 | ** ** | **Ownership** | ** ** | **Economic** | ** ** | **Square** | ** ** | ** **   | ** ** | **Acquisition** | ** ** |
|----------------------------------------|------------|----------------------------|------------|---------------|------------|--------------|------------|------------|------------|--------------|------------|-----------------|------------|
| **Property**                           | ** ** | **Partner**                | ** ** | **Interest**  | ** ** | **Interest** | ** ** | **Feet**   | ** ** | **Acquired** | ** ** | **Price(1)**    | ** ** |
|                                   |       |                       |       |          |       |         |       |       |       |         |       |            |       |
| 1515  Broadway(2)                      |       | SITQ                       |       | 55.00         | %          | 68.45        | %          | 1,750      |       | 05/02        |       | $               | 483,500    |   |
| 100  Park Avenue                       |       | Prudential                 |       | 49.90         | %          | 49.90        | %          | 834        |       | 02/00        |       | $               | 95,800     |   |
| 379  West Broadway                     |       | Sutton                     |       | 45.00         | %          | 45.00        | %          | 62         |       | 12/05        |       | $               | 19,750     |   |
| 21  West 34th Street              |       | Sutton                     |       | 50.00         | %          | 50.00        | %          | 30         |       | 07/05        |       | $               | 22,400     |   |
| 800  Third Avenue(3)                   |       | Private Investors          |       | 42.95         | %          | 42.95        | %          | 526        |       | 12/06        |       | $               | 285,000    |   |
| 521  Fifth Avenue                      |       | CIF                        |       | 50.10         | %          | 50.10        | %          | 460        |       | 12/06        |       | $               | 240,000    |   |
| One  Court Square                      |       | JP Morgan                  |       | 30.00         | %          | 30.00        | %          | 1,402      |       | 01/07        |       | $               | 533,500    |   |
| 1604-1610  Broadway                    |       | Onyx/Sutton                |       | 45.00         | %          | 63.00        | %          | 30         |       | 11/05        |       | $               | 4,400      |   |
| 1745  Broadway(4)                      |       | Witkoff/SITQ/Lehman  Bros. |       | 32.26         | %          | 32.26        | %          | 674        |       | 04/07        |       | $               | 520,000    |   |
| 1 and  2 Jericho Plaza                 |       | Onyx/Credit  Suisse        |       | 20.26         | %          | 20.26        | %          | 640        |       | 04/07        |       | $               | 210,000    |   |
| 2  Herald Square(5)                    |       | Gramercy                   |       | 55.00         | %          | 55.00        | %          | 354        |       | 04/07        |       | $               | 225,000    |   |
| 885  Third Avenue(6)                   |       | Gramercy                   |       | 55.00         | %          | 55.00        | %          | 607        |       | 07/07        |       | $               | 317,000    |   |
| 16  Court Street                       |       | CIF                        |       | 35.00         | %          | 35.00        | %          | 318        |       | 07/07        |       | $               | 107,500    |   |
| The  Meadows(7)                        |       | Onyx                       |       | 50.00         | %          | 50.00        | %          | 582        |       | 09/07        |       | $               | 111,500    |   |
| 388  and 390 Greenwich Street(8)       |       | SITQ                       |       | 50.60         | %          | 50.60        | %          | 2,600      |       | 12/07        |       | $               | 1,575,000  |   |
| 27-29  West 34th Street           |       | Sutton                     |       | 50.00         | %          | 50.00        | %          | 41         |       | 01/06        |       | $               | 30,000     |   |
| 1551-1555  Broadway                    |       | Sutton                     |       | 10.00         | %          | 10.00        | %          | 26         |       | 07/05        |       | $               | 80,100     |   |
| 717  Fifth Avenue                      |       | Sutton/Nakash              |       | 32.75         | %          | 32.75        | %          | 120        |       | 09/06        |       | $               | 251,900    |   |
| 141  Fifth Avenue(9)                   |       | Sutton                     |       | 50.00         | %          | 50.00        | %          | 22         |       | 09/05        |       | $               | 13,250     |   |
| 180/182  Broadway and 63 Nassau Street |       | Sutton                     |       | 50.00         | %          | 50.00        | %          | 71         |       | 02/08        |       | $               | 43,600     |   |
| 600  Lexington Avenue                  |       | CPPIB                      |       | 55.00         | %          | 55.00        | %          | 304        |       | 05/10        |       | $               | 193,000    |   |

 

----

| (1) |   | Acquisition  price represents the actual or implied purchase price for the joint venture.                                                                                                                                                                                                                                                                                                                                                   |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Under  a tax protection agreement established to protect the limited partners of the  partnership that transferred 1515 Broadway to the joint venture, the joint  venture has agreed not to adversely affect the limited partners’ tax  positions before December 2011. One tenant, whose leases primarily end  in 2015, represents approximately 77.9% of this joint venture’s annualized  rent at September 30, 2010. |
| (3) |   | We  invested approximately $109.5 million in this asset through the origination  of a loan secured by up to 47% of the interests in the property’s ownership,  with an option to convert the loan to an equity interest. Certain existing  members had the right to re-acquire approximately 4% of the property’s  equity. These interests were re-acquired in December 2008 and reduced  our interest to 42.95%             |
| (4) |   | We  have the ability to syndicate our interest down to 14.79%.                                                                                                                                                                                                                                                                                                                                                                              |
| (5) |   | We,  along with Gramercy, together as tenants-in-common, acquired a fee interest  in 2 Herald Square. The fee interest is subject to a long-term operating  lease.                                                                                                                                                                                                                                                                          |
| (6) |   | We,  along with Gramercy, together as tenants-in-common, acquired a fee and  leasehold interest in 885 Third Avenue. The fee and leasehold interests are  subject to a long-term operating lease.                                                                                                                                                                                                                                           |
| (7) |   | We,  along with Onyx, acquired the remaining 50% interest on a pro-rata basis in  September 2009.                                                                                                                                                                                                                                                                                                                                      |
| (8) |   | The  property is subject to a 13-year triple-net lease arrangement with a single  tenant. The lease commenced in 2007.                                                                                                                                                                                                                                                                                                                      |
| (9) |   | The  deconsolidation of this joint venture in 2010, resulted in an adjustment to  retained earnings of approximately $3.0 million and to the noncontrolling  interests in other partnerships of approximately $9.5 million.                                                                                                                                                                                                                 |

 

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Table ofContents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

Wefinance our joint ventures with non-recourse debt. The first mortgage notespayable collateralized by the respective joint venture properties andassignment of leases at September 30, 2010 and December 31, 2009,respectively, are as follows (in thousands):

 
| **Property**                             | ** ** | **Maturity  Date** | ** ** | **Interest   Rate(1)** | ** ** | **2010** | ** **    | **2009** | ** ** |
|------------------------------------------|------------|--------------------|------------|-----------------------------|------------|----------|---------------|----------|------------|
|                                     |       |               |       |                        |       |     |          |     |       |
| 1515 Broadway(2)                         |       | 12/2014            |       | 3.50                        | %          | **$**    | **465,962**   |     | $          | 475,000 |   |
| 100 Park Avenue(3)                       |       | 09/2014            |       | 6.64                        | %          | **$**    | **200,000**   |     | $          | 200,000 |   |
| 379 West Broadway                        |       | 07/2011            |       | 1.96                        | %          | **$**    | **20,991**    |     | $          | 20,991 |   |
| 21 West 34th Street                 |       | 12/2016            |       | 5.76                        | %          | **$**    | **100,000**   |     | $          | 100,000 |   |
| 800 Third Avenue                         |       | 08/2017            |       | 6.00                        | %          | **$**    | **20,910**    |     | $          | 20,910 |   |
| 521 Fifth Avenue                         |       | 04/2011            |       | 1.31                        | %          | **$**    | **140,000**   |     | $          | 140,000 |   |
| One Court Square                         |       | 09/2015            |       | 4.91                        | %          | **$**    | **315,000**   |     | $          | 315,000 |   |
| 2 Herald Square                          |       | 04/2017            |       | 5.36                        | %          | **$**    | **191,250**   |     | $          | 191,250 |   |
| 1604-1610 Broadway(4)                    |       | 04/2012            |       | 5.66                        | %          | **$**    | **27,000**    |     | $          | 27,000 |   |
| 1745 Broadway                            |       | 01/2017            |       | 5.68                        | %          | **$**    | **340,000**   |     | $          | 340,000 |   |
| 1 and 2 Jericho Plaza                    |       | 05/2017            |       | 5.65                        | %          | **$**    | **163,750**   |     | $          | 163,750 |   |
| 885 Third Avenue                         |       | 07/2017            |       | 6.26                        | %          | **$**    | **267,650**   |     | $          | 267,650 |   |
| The Meadows                              |       | 09/2012            |       | 1.66                        | %          | **$**    | **87,613**    |     | $          | 85,478 |   |
| 388 and 390 Greenwich Street(5)          |       | 12/2017            |       | 5.09                        | %          | **$**    | **1,138,379** |     | $          | 1,138,379 |   |
| 16 Court Street                          |       | 10/2013            |       | 2.81                        | %          | **$**    | **87,035**    |     | $          | 88,573 |   |
| 27-29 West 34th Street              |       | 05/2011            |       | 1.96                        | %          | **$**    | **54,488**    |     | $          | 54,800 |   |
| 1551-1555 Broadway(6)                    |       | 10/2011            |       | 4.32                        | %          | **$**    | **129,850**   |     | $          | 133,600 |   |
| 717 Fifth Avenue(7)                      |       | 09/2011            |       | 5.25                        | %          | **$**    | **245,000**   |     | $          | 245,000 |   |
| 141 Fifth Avenue                         |       | 06/2017            |       | 5.70                        | %          | **$**    | **25,000**    |     | $          | 25,000 |   |
| 180/182 Broadway and 63 Nassau Street(8) |       | 02/2011            |       | 2.56                        | %          | **$**    | **23,903**    |     | $          | 22,534 |   |
| 600 Lexington Avenue(9)                  |       | 03/2014            |       | 5.74                        | %          | **$**    | **49,850**    |     | $          | — |   |

 

----

| (1) | Interest  rate represents the effective all-in weighted average interest rate for the  quarter ended September 30, 2010.                                                                                                                                                                                                                                                                                         |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | In December 2009 the $625.0 million mortgage  was repaid and replaced with a $475.0 million mortgage. In connection with  the refinancing, the partners made an aggregate $163.9 million capital  contribution to the joint venture.                                                                                                                                                                             |
| (3) | This loan was refinanced in September 2009,  and replaced a $175.0 million construction loan which was scheduled to mature  in November 2015 and which carried a fixed interest rate of 6.52%. The  new loan has a committed amount of $215.0 million.                                                                                                                                                      |
| (4) | This loan went into default in November 2009  due to the non-payment of debt service. The joint venture is in discussions  with the special servicer to resolve this default.                                                                                                                                                                                                                                    |
| (5) | Comprised  of a $576.0 million mortgage and a $562.4 million mezzanine loan, both of  which are fixed rate loans, except for $16.0 million of the mortgage and  $15.6 million of the mezzanine loan which are floating. Up to $200.0 million  of the mezzanine loan, secured indirectly by these properties, is recourse to  us. We believe it is unlikely that we will be required to perform under this  guarantee. |
| (6) | This  amortizing loan was fully funded in September 2009 at the reduced  committed amount of $133.6 million.                                                                                                                                                                                                                                                                                                     |
| (7) | This  loan has a committed amount of $285.0 million.                                                                                                                                                                                                                                                                                                                                                                  |
| (8) | This  loan has a committed amount of $31.0 million.                                                                                                                                                                                                                                                                                                                                                                   |
| (9) | See  Note 18.                                                                                                                                                                                                                                                                                                                                                                                                         |

 

We act as the operating partner and day-to-daymanager for all our joint ventures, except for 800 Third Avenue, 1 and 2Jericho Plaza and The Meadows. We are entitled to receive fees for providingmanagement, leasing, construction supervision and asset management services toour joint ventures. We earned approximately $2.6 million, $11.7 million, $2.8million and $16.0 million for these services for the three and nine monthsended September 30, 2010, and 2009, respectively. In addition, we have theability to earn incentive fees based on the ultimate financial performance ofcertain of the joint venture properties.

 

***Gramercy Capital Corp.***

 

InApril 2004, we formed Gramercy as a commercial real estate financebusiness.  Gramercy qualified as a REITfor federal income tax purposes and expects to qualify for its current fiscalyear.

 

AtSeptember 30, 2010, we held 6,219,370 shares, or approximately 12.47% ofGramercy’s common stock.  Our totalinvestment of approximately $8.6 million is based on the market value of ourcommon stock investment in Gramercy at September 30, 2010.  As we no longer have any significant influenceover Gramercy, we account for our investment as available-for-sale securities.

 

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

Priorto Gramercy’s internalization of GKK Manager LLC, or the Manager (a formerwholly-owned subsidiary of ours which was the external manger to Gramercy),which we refer to as the GKK Internalization, we were entitled to an incentivereturn payable through the Class B limited partner interests in Gramercy’soperating partnership, equal to 25% of the amount by which funds fromoperations (as defined in Gramercy’s amended and restated partnershipagreement) plus certain accounting gains exceed the product of the weightedaverage stockholders’ equity of Gramercy multiplied by 9.5% (divided by four toadjust for quarterly calculations).  Thisarrangement was terminated when the GKK Internalization was completed in April 2009.  Amounts payable to the Class B limitedpartnership interests were waived since July 1, 2008.

 

Inconnection with Gramercy’s initial public offering, the Manager entered into amanagement agreement with Gramercy, which provided for an initial term through December 2007,and which was subsequently extended through December 2009. The managementagreement was further amended in September 2007 and amended and restatedin October 2008 and was subsequently terminated on April 24, 2009 inconnection with the GKK Internalization. Gramercy paid the Manager a collateral management fee. For the three andnine months ended September 30, 2009, we received an aggregate ofapproximately none and $6.5 million, respectively, and we received nothingunder the collateral management agreement in either period.  Fees payable to the Manager under thecollateral management agreement were remitted to Gramercy for all periodssubsequent to June 30, 2008. In 2008, we, as well as Gramercy, each formedspecial committees comprised solely of independent directors to considerwhether the GKK Internalization and/or amendment to the management agreementwould be in the best interest of each company and its respective shareholders.  The GKK Internalization was completed on April 24,2009 through the direct acquisition by Gramercy of the Manager.

 

On October 27, 2008,the Manager entered into a Second Amended and Restated Management Agreement (the “SecondAmended Management Agreement”) with Gramercy and GKK Capital LP.  The Second Amended Management Agreementgenerally contained the same terms and conditions as the Amended and RestatedManagement Agreement, dated as of April 19, 2006, but provided that allmanagement, service and similar fees relating to Gramercy’s CDOs that theManager was entitled to receive were to be remitted by the Manager to Gramercyfor any period subsequent to July 1, 2008. The Second Amended Management Agreement was terminated in connection withthe GKK Internalization.

 

InMay 2005, SL Green’s Compensation Committee approved long-term incentiveperformance awards pursuant to which certain of its officers and employees,including some of whom are its senior executive officers, were awarded aportion of the interests previously held by us in the Manager, which at thetime was an affiliate of ours, as well as in the Class B limited partnerinterests in Gramercy’s operating partnership. The vesting of these awards was dependent upon, among other things, tenureof employment and the performance of our investment in Gramercy.  These awards vested in May 2008.  On April 24, 2009, Gramercy acquired allthe interests in the Manager and all the Class B limited partner interestsfrom us for no consideration.

 

Priorto the GKK Internalization, Gramercy was obligated to reimburse the Manager forits costs incurred under an asset servicing agreement and an outsourcingagreement between the Manager and us. The outsourcing agreement provided for a fee of $2.7 million per year,increasing 3% annually over the prior year. For the three and nine months endedSeptember 30, 2009, the Manager received an aggregate of approximatelynone and $1.0 million, respectively, under the outsourcing and asset servicingagreements.

 

On October 27, 2008,we, Gramercy and GKK Capital LP entered into a services agreement (the “ServicesAgreement”) pursuant to which we provided consulting and other services toGramercy.  We made certain members ofmanagement available in connection with the provision of the services until thecompletion of the GKK Internalization on April 24, 2009.  In consideration for the consulting services,we received from Gramercy a fee of $200,000 per month.  We also provided Gramercy with certain otherservices described in the Services Agreement for a fee of $100,000 per month incash until April 24, 2009.  TheServices Agreement was terminated in connection with the GKKInternalization.  Since October 27,2008, an affiliate of ours has served as special servicer for certain assetsheld by Gramercy or its affiliates and assigned its duties to a subsidiary ofours.

 

Allfees earned from Gramercy are included in Other Income in the ConsolidatedStatements of Income.

 

EffectiveMay 2005, June 2009 and October 2009, Gramercy entered intothree lease agreements with an affiliate of the Company, for their corporateoffices at 420 Lexington Avenue, Manhattan. The first lease is for approximately 7,300 square feet and carries aterm of ten years with rents of approximately $249,000 per annum for year oneincreasing to $315,000 per annum in year ten. The second lease is for approximately 900 square feet pursuant to alease which ends in April 2015, with annual rent under this lease ofapproximately $35,300 per annum for year one increasing to $42,800 per annum inyear six.  The third lease is forapproximately

 

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Table of Contents

 

**SL Green Operating Partnership,L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

1,400square feet pursuant to a lease which ends in April 2015, with annual rentunder this lease of approximately $67,300 per annum for year one increasing to$80,500 per annum in year six.

 

Gramercyholds tenancy-in-common interests along with us in 2 Herald Square and 885Third Avenue.  See Note 5 for informationon our structured finance investments in which Gramercy also holds an interest.

 

Aconsolidated affiliate of ours held an investment in Gramercy’s preferred stockwith a market value of approximately $0.8 million at September 30, 2010.

 

OnOctober 27, 2009, Marc Holliday, SL Green’s Chief Executive Officer,Andrew Mathias, SL Green’s President and Chief Investment Officer and GregoryF. Hughes, SL Green’s Chief Financial Officer and Chief Operating Officerresigned as Chief Executive Officer, Chief Investment Officer and Chief CreditOfficer, respectively, of Gramercy. Mr. Holliday also resigned as President of Gramercy effective as ofOctober 28, 2009.  Mr. Hollidayand Mr. Mathias agreed to remain as consultants to Gramercy through theearliest of (i) September 30, 2009, (ii) the termination of theSecond Amended Management Agreement or (iii) the termination of theirrespective employment with us.  Thisagreement was terminated in connection with the GKK Internalization.

 

OnOctober 28, 2009, Gramercy announced the appointment of Roger M. Cozzi, asPresident and Chief Executive Officer, effective immediately.  Effective as of November 13, 2009,Timothy J. O’Connor was appointed as President of Gramercy.  Mr. Holliday remains a board member ofGramercy.

 

In2009, we, as well as a consolidated affiliate of ours, entered into consultingagreements with Gramercy whereby Gramercy provides services required for theevaluation, acquisition, disposition and portfolio management of CMBSinvestments.  We pay 10 basis points andour affiliate pays 25 basis points of the principal amount of all tradesexecuted.  We and our affiliate paidapproximately $48,000 in aggregate fees for such services during the ninemonths ended September 30, 2010.

 

Thecondensed combined balance sheets for the unconsolidated joint ventures, at September 30,2010 and December 31, 2009, are as follows (in thousands):

 
| ** **                                                      | ** ** | **2010**      | ** **    | **2009**  | ** ** |
|-----------------------------------------------------------------|------------|---------------|---------------|-----------|------------|
| **Assets**                                                      |       |          |          |      |       |
| Commercial real estate property, net                            | ** ** | **$**         | **5,377,548** |      | $          | 6,095,668 |   |
| Other assets                                                    | ** ** | **601,515**   |          | 665,065   |       |
| Total assets                                                    | ** ** | **$**         | **5,979,063** |      | $          | 6,760,733 |   |
| ** **                                                      |       |          |          |      |       |
| **Liabilities and members’ equity**                        |       |          |          |      |       |
| Mortgages payable                                               | ** ** | **$**         | **4,093,632** |      | $          | 4,177,382 |   |
| Other liabilities                                               | ** ** | **244,900**   |          | 276,805   |       |
| Members’ equity                                            | ** ** | **1,640,531** |          | 2,306,546 |       |
| Total liabilities and members’ equity                      | ** ** | **$**         | **5,979,063** |      | $          | 6,760,733 |   |
| Company’s net investment in unconsolidated joint  ventures | ** ** | **$**         | **777,556**   |      | $          | 1,058,369 |   |

 

Thecondensed combined statements of operations for the unconsolidated jointventures for the three and nine months ended September 30, 2010 and 2009,or partial period for acquisitions which closed during these periods, are asfollows (in thousands): 

 
| ** **                                                            | ** ** | **Three Months Ended** | ** **  | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                            | ** ** | **September 30,**           | ** **  | **September 30,**          | ** ** |
| ** **                                                            | ** ** | **2010**                         | ** **  | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Total revenues                                                        |       | $                                | **132,817** |                            | $          | 329,752 | ** ** | **$** | **456,779** |   | $ | 991,234 |   |
| Operating expenses                                                    | ** ** | **21,659**                       |        | 74,808                          | ** ** | **74,015** |   | 226,714 |   |
| Real estate taxes                                                     | ** ** | **13,474**                       |        | 30,870                          | ** ** | **53,371** |   | 96,258 |   |
| Interest expense, net of interest income                              | ** ** | **51,174**                       |        | 111,475                         | ** ** | **152,061** |   | 341,580 |   |
| Depreciation and amortization                                         | ** ** | **37,874**                       |        | 65,364                          | ** ** | **120,765** |   | 203,006 |   |
| Other income/ expenses                                                | ** ** | **—**                       |        | 219,611                         | ** ** | **1,075** |   | 463,954 |   |
| Total expenses                                                        | ** ** | **124,181**                      |        | 502,128                         | ** ** | **401,287** |   | 1,331,512 |   |
| Net income (loss) before gain on sale                                 | ** ** | **$**                            | **8,636**   |                            | $          | (172,376 | ) | **$** | **55,492** |   | $ | (340,278 | ) |
| Company’s equity in net income of unconsolidated  joint ventures | ** ** | **$**                            | **7,544**   |                            | $          | 16,585 | ** ** | **$** | **32,925** |   | $ | 46,486 |   |

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**7.  Deferred Costs**

 

Deferredcosts at September 30, 2010 and December 31, 2009 consisted of thefollowing (in thousands):

 
| ** **                    | ** ** | **2010**     | ** **  | **2009** | ** ** |
|-------------------------------|------------|--------------|-------------|----------|------------|
| Deferred financing            | ** ** | **$**        | **77,375**  |     | $          | 68,181 |   |
| Deferred leasing              | ** ** | **187,878**  |        | 163,372  |       |
|                          | ** ** | **265,253**  |        | 231,553  |       |
| Less accumulated amortization | ** ** | **(108,751** | **)**       | (92,296  | )          |
| Deferred costs, net           | ** ** | **$**        | **156,502** |     | $          | 139,257 |   |

 

**8.  Mortgage Notes andOther Loans Payable**

 

Thefirst mortgage notes and other loans payable collateralized by the respectiveproperties and assignment of leases at September 30, 2010 and December 31,2009, respectively, were as follows (in thousands):

 
| **Property**                                  | ** ** | **Maturity  Date** | ** ** | **Interest  Rate****(2)** | ** ** | **2010**      | ** **    | **2009**  | ** ** |
|-----------------------------------------------|------------|--------------------|------------|---------------------------|------------|---------------|---------------|-----------|------------|
| 711 Third Avenue(1)                           |       | 06/2015            |       | 4.99                      | %          | **$**         | **120,000**   |      | $          | 120,000 |   |
| 420 Lexington  Avenue(1) (7)             |       | 09/2016            |       | 7.52                      | %          | **149,627**   |          | 150,561   |       |
| 673 First Avenue(1)                           |       | 02/2013            |       | 5.67                      | %          | **30,994**    |          | 31,608    |       |
| 220 East 42nd Street(1)                  |       | 11/2013            |       | 5.24                      | %          | **195,813**   |          | 198,871   |       |
| 625 Madison  Avenue(1) (8)               |       | 11/2015            |       | 7.22                      | %          | **132,955**   |          | 135,117   |       |
| 609 Fifth Avenue(1)                           |       | 10/2013            |       | 5.85                      | %          | **96,877**    |          | 97,952    |       |
| 609 Partners, LLC(1)(9)                       |       | 07/2014            |       | 5.00                      | %          | **35,421**    |          | 41,391    |       |
| 485 Lexington Avenue(1)                       |       | 02/2017            |       | 5.61                      | %          | **450,000**   |          | 450,000   |       |
| 120 West 45th Street(1)                  |       | 02/2017            |       | 6.12                      | %          | **170,000**   |          | 170,000   |       |
| 919 Third Avenue(1)(3)                        |       | 08/2011            |       | 6.87                      | %          | **221,305**   |          | 224,104   |       |
| 300 Main Street(1)                            |       | 02/2017            |       | 5.75                      | %          | **11,500**    |          | 11,500    |       |
| 500 West Putnam(1)                            |       | 01/2016            |       | 5.52                      | %          | **25,000**    |          | 25,000    |       |
| 141 Fifth Avenue(4)                           |       | —             |       | —                    | ** ** | **—**    |          | 25,000    |       |
| One Madison Avenue(1)(5)                      |       | 05/2020            |       | 5.91                      | %          | **643,128**   |          | 651,917   |       |
| 125 Park Avenue                               |       | 10/2014            |       | 5.75                      | %          | **146,250**   |          | —    |       |
| Total fixed rate debt                         |       |               |       |                      | ** ** | **2,428,870** |          | 2,333,021 |       |
| 180/182 Broadway(1)(4)                        |       | —             |       | —                    | ** ** | **—**    |          | 22,534    |       |
| 100 Church Street(1)                          |       | 01/2013            |       | 5.00                      | %          | **139,672**   |          | —    |       |
| Landmark Square(1)(6)                         |       | 02/2011            |       | 2.15                      | %          | **113,226**   |          | 116,517   |       |
| 28 West 44th Street(1)                   |       | 08/2013            |       | 2.51                      | %          | **122,386**   |          | 123,480   |       |
| Other loan payable(10)                        |       | 06/2013            |       | 3.23                      | %          | **62,792**    |          | —    |       |
| Other loan payable                            |       | 06/2016            |       | 3.05                      | %          | **30,000**    |          | —    |       |
| Total floating rate debt                      |       |               |       |                      | ** ** | **468,076**   |          | 262,531   |       |
| Total mortgage notes and  other loans payable |       |               | ** ** | ** **                | ** ** | **$**         | **2,896,946** |      | $          | 2,595,552 |   |

 

----

| (1)  |   | Held  in bankruptcy remote special purpose entity.                                                                                                                                                                              |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Effective  interest rate for the quarter ended September 30, 2010.                                                                                                                                                         |
| (3)  |   | We  own a 51% controlling interest in the joint venture that is the borrower on  this loan. This loan is non-recourse to us.                                                                                                    |
| (4)  |   | This  investment was deconsolidated in 2010.                                                                                                                                                                                    |
| (5)  |   | From  April 2005 until August 2007, we held a 55% partnership interest in  the joint venture that owned this property. We now own 100% of the property.                                                               |
| (6)  |   | This loan has one remaining one-year as-of-right  renewal option.                                                                                                                                                               |
| (7)  |   | The $108.1 million loan which had an original  maturity date in November 2010 and carried a fixed interest rate of  8.44% was repaid in August 2009. The new loan was upsized by $6.0  million in November 2009. |
| (8)  |   | In July 2009, we upsized this loan by $40.0  million resulting in a blended fixed interest rate of 7.22%.                                                                                                                  |
| (9)  |   | This loan was paid down by $22.5 million in  August 2009 and $4.0 million in March 2010.                                                                                                                              |
| (10) |   | This loan bears interest at 250 basis points over  the three month GBP LIBOR. This loan is denominated in British Pounds.                                                                                                       |

 

In September 2010, we repaid a $104.0 millionloan payable which had been secured by our interest in a structured financeinvestment.

 

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

At September 30, 2010 and December 31,2009 the gross book value of the assets collateralizing the mortgage notes andloans payable was approximately $4.9 billion and $4.5 billion, respectively.

 

Interest expense, excluding capitalized interest,was comprised of the following (in thousands):

 
| ** **            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **            | ** ** | **2010**                         | ** ** | **2009**                        | ** ** | **2010** | ** ** | **2009** | ** ** |
| Interest expense      | ** ** | **$**                            | **57,704** |                            | $          | 66,236 | ** ** | **$** | **173,704** |   | $ | 185,654 |   |
| Interest income       | ** ** | **(479**                         | **)**      | (870                            | )          | **(1,351** | **)** | (3,549 | ) |
| Interest expense, net | ** ** | **$**                            | **57,225** |                            | $          | 65,366 | ** ** | **$** | **172,353** |   | $ | 182,105 |   |
| Interest capitalized  | ** ** | **$**                            | **—** |                            | $          | 38 | ** ** | **$** | **—** |   | $ | 98 |   |

 

**9.  CorporateIndebtedness**

 

**2007 Unsecured Revolving Credit Facility**

 

Wehave a $1.5 billion unsecured revolving credit facility, or the 2007 unsecuredrevolving credit facility.  The 2007unsecured revolving credit facility bears interest at a spread ranging from 70basis points to 110 basis points over LIBOR, based on our leverage ratio.  This facility matures in June 2011 andhas a one-year as-of-right extension option. The 2007 unsecured revolving credit facility also requires a 12.5 to 20basis point fee on the unused balance payable annually in arrears.  The 2007 unsecured revolving credit facilityhad a balance of $0.8 billion and carried a spread over LIBOR of 80 basispoints at September 30, 2010. Availability under the 2007 unsecured revolving credit facility wasfurther reduced at September 30, 2010 by the issuance of approximately$24.0 million in letters of credit.  Theeffective all-in interest rate on the 2007 unsecured revolving credit facilitywas 1.12% for the three months ended September 30, 2010.  The 2007 unsecured revolving credit facilityincludes certain restrictions and covenants (see restrictive covenants below).

 

InAugust 2009, we amended our 2007 unsecured revolving credit facility toprovide us with the ability to acquire a portion of the loans outstanding underour 2007 unsecured revolving credit facility. Such repurchases reduce our availability under the 2007 unsecuredrevolving credit facility.  In August 2009,a subsidiary of ours repurchased approximately $48.0 million of the totalcommitment, and we realized gains on early extinguishment of debt ofapproximately $7.1 million.

 

**Senior Unsecured Notes**

 

Thefollowing table sets forth our senior unsecured notes and other relateddisclosures by scheduled maturity date as of September 30, 2010 (inthousands):

 
| **Issuance**                     | ** ** | **Accreted  Balance** | ** ** | **Coupon Rate(4)** | ** ** | **Term  (in Years)** | ** ** | **Maturity**         | ** **            |
|----------------------------------|------------|-----------------------|------------|-------------------------|------------|---------------------------|------------|----------------------|-----------------------|
| January 22, 2004(1)(5)      |       | $                     | 84,823     |                    | 5.15       | %                         | 7          |                 | January 15, 2011 |   |
| August 13, 2004(1) (5) |       | 98,578                |       | 5.875                   | %          | 10                        |       | August 15, 2014 |                  |
| March 31, 2006(1)           |       | 274,755               |       | 6.00                    | %          | 10                        |       | March 31, 2016  |                  |
| March 16, 2010              |       | 250,000               |       | 7.75                    | %          | 10                        |       | March 15, 2020  |                  |
| June 27, 2005(1)(2)(5)      |       | 657                   |       | 4.00                    | %          | 20                        |       | June 15, 2025   |                  |
| March 26, 2007(3)(5)        |       | 122,448               |       | 3.00                    | %          | 20                        |       | March 30, 2027  |                  |
|                             |       | $                     | 831,261    |                    |       |                      |       |                 |                  |   |

 

----

| (1) | Assumed  as part of the Reckson Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 our common stock per $1,000 of principal amount of debentures and  the adjusted reference dividend for the debentures is $1.3491. During the  nine months ended September 30, 2010, we and SL Green repurchased  approximately $115.4 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 $0.3 million. On the date of  the Merger $13.1 million was recorded in equity and was fully amortized as of  June 30, 2010. |
| (3) | In  March 2007, we issued $750.0 million of these convertible bonds.  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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 
|   | last  reported sale price of our 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 our 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 our common stock and for  general corporate purposes. During the nine months ended September 30,  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 September 30, 2010, approximately $4.4 million 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 the outstanding 3.000% Exchangeable Senior Notes due 2027 issued  by the Operating Partnership, 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 Reckson.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

InMarch 2009, the $200.0 million, 7.75% unsecured notes scheduled to maturein March 2009, assumed as part of the Reckson Merger, were repaid atmaturity.

 

**Restrictive Covenants**

 

Theterms of the 2007 unsecured revolving credit facility and certain of our seniorunsecured notes include certain restrictions and covenants which may limit,among other things, the payment of dividends (as discussed below), theincurrence of additional indebtedness, the incurrence of liens and thedisposition of assets, and which require compliance with financial ratiosrelating to the minimum amount of tangible net worth, the minimum amount ofdebt service coverage and fixed charge coverage, the maximum amount of unsecuredindebtedness, the minimum amount of unencumbered property debt service coverageand certain investment limitations.  Thedividend restriction referred to above provides that, except to enable SL Greento continue to qualify as a REIT for Federal Income Tax purposes, it will notduring any four consecutive fiscal quarters make distributions with respect tocommon 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 September 30, 2010 and December 31, 2009, we were in compliancewith all such covenants.

 

**Junior Subordinate Deferrable Interest Debentures**

 

InJune 2005, we issued $100.0 million in unsecured floating rate trustpreferred securities through a newly formed trust, SL Green Capital Trust I, orthe Trust, which is our wholly-owned subsidiary.  The securities mature in2035 and bear interest at a fixed rate of 5.61% for the first ten years ending July 2015.  Interest payments may be deferred for aperiod of up to eight consecutive quarters if we exercise our right to defersuch payments.  The trust preferred securities are redeemable, at ouroption, in whole or in part, with no prepayment premium any time after July 2010.  We do not consolidate the Trust even thoughit is a variable interest entity as we are not the primary beneficiary.  Because the Trust is not consolidated, wehave recorded the debt on our balance sheet and the related payments are classifiedas interest expense.

 

**Principal Maturities**

 

Combinedaggregate principal maturities of mortgage notes and other loans payable, our2007 unsecured revolving credit facility, trust preferred securities, seniorunsecured notes and our share of joint venture debt as of September 30,2010, including as-of-right extension options, were as follows (in thousands):

 
| ** ** | ** ** | **Scheduled  Amortization** | ** ** | **Principal  Repayments** | ** ** | **Revolving  Credit  Facility** | ** ** | **Trust  Preferred  Securities** | ** ** | **Senior  Unsecured  Notes** | ** ** | **Total** | ** ** | **Joint  Venture  Debt** | ** ** |
|------------|------------|-----------------------------|------------|---------------------------|------------|---------------------------------|------------|----------------------------------|------------|------------------------------|------------|-----------|------------|--------------------------|------------|
| 2010       |       | $                           | 7,608      |                      | $          | —                          |       | $                                | —     |                         | $          | —    |       | —                   |       | 7,608 | ** ** | $ | 2,078 | ** ** |
| 2011       |       | 29,950                      |       | 216,656                   |       | —                          |       | —                           |       | 84,823                       |       | 331,429   |       | 218,698                  |       |
| 2012       |       | 33,455                      |       | 113,227                   |       | 800,000                         |       | —                           |       | 122,448                      |       | 1,069,130 |       | 62,080                   |       |
| 2013       |       | 34,078                      |       | 622,774                   |       | —                          |       | —                           |       | —                       |       | 656,852   |       | 37,146                   |       |
| 2014       |       | 30,042                      |       | 181,671                   |       | —                          |       | —                           |       | 98,578                       |       | 310,291   |       | 361,917                  |       |
| Thereafter |       | 170,626                     |       | 1,456,859                 |       | —                          |       | 100,000                          |       | 525,412                      |       | 2,252,897 |       | 1,137,199                |       |
|       |       | $                           | 305,759    |                      | $          | 2,591,187                       |       | $                                | 800,000    |                         | $          | 100,000   |       | $                        | 831,261    |   | $ | 4,628,207 |   | $ | 1,819,118 |   |
|            |            |                             |            |                           |            |                                 |            |                                  |            |                              |            |           |            |                          |            |  |  |  |  |  |  |  |

 

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Table ofContents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**10.  Fair Value of Financial Instruments**

 

Thefollowing disclosures of estimated fair value were determined by management,using available market information and appropriate valuation methodologies asdiscussed in Note 2.  Considerablejudgment is necessary to interpret market data and develop estimated fairvalue.  Accordingly, the estimatespresented herein are not necessarily indicative of the amounts we could realizeon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologiesmay have a material effect on the estimated fair value amounts.

 

Cashand cash equivalents, accounts receivable and accounts payable balancesreasonably approximate their fair values due to the short maturities of theseitems.  Mortgage notes payable, juniorsubordinate deferrable interest debentures and the senior unsecured notes hadan estimated fair value based on discounted cash flow models, based on Level 3inputs, of approximately $3.4 billion, compared to the book value of therelated fixed rate debt of approximately $3.3 billion at September 30,2010.  Our floating rate debt, inclusiveof our 2007 unsecured revolving credit facility, had an estimated fair valuebased on discounted cash flow models, based on Level 3 inputs, of approximately$1.2 billion, compared to the book value of approximately $1.3 billion at September 30,2010.  Our structured finance investmentshad an estimated fair value ranging between $544.8 million and $817.1 million,compared to the book value of approximately $907.9 million at September 30,2010.

 

Disclosureabout fair value of financial instruments is based on pertinent informationavailable to us as of September 30, 2010. Although we are not aware of any factors that would significantly affectthe reasonable fair value amounts, such amounts have not been comprehensivelyrevalued for purposes of these financial statements since that date and currentestimates of fair value may differ significantly from the amounts presentedherein.

 

**11.  Related Party Transactions**

 

**Cleaning/ Security/ Messenger and Restoration Services**

 

ThroughAlliance Building Services, or Alliance, First Quality Maintenance, L.P., orFirst Quality, provides cleaning, extermination and related services, ClassicSecurity LLC provides security services, Bright Star Couriers LLC providesmessenger services, and Onyx Restoration Works provides restoration serviceswith respect to certain properties owned by us. Alliance is owned by GaryGreen, a son of Stephen L. Green, the chairman of SL Green’s board ofdirectors.  In addition, First Qualityhas the non-exclusive opportunity to provide cleaning and related services toindividual tenants at our properties on a basis separately negotiated with anytenant seeking such additional services. The Service Corporation has entered into an arrangement with Alliancewhereby it will receive a profit participation above a certain threshold forservices provided by Alliance to certain tenants at certain buildings above thebase services specified in their lease agreements.  Alliance paid the Service Corporationapproximately $0.6 million, $1.6 million, $0.4 million and $1.3 million for thethree and nine months ended September 30, 2010 and 2009,respectively.  We paid Allianceapproximately $3.4 million, $9.6 million, $3.3 million and $11.0 million forthe three and nine months ended September 30, 2010 and 2009, respectively,for these services (excluding services provided directly to tenants).

 

**Leases**

 

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

 

**Management Fees**

 

S.L. Green Management Corp., a consolidated entity,receives property management fees from an entity in which Stephen L. Green ownsan interest.  The aggregate amount offees paid to S.L. Green Management Corp. from such entity was approximately $92,000,$293,000, $89,000 and $269,000 for thethree and nine months ended September 30, 2010 and 2009, respectively.

 

**Other**

 

Amountsdue from related parties at September 30, 2010 and December 31, 2009consisted of the following (in thousands):

 
| ** **                   | ** ** | **2010**   | ** ** | **2009** | ** ** |
|------------------------------|------------|------------|------------|----------|------------|
| Due from (to) joint ventures | ** ** | **$**      | **692**    |     | $          | 228 |   |
| Officers and employees       | ** ** | **—** |       | 153      |       |
| Other                        | ** ** | **6,396**  |       | 8,189    |       |
| Related party receivables    | ** ** | **$**      | **7,088**  |     | $          | 8,570 |   |

 

23

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**GramercyCapital Corp.**

 

SeeNote 6. Investment in Unconsolidated Joint Ventures — Gramercy Capital Corp.for disclosure on related party transactions between Gramercy and us.

 

**12. Partners’ Capital**

 

TheCompany is the sole general partner of the Operating Partnership and atSeptember 30, 2010 owned an approximate 78,252,240 general and limitedpartnership interest in the Operating Partnership. Partnership interests in theOperating Partnership are denominated as “common units of limited partnershipinterest” (also referred to as “OP Units”) or “preferred units of partnershipinterest” (also referred to as “Preferred Units”). All references to OP Unitsand Preferred Units exclude such units held by the Company. A holder of an OPUnit may present such OP Unit to the Operating Partnership for redemption atany time (subject to restrictions agreed upon at the issuance of OP Units toparticular holders that may restrict such right for a period of time, generallyone year from issuance). Upon presentation of an OP Unit for redemption, theOperating Partnership must redeem such OP Unit for cash equal to the then valueof a share of common stock of the Company (“Common Stock”), except that theCompany may, at its election, in lieu of a cash redemption, acquire such OPUnit for one share of Common Stock. Because the number of shares of CommonStock outstanding at all times equals the number of OP Units that the Companyowns, one share of Common Stock is generally the economic equivalent of one OPUnit, and the quarterly distribution that may be paid to the holder of an OPUnit equals the quarterly dividend that may be paid to the holder of a share ofCommon Stock. Each series of Preferred Units bears a distribution that is setin accordance with an amendment to the partnership agreement of the OperatingPartnership. Preferred Units may also be convertible into OP Units at theelection of the holder thereof or the Company, subject to the terms of suchPreferred Units.

 

InMay 2009, the Company sold 19,550,000 shares of its common stock at agross price of $20.75 per share. The net proceeds from this offering(approximately $387.1 million) were contributed to the Operating Partnershipin exchange for 19,550,000 common units. The net proceeds were primarily usedto repurchase unsecured debt.

 

Netincome (loss) allocated to the preferred unitholders and limited unitholdersreflects their pro-rata share of net income (loss) and distributions.

 

**Limited Partner Units**

 

Asof September 30, 2010 the other limited partners owned 1.6% (1,249,274units) of the Operating Partnership. At September 30, 2010, 1,249,274shares of the Company’s Common Stock were reserved for the conversion of unitsof limited partnership interest in the Operating Partnership.

 

**Perpetual Preferred Units**

 

InDecember 2003, the Company sold 6,300,000 shares of 7.625% Series Ccumulative redeemable preferred stock, or the Series C preferred stock,(including the underwriters’ over-allotment option of 700,000 shares) with amandatory liquidation preference of $25.00 per share. The net proceeds wereused principally to repay amounts outstanding under our secured and unsecuredrevolving credit facilities. The Series C preferred stock receives annualdividends of $1.90625 per share paid on a quarterly basis and dividends arecumulative, subject to certain provisions. On or after December 12, 2008,the Company may redeem the Series C preferred stock at par for cash at itsoption. The Series C preferred stock was recorded net of underwritersdiscount and issuance costs. SL Green contributed the net proceeds of thisoffering (approximately $152.0 million) to the Operating Partnership inexchange for 6,300,000 Series C cumulative redeemable preferredpartnership units.

 

In2004, the Company issued 4,000,000 shares of its 7.875% Series Dcumulative redeemable preferred stock, or the Series D preferred stock,with a mandatory liquidation preference of $25.00 per share. Net proceeds fromthese offerings were used principally to repay amounts outstanding under oursecured and unsecured revolving credit facilities. The Series D preferredstock receives annual dividends of $1.96875 per share paid on a quarterly basisand dividends are cumulative, subject to certain provisions. On or afterMay 27, 2009, the Company may redeem the Series D preferred stock atpar for cash at its option. The Series D preferred stock was recorded netof underwriters discount and issuance costs. Net proceeds from this offering(approximately $96.3 million) were contributed to the OperatingPartnership in exchange for 4,000,000 preferred partnership units.

 

InJanuary 2010, the Company sold 5,400,000 shares of its Series Cpreferred stock in an underwritten public offering. As a result of thisoffering, the Company had 11,700,000 shares of the Series C preferredstock outstanding. The shares of Series C preferred stock

 

24

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

havea liquidation preference of $25.00 per share and are redeemable at par, plusaccrued and unpaid dividends, at any time at its option. The shares were pricedat $23.53 per share including accrued dividends equating to a yield of 8.101%.Net proceeds from this offering (approximately $122.0 million) werecontributed to the Operating Partnership in exchange for 5,400,000 preferredpartnership units. We used the net offering proceeds for general corporateand/or working capital purposes, including purchases of the indebtedness of oursubsidiaries and investment opportunities.

 

**Rights Plan**

 

InFebruary 2000, the board of directors of the Company authorized adistribution of one preferred share purchase right, or Right, for eachoutstanding share of common stock under a shareholder rights plan. Thisdistribution was made to all holders of record of the common stock onMarch 31, 2000. Each Right entitled the registered holder to purchase fromthe Company one one-hundredth of a share of Series B junior participatingpreferred stock, par value $0.01 per share, or Preferred Shares, at a price of$60.00 per one one-hundredth of a Preferred Share, or Purchase Price, subjectto adjustment as provided in the rights agreement. The Rights expired onMarch 5, 2010, and the rights plan was terminated.

 

**Dividend Reinvestment and Stock Purchase Plan**

 

SLGreen registered 2,000,000 shares of common stock for its dividend reinvestmentand stock purchase plan, or DRIP. The DRIP commenced on September 24,2001.

 

Duringthe nine months ended September 30, 2010 and 2009, approximately 251,000and 142 shares of common stock were issued and approximately $11.3 millionand $3,300 of proceeds were received, respectively, from dividend reinvestmentsand/or stock purchases under the DRIP. DRIP shares may be issued at a discountto the market price. Proceeds received by SL Green pursuant to the DRIP werecontributed to us in exchange for an equivalent number of common units.

 

**Second Amended and Restated 2005 Stock Option andIncentive Plan**

 

SLGreen has a stock option and incentive plan. The second amended and restated2005 Stock Option and Incentive Plan, or the 2005 Plan, was approved by SLGreen’s board of directors in April 2010 and SL Green’s stockholders in June 2010at SL Green’s annual meeting of stockholders. The 2005 Plan authorizes theissuance of stock options, stock appreciation rights, unrestricted andrestricted stock, phantom shares, dividend equivalent rights and otherequity-based awards. Subject to adjustments upon certain corporate transactionsor events, awards with respect to up to a maximum of 10,730,000 fungible unitsmay be granted under the 2005 Plan. Currently, different types of awards countagainst the limit on the number of fungible units differently, with(1) full-value awards (i.e., those that deliver the full value of theaward upon vesting, such as restricted stock) counting as 1.65 fungible unitsper share subject to such award (2) stock options, stock appreciationrights and other awards that do not deliver full value and expire five yearfrom the date of grant counting as 0.79 fungible units per share subject tosuch award and (3) all other awards (e.g., ten-year stock options)counting as 1.0 fungible units per share subject to such award. Awards grantedunder the 2005 Plan prior to the approval of the second amendment and restatementin June 2010 continue to count against the fungible unit limit based onthe ratios that were in effect at the time such awards were granted, which maybe different than the current ratios. As a result, depending on the types ofawards issued, the 2005 Plan may result in the issuance of more or less than10,730,000 shares. If a stock option or other award granted under the 2005 Planexpires or terminates, the common stock subject to any portion of the awardthat expires or terminates without having been exercised or paid, as the casemay be, will again become available for the issuance of additional awards.Shares of SL Green’s common stock distributed under the 2005 Plan may betreasury shares or authorized but unissued shares. Currently, unless the 2005Plan has been previously terminated by SL Green’s Board, new awards may begranted under the 2005 Plan until June 15, 2020, which is the tenthanniversary of the date that the 2005 Plan was most recently approved by SLGreen’s stockholders. At September 30, 2010, approximately5.2 million fungible units were available for issuance under the 2005Plan, or 6.6 million if all fungible units available under the 2005 Planwere issued as five-year stock options.

 

Optionsare granted under the plan at the fair market value on the date of grant and,subject to termination of employment, generally expire ten years from the dateof grant, are not transferable other than on death, and generally vest in oneto five years commencing one year from the date of grant.

 

25

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Table of Contents

 

**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

Asummary of the status of SL Green’s stock options as of September 30,2010 and December 31, 2009 and changes during the periods then ended arepresented below: 

 
| ** **                                                        | ** ** | **2010**                 | ** ** | **2009**                                     | ** ** |
|-------------------------------------------------------------------|------------|--------------------------|------------|----------------------------------------------|------------|
| ** **                                                        | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise********Price** | ** ** | **Options  Outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| Balance at beginning of year                                      |       | 1,324,221                |       | $                                            | 56.74      |   | 937,706 |   | $ | 61.33 |   |
| Granted                                                           |       | 25,500                   |       | $                                            | 52.89      |   | 443,850 |   | $ | 46.08 |   |
| Exercised                                                         |       | (98,341                  | )          | $                                            | 30.50      |   | (22,000 | ) | $ | 28.17 |   |
| Lapsed or cancelled                                               |       | (41,833                  | )          | $                                            | 77.33      |   | (35,335 | ) | $ | 62.75 |   |
| Balance at end of period                                          |       | 1,209,547                |       | $                                            | 58.08      |   | 1,324,221 |   | $ | 56.74 |   |
|                                                              |       |                     |       |                                         |       |   |   |   |   |
| Options exercisable at end of period                              |       | 641,852                  |       | $                                            | 68.90      |   | 595,851 |   | $ | 62.17 |   |
| Weighted average fair value of options granted  during the period |       | $                        | 564,671    |                                         |       |   | $ | 8,276,500 |   |   |   |
|                                                                   |            |                          |            |                                              |            |  |  |  |  |  |  |  |  |

 

Theweighted average fair value of restricted stock granted during the nine monthsended September 30, 2010 was approximately $25.6 million.

 

Alloptions were granted within a price range of $20.67 to $137.18.  The remaining weighted average contractuallife of the options outstanding and exercisable was 4.9 years and 4.6 years,respectively.

 

**Stock-based Compensation**

 

Effective January 1, 1999, SL Green implementeda deferred compensation plan, or the Deferred Plan, covering certain of ouremployees, including our executives.  Theshares issued under the Deferred Plan were granted to certain employees,including our executives and vesting will occur annually upon the completion ofa service period or our meeting established financial performancecriteria.  Annual vesting occurs at ratesranging from 15% to 35% once performance criteria are reached.  A summary of SL Green’s restricted stock asof September 30, 2010 and the related expense during the nine months thenended are presented below:

 
| ** **                            | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| **Restricted Stock Awards** | ** ** | **2010**                                   | ** ** |
| Balance at beginning of year          |       | 2,330,532                                  |       |
| Granted                               |       | 190,657                                    |       |
| Cancelled                             |       | (3,167                                     | )          |
| Balance at end of period              |       | 2,518,022                                  |       |
| Vested during the period              |       | 34,527                                     |       |
| Compensation expense recorded         |       | $                                          | 9,919,348  |   |
|                                       |            |                                            |            |  |

 

**2003 Long-Term Outperformance Compensation Program**

 

SLGreen’s board of directors adopted a long-term, seven-year compensation programfor certain members of senior management. The program provided for restricted stock awards to be made to planparticipants if the holders of its common equity achieved a total return inexcess of 40% over a 48-month period commencing April 1, 2003.  In April 2007, the compensationcommittee determined that under the terms of the 2003 Outperformance Plan, asof March 31, 2007, the performance hurdles had been met and the maximumperformance pool of $22,825,000, taking into account forfeitures, wasestablished.  In connection with thisevent, approximately 166,312 shares of restricted stock (as adjusted forforfeitures) 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 scheduledto vest ratably over the subsequent three years based on continuedemployment.  The fair value of the awardsunder this program on the date of grant was determined to be $3.2 million.  This fair value is expensed over the term ofthe restricted stock award.  Fortypercent of the value of the award was amortized over four years from the dateof grant and the balance was amortized, in equal parts, over five, six andseven 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% peryear) and

 

26

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

20%of the total value was amortized over seven years (14.29% per year)).  We recorded compensation expense of none,$23,000, $29,500 and $88,500 related to this plan during the three and ninemonths ended September 30, 2010 and 2009, respectively.

 

**2005 Long-Term Outperformance Compensation Program**

 

InDecember 2005, the compensation committee of SL Green’s board of directorsapproved a long-term incentive compensation program, the 2005 OutperformancePlan.  Participants in the 2005Outperformance Plan were entitled to earn LTIP Units in SLGOP if SL Green’stotal return to stockholders for the three-year period beginning December 1,2005 exceeded a cumulative total return to stockholders of 30%.; provided thatparticipants were entitled to earn LTIP Units earlier in the event that SLGreen achieved maximum performance for 30 consecutive days.  The total number of LTIP Units that could beearned was to be a number having an assumed value equal to 10% of theoutperformance amount in excess of the 30% benchmark, subject to a maximum dilutioncap equal to the lesser of 3% of SL Green’s outstanding shares and units oflimited partnership interest as of December 1, 2005 or $50.0 million.  On June 14, 2006, the compensationcommittee determined that under the terms of the 2005 Outperformance Plan, asof June 8, 2006, the performance period had accelerated and the maximumperformance pool of $49,250,000, taking into account forfeitures, had beenearned.  Under the terms of the 2005Outperformance Plan, participants also earned additional LTIP Units with avalue equal to the distributions that would have been paid with respect to theLTIP Units earned if such LTIP Units had been earned at the beginning of theperformance period.  The total number ofLTIP Units earned under the 2005 Outperformance Plan by all participants as of June 8,2006 was 490,475.  Under the terms of the2005 Ouperformance Plan, all LTIP Units that were earned remained subject totime-based vesting, with one-third of the LTIP Units earned scheduled to veston each of November 30, 2009 and the first two anniversariesthereafter based on continued employment. The earned LTIP Units are to receive regular quarterly distributions ona per unit basis equal to the dividends per share paid on SL Green’s commonstock, whether or not they are vested.

 

Thecost of the 2005 Outperformance Plan (approximately $8.0 million, subject toadjustment for forfeitures) will continue to be amortized into earnings throughthe final vesting period.  We recordedapproximately none, $1.6 million, $0.6 million and $1.8 million of compensationexpense during the three and nine months ended September 30, 2010 and2009, respectively, in connection with the 2005 Outperformance Plan.

 

**2006 Long-Term Outperformance Compensation Program**

 

On August 14, 2006, the compensation committeeof SL Green’s board of directors approved a long-term incentive compensationprogram, the 2006 Outperformance Plan. Participants in the 2006 Outperformance Plan were entitled to earn LTIPUnits in SLGOP if SL Green’s total return to stockholders for the three-yearperiod beginning August 1, 2006 exceeded a cumulative total return tostockholders of 30%.; provided that participants were entitled to earn LTIPUnits earlier in the event that SL Green achieved maximum performance for 30consecutive days.  The total number ofLTIP Units that could be earned was to be a number having an assumed value of10% of the outperformance amount in excess of the 30% benchmark, subject to amaximum dilution cap equal to $60.0 million. The 2006 Outperformance Plan provided that if the LTIP Units wereearned, each participant would also have been entitled to the distributionsthat would have been paid had the number of earned LTIP Units been issued atthe beginning of the performance period. Those distributions would have been paid in the form of additional LTIPUnits.  Thereafter, distributions wouldhave been paid currently with respect to all earned LTIP Units, whether vestedor unvested.  Any LTIP Units earned underthe 2006 Outperformance Plan were to remain subject to time-based vesting, withone-third of the awards vesting on each of July 31, 2009 and the first twoanniversaries thereafter based on continued employment.

 

Thecost of the 2006 Outperformance Plan (approximately $16.4 million, subject toadjustment for forfeitures) will be amortized into earnings through the finalvesting period.  We recordedapproximately $0.1 million, $0.2 million, $0.1 million and $0.3 million ofcompensation expense during the three and nine months ended September 30,2010 and 2009, respectively, in connection with the 2006 OutperformancePlan.  During the fourth quarter of 2008,we and certain of our employees, including our executive officers, mutuallyagreed to cancel a portion of the 2006 Outperformance Plan.  The performance criteria under the 2006Outperformance Plan were not met and, accordingly, no LTIP Units have beenearned under the 2006 Outperformance Plan.

 

**SL Green Realty Corp. 2010 Notional Unit Long-TermCompensation Plan**

 

InDecember 2009, the compensation committee of SL Green’s board of directorsapproved the general terms of the SL Green Realty Corp. 2010 Notional UnitLong-Term Compensation Program, the 2010 Long Term Compensation Plan.  The 2010 Long-Term Compensation Plan is along-term incentive compensation plan pursuant to which award recipients mayearn, in the aggregate, from approximately $15 million up to approximately $75million of LTIP Units in SLGOP based on SL Green’s stock price appreciationover three years beginning on December 1, 2009; provided that, if maximumperformance has been achieved, approximately $25 million of awards may beearned at any time after the beginning of the second year and an additionalapproximately $25 million of 

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

awardsmay be earned at any time after the beginning of the third year.  The amount of awards earned will range fromapproximately $15 million if SL Green’s aggregate stock price appreciationduring the performance period is 25% to the maximum amount of approximately $75million if SL Green’s aggregate stock price appreciation during the performanceperiod is 50% or greater.  No awards willbe earned if SL Green’s aggregate stock price appreciation is less than25%.  After the awards are earned, theywill 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 2015based, in each case, on continued employment through the vesting date.  We will not pay distributions on any LTIPUnits until they are earned, at which time we will pay all distributions thatwould have been paid on the earned LTIP Units since the beginning of theperformance period.

 

Overall,the 2010 Long Term Compensation Plan contemplates maximum potential awards of1,179,987 LTIP Units and a cap of approximately $75 million when earned.  However, sufficient shares were not availableunder 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 744,128LTIP Units, subject to performance-based and time-based vesting, unless anduntil additional shares became available under the 2005 Plan prior to the endof the performance period for the 2010 Long Term Compensation Plan.  At SL Green’s annual meeting of stockholderson June 15, 2010, SL Green’s stockholders approved the adoption of the2005 Plan which, among other things, increased the number of shares availableunder the plan to award the balance of the LTIP Units due under the 2010 Long-TermCompensation Plan.  The cost of the 2010Long Term Compensation Plan (approximately $24.8 million, subject toforfeitures) will be amortized into earnings through the final vesting period.  We recorded compensation expense ofapproximately $1.3 million and $2.8 million during the three and nine monthsended September 30, 2010 related to this program.

 

**Deferred Stock Compensation Plan for Directors**

 

Underthe Company’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 annualretainer fee, chairman fees and meeting fees. Unless otherwise elected by a participant, fees deferred under theprogram shall be credited in the form of phantom stock units.  The phantom stock units are convertible intoan equal number of shares of common stock upon such directors’ termination ofservice from SL Green’s board of directors or a change in control by SL Green,as defined by the program.  Phantom stockunits are credited to each non-employee director quarterly using the closingprice of the Company’s common stock on the applicable dividend record date forthe respective quarter.  Eachparticipating non-employee director’s account is also credited for anequivalent amount of phantom stock units based on the dividend rate for eachquarter.

 

Duringthe nine months ended September 30, 2010, approximately 9,300 phantomstock units were earned.  As of September 30,2010, there were approximately 57,700 phantom stock units outstanding.

 

**Employee Stock Purchase Plan**

 

OnSeptember 18, 2007, SL Green’s board of directors adopted the 2008Employee Stock Purchase Plan, or ESPP, to encourage our employees to increasetheir efforts to make our business more successful by providing equity-basedincentives to eligible employees.  The ESPP is intended to qualify as an “employeestock purchase plan” under Section 423 of the Internal Revenue Code of1986, as amended, and has been adopted by the board to enable our eligibleemployees to purchase the Company’s shares of common stock through payrolldeductions.  The ESPP became effective on January 1, 2008 with amaximum of 500,000 shares of the common stock available for issuance, subjectto adjustment upon a merger, reorganization, stock split or other similarcorporate change.  SL Green filed a registration statement on Form S-8with the Securities and Exchange Commission with respect to the ESPP.  The common stock will be offered for purchasethrough a series of successive offering periods.  Each offering period will be three months induration and will begin on the first day of each calendar quarter, with thefirst offering period having commenced on January 1, 2008.  The ESPP provides for eligible employees topurchase the common stock at a purchase price equal to 85% of the lesser of (1) themarket value of the common stock on the first day of the offering period or (2) themarket value of the common stock on the last day of the offering period. TheESPP was approved by SL Green’s stockholders at its 2008 annual meeting ofstockholders.  As of September 30,2010, approximately 45,300 shares of the Company’s common stock had been issuedunder the ESPP. SL Green contributed the proceeds from the sale of those sharesto us in exchange for an equivalent number of our common units.

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**Earnings per Unit**

 

Earningsper unit for the three and nine months ended September 30, 2010 and 2009is computed as follows (in thousands):

 
| ** **                                                 | ** ** | **Three Months Ended********September 30,** | ** **  | **Nine Months Ended********September 30,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------------|-------------|-----------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2010**                                                   | ** **  | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Numerator (Income)**                                     | ** ** | ** **                                                 |        |                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic Earnings:                                            |       |                                                       |        |                                                      |       |   |   |   |   |
| Income (loss) attributable to SL Green common  unitholders |       | $                                                          | **113,286** |                                                      | $          | (2,734 | ) | $ | **268,161** |   | $ | 44,279 |   |
| Effect of Dilutive Securities:                             | ** ** | ** **                                                 |        |                                                      | ** ** | ** ** |   |   |   |
| Stock options                                              | ** ** | **—**                                                 |        | —                                                    | ** ** | **—** |   | — |   |
| Diluted Earnings:                                          | ** ** | ** **                                                 |        |                                                      | ** ** | ** ** |   |   |   |
| Income (loss) attributable to SL Green common  unitholders |       | $                                                          | **113,286** |                                                      | $          | (2,734 | ) | $ | **268,161** |   | $ | 44,279 |   |

 
| ** **                                | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                | ** ** | **2010**                                                   | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Denominator (Weighted Average  Units)** |       |                                                       |       |                                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic Earnings:                           | ** ** | ** **                                                 |       |                                                      |       |   |   |   |   |
| Units attributable to common unitholders  | ** ** | **79,437**                                                 |       | 79,168                                                    | ** ** | **79,379** |   | 69,533 |   |
| Effect of Dilutive Securities:            | ** ** | ** **                                                 |       |                                                      | ** ** | ** ** |   |   |   |
| 3.0% exchangeable senior debentures       | ** ** | **—**                                                 |       | —                                                    | ** ** | **—** |   | — |   |
| 4.0% exchangeable senior debentures       | ** ** | **—**                                                 |       | —                                                    | ** ** | **—** |   | — |   |
| Stock-based compensation plans            | ** ** | **344**                                                    |       | —                                                    | ** ** | **343** |   | 47 |   |
| Diluted Units                             | ** ** | **79,781**                                                 |       | 79,168                                                    | ** ** | **79,722** |   | 69,580 |   |

 

We have excluded approximately 794,000, 804,000,499,000 and 939,000 common unit equivalents from the diluted units outstandingfor the three and nine months ended September 30, 2010 and 2009,respectively, as they were anti-dilutive.

 

**13.  Commitments and Contingencies**

 

Weand the Company are not presently involved in any material litigation nor, toour knowledge, is any material litigation threatened against us or ourproperties, other than routine litigation arising in the ordinary course ofbusiness.  Management believes the costs,if any, incurred by us and the Company related to this litigation will notmaterially affect our financial position, operating results or liquidity.

 

Thefollowing is a schedule of future minimum lease payments under capitalleases and noncancellable operating leases with initial terms in excess of oneyear as of September 30, 2010 (in thousands):

 

 
| **September 30,**                      | ** ** | **Capital lease** | ** ** | **Non-cancellable  operating leases** | ** ** |
|---------------------------------------------|------------|------------------------|------------|--------------------------------------------|------------|
|                                        |       |                   |       |                                       |       |
| 2010                                        |       | $                      | 387        |                                       | $          | 7,432 |   |
| 2011                                        |       | 1,555                  |       | 28,929                                     |       |
| 2012                                        |       | 1,555                  |       | 28,179                                     |       |
| 2013                                        |       | 1,555                  |       | 28,179                                     |       |
| 2014                                        |       | 1,555                  |       | 28,179                                     |       |
| Thereafter                                  |       | 45,651                 |       | 580,600                                    |       |
| Total minimum lease payments                |       | 52,258                 |       | $                                          | 701,498    |   |
| Less amount representing interest           |       | (35,230                | )          |                                       |       |
| Present value of net minimum lease payments |       | $                      | 17,028     |                                       |       |   |

 

**14.  FinancialInstruments: Derivatives and Hedging**

 

Werecognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must beadjusted to fair value through earnings. 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

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

againstthe change in fair value of the hedged asset, liability, or firm commitmentthrough earnings, or recognized in other comprehensive income until the hedgeditem is recognized in earnings.  Theineffective portion of a derivative’s change in fair value will be immediatelyrecognized in earnings.  Reported netincome and capital may increase or decrease prospectively, depending on futurelevels of interest rates and other variables affecting the fair values ofderivative instruments and hedged items, but will have no effect on cash flows.

 

Thefollowing table summarizes the notional and fair value of our derivativefinancial instruments and foreign currency hedges at September 30, 2010based on Level 2 information pursuant to ASC 810-10.  The notional value is an indication of theextent of our involvement in these instruments at that time, but does notrepresent exposure to credit, interest rate or market risks (in thousands).

 
| ** **         | ** ** | **Notional  Value** | ** ** | **Strike  Rate** | ** ** | **Effective  Date** | ** ** | **Expiration  Date** | ** ** | **Fair  Value** | ** ** |
|--------------------|------------|---------------------|------------|------------------|------------|---------------------|------------|----------------------|------------|-----------------|------------|
| Interest Rate Cap  |       | $                   | 128,000    |             | 6.000      | %                   | 2/2010     |                 | 2/2011     |            | $          | — |   |
| Interest Rate Cap  |       | $                   | 139,672    |             | 5.000      | %                   | 1/2010     |                 | 1/2011     |            | $          | — |   |
| Interest Rate Swap |       | $                   | 30,000     |             | 2.295      | %                   | 7/2010     |                 | 6/2016     |            | $          | (1,102 | ) |
|               |       |                |       |             |       |                |       |                 |       |            |       |
| Currency Hedge     |       | $                   | 20,748     |             | 1.55185    |  GBP-USD       | 9/2010     |                 | 12/2012    |            | $          | (82 | ) |

 

Thecurrency hedge has not been designated as a hedging instrument.

 

OnSeptember 30, 2010, the derivative instruments were reported as anobligation at their fair value of approximately $1.0 million.  This is included in Other Liabilities on theconsolidated balance sheet at September 30, 2010.  Included in Accumulated Other ComprehensiveLoss at September 30, 2010 was approximately $15.2 million from thesettlement of hedges, which are being amortized over the remaining term of therelated mortgage obligation, and active hedges and our share of joint ventureaccumulated other comprehensive loss of approximately $21.4 million.  Currently, all of our designated derivativeinstruments are effective hedging instruments.

 

InMarch 2010, we terminated forward swaps which resulted in a net loss ofapproximately $19.5 million from the settlement of the hedges.  This payment is included in financingactivities in the statement of cash flows. This loss will be amortized over the 10-year term of the relatedfinancing.  This loss is included in the$15.2 million balance noted above.

 

**15.  Environmental Matters**

 

Ourmanagement believes that the properties are in compliance in all materialrespects with applicable Federal, state and local ordinances and regulationsregarding environmental issues. Management is not aware of any environmental liability that it believeswould have a materially adverse impact on our financial position, results ofoperations or cash flows.  Management isunaware of any instances in which it would incur significant environmental costif any of the properties were sold.

 

**16.  Segment Information**

 

SLGreen is a REIT engaged in owning, managing, leasing, acquiring andrepositioning commercial office and retail properties in the New York Metroarea and have two reportable segments, real estate and structured financeinvestments.  Our investment in Gramercyand its related earnings are included in the structured finance segment.  We evaluate real estate performance andallocate resources based on earnings contribution to income from continuingoperations.

 

Ourreal estate portfolio is primarily located in the geographical markets of theNew York Metro area.  The primary sourcesof revenue are generated from tenant rents and escalations and reimbursementrevenue.  Real estate property operatingexpenses consist primarily of security, maintenance, utility costs, real estatetaxes and ground rent expense (at certain applicable properties).  See Note 5 for additional details on ourstructured finance investments.

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

Selected results ofoperations for the three and nine months ended September 30, 2010 and2009, and selected asset information as of September 30, 2010 and December 31,2009, regarding our operating segments are as follows (in thousands):

 
| ** **                         | ** ** | **Real  Estate  Segment** | ** ** | **Structured  Finance  Segment** | ** ** | **Total  Company** | ** ** |
|------------------------------------|------------|---------------------------|------------|----------------------------------|------------|--------------------|------------|
| Total revenues                     |       |                      |       |                             |       |               |       |
| Three months ended:                |       |                      |       |                             |       |               |       |
| September 30, 2010            |       | $                         | 238,903    |                             | $          | 84,377             |       | $ | 323,280 |   |
| September 30, 2009            |       | 229,503                   |       | 16,266                           |       | 245,769            |       |
|                               |       |                      |       |                             |       |               |       |
| Nine months ended:                 |       |                      |       |                             |       |               |       |
| September 30, 2010            |       | $                         | 708,458    |                             | $          | 125,543            |       | $ | 834,001 |   |
| September 30, 2009            |       | 704,110                   |       | 48,697                           |       | 752,807            |       |
|                               |       |                      |       |                             |       |               |       |
| Income from continuing operations: |       |                      |       |                             |       |               |       |
| Three months ended:                |       |                      |       |                             |       |               |       |
| September 30, 2010            |       | $                         | 6,109      |                             | $          | 80,465             |       | $ | 86,574 |   |
| September 30, 2009            |       | 16,421                    |       | (1,862                           | )          | 14,559             |       |
|                               |       |                      |       |                             |       |               |       |
| Nine months ended:                 |       |                      |       |                             |       |               |       |
| September 30, 2010            |       | $                         | 27,414     |                             | $          | 105,589            |       | $ | 133,003 |   |
| September 30, 2009            |       | 144,737                   |       | (81,805                          | )          | 62,932             |       |
|                               |       |                      |       |                             |       |               |       |
| Total assets                       |       |                      |       |                             |       |               |       |
| As of:                             |       |                      |       |                             |       |               |       |
| September 30, 2010            |       | $                         | 9,674,631  |                             | $          | 913,244            |       | $ | 10,587,875 |   |
| December 31, 2009             |       | 9,698,430                 |       | 789,147                          |       | 10,487,577         |       |

 

Incomefrom continuing operations represents total revenues less total expenses for thereal estate segment and total investment income less allocated interest expensefor the structured finance segment. Interest costs for the structured finance segment are imputed assuming100% leverage at our 2007 unsecured revolving credit facility borrowingcost.  We do not allocate marketing,general and administrative expenses (approximately $18.5 million, $55.3million, $18.9 million and $54.7 million for the three and nine months ended September 30,2010 and 2009, respectively) to the structured finance segment, since we baseperformance on the individual segments prior to allocating marketing, generaland administrative expenses.  All otherexpenses, except interest, relate entirely to the real estate assets.  There were no transactions between the abovetwo segments.

 

Thetable below reconciles income from continuing operations to net incomeattributable to SLGOP common unitholders for the three and nine months ended September 30,2010 and 2009 (in thousands):

 
| ** **                                                                 | ** ** | **Three Months Ended********September 30,** | ** **        | **Nine Months Ended********September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------------|-------------------|-----------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2010**                                                   | ** **        | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                                       |       |                                                       |              |                                                      |       |   |   |   |   |
| Income from continuing operations                                          | ** ** | **$**                                                      | ** **86,574  | ** **                                                | **$**      | ** **14,559 | ** ** | **$** | ** **133,003 |   | $ |  62,932 |   |
| Gain on sale of joint venture interest/real estate                         |       | 520                                                        |              | —                                                    |       | 127,289 |   | 6,848 |   |
| Income (loss)/gains from discontinued operations                           |       | 37,472                                                     |              | (9,966                                                    | )          | 40,905 |   | (1,077 | ) |
| Net income                                                                 |       | 124,566                                                    |              | 4,593                                                     |       | 301,197 |   | 68,703 |   |
| Net income attributable to noncontrolling  interests in other partnerships |       | (3,735                                                     | )                 | (2,358                                                    | )          | (10,831 | ) | (9,518 | ) |
| Net income attributable to SLGOP                                           |       | 120,831                                                    |              | 2,235                                                     |       | 290,366 |   | 59,185 |   |
| Preferred unit dividend                                                    |       | (7,545                                                     | )                 | (4,969                                                    | )          | (22,205 | ) | (14,906 | ) |
| Net income attributable to SLGOP common  unitholders                       | ** ** | **$**                                                      | ** **113,286 | ** **                                                | **$**      | ** **(2,734 | ) | **$** | ** **268,161 |   | $ |  44,279 |   |

 

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**SL Green OperatingPartnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2010**

 

**17.  Supplemental Disclosure of Non-Cash Investingand Financing Activities**

 

A summary of our non-cash investing and financingactivities for the nine months ended September 30, 2010 and 2009 ispresented below (in thousands):

 
| ** **                                                | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                | ** ** | **2010**                                            | ** ** | **2009** | ** ** |
| Issuance of common stock as deferred compensation         | ** ** | **$**                                               | 474        |   | $ | 529 |   |
| Derivative instruments at fair value                      |       | 14,268                                              |       | 14,676 |   |
| Mortgage assigned upon asset sale                         |       | —                                              |       | 113,517 |   |
| Tenant improvements and lease commissions payable         |       | 7,621                                               |       | 10,166 |   |
| Assumption of mortgage loans                              |       | 285,922                                             |       | — |   |
| Structured finance and other investments acquired         |       | 30,000                                              |       | 13,831 |   |
| Deconsolidation of real estate investments -  assets      |       | 60,783                                              |       | — |   |
| Deconsolidation of real estate investments -  liabilities |       | 47,533                                              |       | — |   |
|                                                           |            |                                                     |            |  |  |  |  |

 

**18.  Subsequent Events**

 

In October 2010, we issued$345.0 million of 3.00% exchangeable senior notes due 2017, inclusive of the$45.0 million overallotment option, with a 30% conversion premium, resulting inan initial conversion price of $85.81. We received net proceeds from theoffering of approximately $336.5 million. These notes are guaranteed by ROP.

 

In October 2010, the jointventure that owns 600 Lexington Avenue closed on a new $125.0 millionseven-year mortgage which replaces the $49.85 million mortgage assumed as partof the acquisition. The new mortgage bears interest at a rate of 200 basispoints over the 30-day LIBOR and is interest only for the first two years.

 

In October 2010, we reached anagreement to recapitalize Three Columbus Circle. The recapitalization includesa standby mortgage commitment and a potential future investment by us that willmake funds available for the completion of the redevelopment and lease-up ofthe property.

 

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**ITEM 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Overview**

 

SLGreen Realty Corp., which is referred to as SL Green or the Company, a Marylandcorporation, and SL Green Operating Partnership, L.P., which is referredto as SLGOP or the Operating Partnership, a Delaware limited partnership, wereformed in June 1997 for the purpose of combining the commercial real estate businessof S.L. Green Properties, Inc. and its affiliated partnerships andentities. 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 allentities owned or controlled by SLGOP.

 

RecksonAssociates Realty Corp., or Reckson, and Reckson Operating Partnership, L.P.,or ROP, are subsidiaries of ours.

 

Thefollowing discussion related to our consolidated financial statements andrelated notes should be read in conjunction with the financial statementsappearing in this Quarterly Report on Form 10-Q and the audited consolidatedfinancial statements appearing in Amendment No. 2 to our Registration Statementon Form S-4, filed with the SEC on September 14, 2010.

 

Asof September 30, 2010, we owned the following interests in commercial officeproperties in the New York Metro area, primarily in midtown Manhattan, aborough of New York City.  Ourinvestments in the New York Metro area also include investments in Brooklyn,Queens, Long Island, Westchester County, Connecticut and New Jersey, which arecollectively known as the Suburban assets:

 
| **Location** | ** ** | **Ownership**              | ** ** | **Number of  Properties** | ** ** | **Square Feet** | ** ** | **Weighted Average  Occupancy (1)** | ** ** |
|--------------|------------|----------------------------|------------|--------------------------------|------------|----------------------|------------|-----------------------------------------------|------------|
| Manhattan    |       | Consolidated  properties   |       | 22                             |       | 15,141,945           |       | 91.0                                          | %          |
|         |       | Unconsolidated  properties |       | 8                              |       | 7,182,515            |       | 94.1                                          | %          |
|         |       |                       |       |                           |       |                 |       |                                          |       |
| Suburban     |       | Consolidated  properties   |       | 25                             |       | 3,863,000            |       | 81.8                                          | %          |
|         |       | Unconsolidated  properties |       | 6                              |       | 2,941,700            |       | 93.8                                          | %          |
|         |       |                       |       | 61                             |       | 29,129,160           |       | 90.9                                          | %          |

 

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(1)  The weighted averageoccupancy represents the total leased square feet divided by total availablerentable square feet.

 

Wealso own investments in eight retail properties encompassing approximately366,312 square feet, three development properties encompassing approximately399,800 square feet and two land interests. In addition, we manage four office properties owned by third parties andaffiliated companies encompassing approximately 1.3 million rentable squarefeet.

 

**Critical Accounting Policies**

 

Ourdiscussion and analysis of financial condition and results of operations isbased on our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, andcontingencies as of the date of the financial statements and the reportedamounts of revenues and expenses during the reporting periods. We evaluate ourassumptions and estimates on an ongoing basis. We base our estimates onhistorical experience and on various other assumptions that we believe to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We believe the followingcritical accounting policies affect our more significant judgments andestimates used in the preparation of our consolidated financial statements.

 

**Investment in CommercialReal Estate Properties**

 

On a periodic basis, we assess whether there are anyindicators that the value of our real estate properties may be impaired or thatits carrying value may not be recoverable. A property’s value is considered impaired if management’s estimate ofthe aggregate future cash flows (undiscounted and without interest charges forconsolidated and unconsolidated properties) to be generated by the property areless than the carrying value of the property. To the extent impairment has occurred and is considered to be other thantemporary, the loss will be measured as the excess of the carrying amount ofthe property over the calculated fair value of the property.  In addition, we assess our investments in unconsolidatedjoint ventures for recoverability, and if it is determined that a loss in valueof the investment is other than temporary, we write down the investment to itsfair value. We evaluate our equity investments for impairment based on thejoint venture’s projected cash flows. We do not believe that the value of anyof our consolidated or unconsolidated real estate properties or investments inunconsolidated joint ventures was impaired at September 30, 2010 and December31, 2009, respectively.

 

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Avariety of costs are incurred in the development and leasing of our properties.After determination is made to capitalize a cost, it is allocated to thespecific component of a project that is benefited. Determination of when adevelopment project is substantially complete and capitalization must ceaseinvolves a degree of judgment. The costs of land and building under developmentinclude specifically identifiable costs. The capitalized costs includepre-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 ofdevelopment. We consider a construction project as substantially completed andheld available for occupancy upon the completion of tenant improvements, but nolater than one year from cessation of major construction activity. We ceasecapitalization on the portions substantially completed and occupied or heldavailable for occupancy, and capitalize only those costs associated with theportions under construction.

 

Weallocate the purchase price of real estate to land and building and, ifdetermined 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 overtheir estimated useful lives, which generally range from three to 40 yearsand from one to 14 years, respectively. The values of the above- andbelow-market leases are amortized and recorded as either an increase (in thecase 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, whichgenerally range from one to 14 years. The value associated with in-placeleases are amortized over the expected term of the associated lease, whichgenerally range from one to 14 years. If a tenant vacates its space priorto the contractual termination of the lease and no rental payments are beingmade on the lease, any unamortized balance of the related intangible will bewritten off. The tenant improvements and origination costs are amortized as anexpense over the remaining life of the lease (or charged against earnings ifthe lease is terminated prior to its contractual expiration date). We assessfair value of the leases based on estimated cash flow projections that utilizeappropriate discount and capitalization rates and available market information.Estimates of future cash flows are based on a number of factors including thehistorical operating results, known trends, and market/economic conditions thatmay affect the property.

 

**Investment inUnconsolidated Joint Ventures**

 

Weaccount for our investments in unconsolidated joint ventures under the equitymethod of accounting in cases where we exercise significant influence, but donot control these entities or the joint venture is a VIE and weare notconsidered to be the primary beneficiary. We consolidate those joint ventureswhich are VIEs and where we are considered to be the primary beneficiary. Theprimary beneficiary is the entity which has (i) the power to direct theactivities that most significantly impact the entity’s economic performance and(ii) the obligation to absorb losses of the VIE or the right to receivebenefits from the VIE that could be significant to the VIE. In all jointventures not deemed to be a VIE where the rights of the minority investorinclude both protective as well as participating rights, these rights precludeus from consolidating these investments. These investments are recordedinitially at cost, as investments in unconsolidated joint ventures, andsubsequently adjusted for equity in net income (loss) and cash contributionsand distributions. Any difference between the carrying amount of theseinvestments on our balance sheet and the underlying equity in net assets isamortized as an adjustment to equity in net income (loss) of unconsolidatedjoint ventures over the lesser of the joint venture term or 10 years.Equity income (loss) from unconsolidated joint ventures is allocated based onour ownership interest in each joint venture. When a capital event (as definedin each joint venture agreement) such as a refinancing occurs, if returnthresholds are met, future equity income will be allocated at our increasedeconomic percentage. We recognize incentive income from unconsolidated realestate joint ventures as income to the extent it is earned and not subject toclawback. Distributions received from unconsolidated real estate joint venturesin excess of our basis in the investment are recorded as offsets to ourinvestment balance if we remain liable for future obligations of the jointventure or may otherwise be committed to provide future additional financialsupport. None of the joint venture debt is recourse to us.

 

**Revenue Recognition**

 

Rentalrevenue is recognized on a straight-line basis over the term of the lease. Theexcess of rents recognized over amounts contractually due pursuant to theunderlying leases are included in deferred rents receivable on the accompanyingbalance sheets. We establish, on a current basis, an allowance for futurepotential tenant credit losses, which may occur against this account. Thebalance reflected on the balance sheet is net of such allowance.

 

Interestincome on structured finance investments is recognized over the life of theinvestment using the effective interest method and recognized on the accrualbasis. Fees received in connection with loan commitments are deferred until theloan is funded and are then recognized over the term of the loan as anadjustment to yield. Anticipated exit fees, whose collection is expected, arealso recognized over the term of the loan as an adjustment to yield. Fees oncommitments that expire unused are recognized at expiration.

 

Incomerecognition is generally suspended for structured finance investments at theearlier of the date at which payments become 90 days past due or when, inthe opinion of management, a full recovery of income and principal becomesdoubtful. Income recognition is resumed when the loan becomes contractuallycurrent and performance is demonstrated to be resumed.

 

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**Allowance for DoubtfulAccounts**

 

Wemaintain an allowance for doubtful accounts for estimated losses resulting fromthe inability of our tenants to make required rent payments. If the financialcondition of a specific tenant were to deteriorate, resulting in an impairmentof its ability to make payments, additional allowances may be required.

 

**Reserve for Possible CreditLosses**

 

Theexpense for possible credit losses in connection with structured financeinvestments is the charge to earnings to increase the allowance for possiblecredit losses to the level that we estimate to be adequate consideringdelinquencies, loss experience and collateral quality. Other factors consideredrelate to geographic trends and product diversification, the size of theportfolio and current economic conditions. Based upon these factors, weestablish the provision for possible credit losses by loan. When it is probablethat we will be unable to collect all amounts contractually due, the investmentis considered impaired.

 

Whereimpairment is indicated, a valuation allowance is measured based upon theexcess of the recorded investment amount over the net fair value of thecollateral. Any deficiency between the carrying amount of an asset and thecalculated value of the collateral is charged to expense. We recordedapproximately $5.0 million, $15.0 million, none and $54.6 millionin loan loss reserves and charge offs during the three and nine months endedSeptember 30, 2010 and 2009, respectively, on investments being held tomaturity. We also recordedapproximately $3.7 million in recoveries during the three and nine months endedSeptember 30, 2010 in connection with the sale of a loan.

 

Structuredfinance investments held for sale are carried at the lower of cost or fairmarket value using available market information obtained through consultationwith dealers or other originators of such investments as well as discountedcash flow models based on Level 3 data pursuant to ASC 820-10. Ascircumstances change, management may conclude not to sell an investmentdesignated as held for sale. In such situations, the loan will be reclassifiedat its net carrying value to structured finance investments held to maturity.During the quarter ended September 30, 2009, we reclassified loans with anet carrying value of approximately $56.7 million from held for sale toheld to maturity. For these reclassified loans, the difference between thecurrent carrying value and the expected cash to be collected at maturity willbe accreted into income over the remaining term of the loan. We recorded amark-to-market adjustment of approximately none, $1.0 million,$16.1 million and $69.1 million against our held for sale investmentduring the three and nine months ended September 30, 2010 and 2009,respectively.

 

**Derivative Instruments**

 

Inthe normal course of business, we use a variety of derivative instruments tomanage, or hedge, interest rate risk. We require that hedging derivativeinstruments be effective in reducing the interest rate risk exposure that theyare designated to hedge. This effectiveness is essential for qualifying forhedge accounting. Some derivative instruments are associated with ananticipated transaction. In those cases, hedge effectiveness criteria alsorequire that it be probable that the underlying transaction occurs. Instrumentsthat meet these hedging criteria are formally designated as hedges at theinception of the derivative contract.

 

Todetermine the fair values of derivative instruments, we use a variety ofmethods and assumptions that are based on market conditions and risks existingat each balance sheet date. For the majority of financial instruments includingmost derivatives, long-term investments and long-term debt, standard marketconventions and techniques such as discounted cash flow analysis, option-pricing models, replacement cost, and termination cost are used to determinefair value. All methods of assessing fair value result in a generalapproximation of value, and such value may never actually be realized.

 

**Resultsof Operations**

 

***Comparison of the three months endedSeptember 30, 2010 to the three months ended September 30, 2009***

 

Thefollowing comparison for the three months ended September 30, 2010, or 2010, tothe three months ended September 30, 2009, or 2009, makes reference to thefollowing:  (i) the effect of the “Same-StoreProperties,” which represents all operating properties owned by us at January1, 2009 and at September 30, 2010 and total 44 of our 47 consolidatedproperties, representing approximately 73% of our share of annualized rentalrevenue, (ii) the effect of the “Acquisitions,” which represents all propertiesor interests in properties acquired in 2009 and all non-Same-Store Properties,including properties deconsolidated during the period, and (iii) “Other,” whichrepresents corporate level items not allocable to specific properties, theService Corporation and eEmerge.  Assetsclassified as held for sale, are excluded from the following discussion.

 

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| **Rental Revenues (in millions)** | ** ** | **2010** | ** **  | **2009** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|--------------------------------------------------|------------|----------|-------------|----------|------------|---------------|------------|---------------|------------|
| Rental revenue                                   |       | $        |  199.3 |     | $          |  189.5   |       | $             |  9.8  |   | 5.2 | % |
| Escalation and reimbursement revenue             |       | 31.5     |        | 29.1     |       | 2.4           |       | 8.3           |       |
| Total                                            |       | $        |  230.8 |     | $          |  218.6   |       | $             |  12.2 |   | 5.6 | % |
|                                             |       |     |        |     |       |          |       |          |       |
| Same-Store Properties                            |       | $        |  218.9 |     | $          |  216.1   |       | $             |  2.8  |   | 1.3 | % |
| Acquisitions                                     |       | 10.8     |        | 1.6      |       | 9.2           |       | 575.0         |       |
| Other                                            |       | 1.1      |        | 0.9      |       | 0.2           |       | 22.2          |       |
| Total                                            |       | $        |  230.8 |     | $          |  218.6   |       | $             |  12.2 |   | 5.6 | % |

 

Occupancy in the Same-Store Properties was 94.8% atSeptember 30, 2009, 93.5% at December 31, 2009 and 91.9% at September 30,2010.  The increase in rental revenuefrom the Acquisitions is primarily due to owning these properties for a periodduring the quarter in 2010 compared to a partial period or not being includedin 2009.

 

Duringthe quarter, we signed or commenced 55 leases in the Manhattan portfoliototaling 586,593 square feet, of which 44 leases and 510,463 square feetrepresented office leases.  Averagestarting Manhattan office rents of $41.22 per rentable square foot on the510,463 square feet of office leasessigned or commenced during the quarter represented a 1.3% increase overthe previously fully escalated rents. The average lease term was 10.8 years and average tenant concessionswere 3.22 months of free rent with a tenant improvement allowance of $18.78 perrentable square foot.

 

Duringthe quarter, we signed 18 leases in the Suburban portfolio totaling 206,866square feet, of which 17 leases and 206,666 square feet represented officeleases.  Average starting Suburban officerents of $29.31 per rentable square foot for the quarter represented a 9.1%decrease over the previously fully escalated rents.

 

At September 30, 2010, we estimated that the currentmarket rents on our consolidated Manhattan properties and consolidated Suburbanproperties were approximately 4.0% and 4.5% higher, respectively, than thenexisting in-place fully escalated rents. Approximately 3.6% of the space leased at our consolidated propertiesexpires during the remainder of 2010.

 

The increase in escalation and reimbursement revenuewas due to higher recoveries at the Same-Store Properties ($1.4 million) and anincrease in recoveries from the Acquisitions ($0.8 million).  The increase in recoveries at the Same-StoreProperties was primarily due to higher operating expense escalations ($2.3million) which were partially offset by lower real estate tax escalations ($0.5million) and electric reimbursements ($0.4 million).

 
| **Investment and Other Income (in millions)** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|---------------|------------|---------------------|------------|
| Equity in net income of unconsolidated joint  ventures                 |       | $        |  7.5  |     | $          |  16.6    |       | $                   |  (9.1 | ) | (54.8 | )% |
| Investment and preferred equity income                                 |       | 84.3     |       | 16.3     |       | 68.0          |       | 417.2               |       |
| Other income                                                           |       | 8.1      |       | 11.0     |       | (2.9          | )          | (26.4               | )          |
| Total                                                                  |       | $        |  99.9 |     | $          |  43.9    |       | $                   |  56.0 |   | 127.6 | % |

 

The decrease in equity in net income ofunconsolidated joint ventures was primarily due to lower net incomecontributions from 800 Third Avenue ($0.3 million), 1221 Avenue of theAmericas due to the sale of our 45% beneficial interest in this joint venturein May 2010 ($9.8 million) and 1515 Broadway ($2.2 million).  This was partially offset by higher netincome contributions primarily from our investments in 100 Park Avenue ($2.0million), 141 Fifth Avenue ($1.2 million), the Meadows ($0.5 million) and 717Fifth Avenue ($0.3 million).

 

Occupancy at our joint venture properties was 95.4%at September 30, 2009, 95.1% at December 31, 2009 and 94.2% at September 30,2010.  At September 30, 2010, weestimated that current market rents at our Manhattan and Suburban joint ventureproperties were approximately 14.0% and 8.7% higher, respectively, than thenexisting in-place fully escalated rents. Approximately 1.6% of the space leased at our joint venture propertiesexpires during the remainder of 2010.

 

Investment and preferred equity income increasedduring the current quarter due to new investment activity.  Inaddition, in September 2010, 510 Madison Avenue was sold by the owner. Thefirst mortgage loan and senior mezzanine loan, which we had purchased inDecember 2009 and February 2010 for $180.5 million in the aggregate, wererepaid at par. We recognized additional income upon the repayment of the loansof approximately $64.8 million. The income was recorded in preferred equity andinvestment income on the accompanying statement of income. The weighted average investment balance outstanding and weighted averageyield were $919.3 million and 9.1%, respectively, for 2010 compared to $610.0million and 9.3%, respectively, for 2009.

 

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The decrease in other income was primarily due tolower lease buy-out income ($6.2 million) which was partially offset by higherfee and other income earned ($3.3 million).

 
| **Property Operating Expenses (in millions)** | ** ** | **2010** | ** **  | **2009** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|-------------------------------------------------------------------|------------|----------|-------------|----------|------------|---------------|------------|---------------|------------|
| Operating expenses                                                |       | $        |  59.3  |     | $          |  54.3    |       | $             |  5.0  |   | 9.2 | % |
| Real estate taxes                                                 |       | 36.5     |        | 34.2     |       | 2.3           |       | 6.7           |       |
| Ground rent                                                       |       | 7.9      |        | 7.9      |       | —        |       | —        |       |
| Total                                                             |       | $        |  103.7 |     | $          |  96.4    |       | $             |  7.3  |   | 7.6 | % |
|                                                              |       |     |        |     |       |          |       |          |       |
| Same-Store Properties                                             |       | $        |  94.9  |     | $          |  91.9    |       | $             |  3.0  |   | 3.3 | % |
| Acquisitions                                                      |       | 6.0      |        | 0.8      |       | 5.2           |       | 650.0         |       |
| Other                                                             |       | 2.8      |        | 3.7      |       | (0.9          | )          | (24.3         | )          |
| Total                                                             |       | $        |  103.7 |     | $          |  96.4    |       | $             |  7.3  |   | 7.6 | % |

 

Same-Store Properties operating expenses, excludingreal estate taxes, increased approximately $2.0 million.  There were increases in payroll costs ($0.8million), utilities ($0.3 million), insurance ($0.1 million), repairs andmaintenance ($0.3 million) and other expenses ($0.6 million).  This was partially offset by decreases inground rent expenses ($0.1 million).

 

The increase in real estate taxes was primarilyattributable to the Same-Store Properties ($1.0 million) due to higher assessedproperty values and/or increased rates.

 
| **Other Expenses (in millions)** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|---------------|------------|---------------------|------------|
| Interest expense, net of interest income        |       | $        | 60.0       |     | $          | 68.4          |       | $                   | (8.4       | ) | (12.3 | )% |
| Depreciation and amortization expense           |       | 56.9     |       | 56.4     |       | 0.5           |       | 0.9                 |       |
| Loan loss reserves, net of recoveries           |       | 1.3      |       | 16.1     |       | (14.8         | )          | (91.9               | )          |
| Transaction related costs                       |       | 3.3      |       | —   |       | 3.3           |       | —              |       |
| Marketing, general and administrative expense   |       | 18.5     |       | 18.9     |       | (0.4          | )          | (2.1                | )          |
| Total                                           |       | $        | 140.0      |     | $          | 159.8         |       | $                   | (19.8      | ) | (12.4 | )% |

 

The decrease in interest expense was primarilyattributable to the weighted average debt balance decreasing from $5.0 billionas of September 30, 2009 to $4.6 billion as of September 30, 2010. The weightedaverage interest rate increased from 4.27% for the quarter ended September 30,2009 to 4.99% for the quarter ended September 30, 2010.

 

We expensed approximately $3.3 million oftransaction related costs during the three months ended September 30, 2010.

 

Marketing, general and administrative expenserepresented 5.7% of total revenues in 2010 compared to 7.7% in 2009.

 

***Comparison of the nine months endedSeptember 30, 2010 to the nine months ended September 30, 2009***

 

Thefollowing comparison for the nine months ended September 30, 2010, or 2010, tothe nine months ended September 30, 2009, or 2009, makes reference to thefollowing:  (i) the effect of the “Same-StoreProperties,” which represents all operating properties owned by us at January1, 2009 and at September 30, 2010 and total 44 of our 47 consolidatedproperties, representing approximately 73% of our share of annualized rentalrevenue, (ii) the effect of the “Acquisitions,” which represents all propertiesor interests in properties acquired in 2009 and all non-Same-Store Properties,including properties deconsolidated during the period, and (iii) “Other,” whichrepresents corporate level items not allocable to specific properties, theService Corporation and eEmerge.  Assetsclassified as held for sale, are excluded from the following discussion.

 

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| **Rental Revenues (in millions)** | ** ** | **2010** | ** **  | **2009** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|--------------------------------------------------|------------|----------|-------------|----------|------------|---------------|------------|---------------|------------|
| Rental revenue                                   |       | $        |  591.7 |     | $          |  571.1   |       | $             |  20.6 |   | 3.6 | % |
| Escalation and reimbursement revenue             |       | 91.3     |        | 92.6     |       | (1.3          | )          | (1.4          | )          |
| Total                                            |       | $        |  683.0 |     | $          |  663.7   |       | $             |  19.3 |   | 2.9 | % |
|                                             |       |     |        |     |       |          |       |          |       |
| Same-Store Properties                            |       | $        |  656.3 |     | $          |  651.4   |       | $             |  4.9  |   | 0.8 | % |
| Acquisitions                                     |       | 23.0     |        | 7.6      |       | 15.4          |       | 202.6         |       |
| Other                                            |       | 3.7      |        | 4.7      |       | (1.0          | )          | (21.3         | )          |
| Total                                            |       | $        |  683.0 |     | $          |  663.7   |       | $             |  19.3 |   | 2.9 | % |

 

Occupancy in the Same-Store Properties was 94.8% atSeptember 30, 2009, 93.5% at December 31, 2009 and 91.9% at September 30,2010.  The increase in rental revenuefrom the Acquisitions is primarily due to owning these properties for a periodduring the nine months in 2010 compared to a partial period or not being includedin 2009.

 

Duringthe nine months ended September 30, 2010, we signed or commenced 169 leases inthe Manhattan portfolio totaling 1,636,121 square feet, of which 140 leases and1,473,276 square feet represented office leases.  Average starting Manhattan office rents of$42.15 per rentable square foot on the 1,473,276 square feet of office leases signed or commenced during the ninemonths ended September 30, 2010 represented a 2.8% decrease over the previouslyfully escalated rents.  The average leaseterm was 9.3 years and average tenant concessions were 3.86 months of free rentwith a tenant improvement allowance of $23.57 per rentable square foot.

 

Duringthe nine months ended September 30, 2010, we signed 86 leases in the Suburbanportfolio totaling 565,197 square feet, of which 70 leases and 524,673 squarefeet represented office leases.  Averagestarting Suburban office rents of $29.30 per rentable square foot for the ninemonths ended September 30, 2010 represented an 8.6% decrease over thepreviously fully escalated rents.

 

At September 30, 2010, we estimated that the currentmarket rents on our consolidated Manhattan properties and consolidated Suburbanproperties were approximately 4.0% and 4.5% higher, respectively, than thenexisting in-place fully escalated rents. Approximately 3.6% of the space leased at our consolidated propertiesexpires during the remainder of 2010.

 

The decrease in escalation and reimbursement revenuewas due to lower recoveries at the Same-Store Properties ($2.5 million) whichwas partially offset by an increase in recoveries from the Acquisitions ($0.9million).  The decrease in recoveries atthe Same-Store Properties was primarily due to lower real estate taxescalations ($0.2 million) and electric reimbursements ($2.6 million) whichwere partially offset by higher operating expense escalations ($0.4 million).

 
| **Investment and Other Income (in millions)** | ** ** | **2010** | ** **  | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** **  |
|------------------------------------------------------------------------|------------|----------|-------------|----------|------------|---------------|------------|---------------------|-------------|
| Equity in net income of unconsolidated joint  ventures                 |       | $        |  32.9  |     | $          |  46.5    |       | $                   |  (13.6 | ) | (29.3 | )% |
| Investment and preferred equity income                                 |       | 125.5    |        | 48.7     |       | 76.8          |       | 157.7               |        |
| Other income                                                           |       | 25.5     |        | 40.4     |       | (14.9         | )          | (36.9               | )           |
| Total                                                                  |       | $        |  183.9 |     | $          |  135.6   |       | $                   |  48.3  |   | 35.6 | % |

 

The decrease in equity in net income ofunconsolidated joint ventures was primarily due to lower net incomecontributions from 521 Fifth Avenue ($0.7 million), 600 Lexington Avenuedue to the expensing of transaction related costs ($0.6 million), 1604 Broadway($0.4 million), 1221 Avenue of the Americas due to the sale of our 45%beneficial interest in this joint venture in May 2010 ($12.9 million) and 1515Broadway ($8.6 million).  This waspartially offset by higher income contributions primarily from our investmentsin Gramercy ($3.5 million), 141 Fifth Avenue ($1.2 million), 717 Fifth Avenue($0.4 million), 29 West 34th Street ($1.0 million) and 100Park Avenue ($4.4 million).

 

Occupancy at our joint venture properties was 95.4%at September 30, 2009, 95.1% at December 31, 2009 and 94.2% at September 30,2010.  At September 30, 2010, weestimated that current market rents at our Manhattan and Suburban joint ventureproperties were approximately 14.0% and 8.7% higher, respectively, than thenexisting in-place fully escalated rents. Approximately 1.6% of the space leased at our joint venture propertiesexpires during the remainder of 2010.

 

Investment and preferred equity income increasedprimarily due to new investment activity. Inaddition, in September 2010, 510 Madison Avenue was sold by the owner. Thefirst mortgage loan and senior mezzanine loan, which we had purchased inDecember 2009 and February 2010 for $180.5 million in the aggregate, wererepaid at par. We recognized additional income upon the repayment of the loansof approximately $64.8 million. The income was recorded in preferred equity andinvestment income on the accompanying

 

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statement of income. The weighted average investment balance outstanding and weighted averageyield were $840.3 million and 9.0%, respectively, for 2010 compared to $654.5million and 8.6%, respectively, for 2009.

 

The decrease in other income was primarily due tolower fee and other income earned ($11.2 million) as well as lower leasebuy-out income ($3.7 million).

 
| **Property Operating Expenses (in millions)** | ** ** | **2010** | ** **  | **2009** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|-------------------------------------------------------------------|------------|----------|-------------|----------|------------|---------------|------------|---------------|------------|
| Operating expenses                                                |       | $        |  171.0 |     | $          |  159.8   |       | $             |  11.2 |   | 7.0 | % |
| Real estate taxes                                                 |       | 112.3    |        | 106.3    |       | 6.0           |       | 5.6           |       |
| Ground rent                                                       |       | 23.4     |        | 24.0     |       | (0.6          | )          | (2.5          | )          |
| Total                                                             |       | $        |  306.7 |     | $          |  290.1   |       | $             |  16.6 |   | 5.7 | % |
|                                                              |       |     |        |     |       |          |       |          |       |
| Same-Store Properties                                             |       | $        |  281.4 |     | $          |  276.8   |       | $             |  4.6  |   | 1.7 | % |
| Acquisitions                                                      |       | 13.7     |        | 2.7      |       | 11.0          |       | 407.4         |       |
| Other                                                             |       | 11.6     |        | 10.6     |       | 1.0           |       | 9.4           |       |
| Total                                                             |       | $        |  306.7 |     | $          |  290.1   |       | $             |  16.6 |   | 5.7 | % |

 

Same-Store Properties operating expenses, excludingreal estate taxes, increased approximately $1.6 million.  There were increases in payroll costs ($2.4million), repairs and maintenance ($1.2 million) and insurance costs ($0.7million).  This was partially offset bydecreases in utilities ($2.0 million) and ground rent ($0.7 million).

 

The increase in real estate taxes was primarilyattributable to the Same-Store Properties ($2.9 million) due to higher assessedproperty values and increased rates.

 
| **Other Expenses (in millions)** | ** ** | **2010** | ** ** | **2009** | ** ** | **$  Change** | ** ** | **%********Change** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|---------------|------------|---------------------|------------|
| Interest expense, net of interest income        |       | $        | 179.5      |     | $          | 188.1         |       | $                   | (8.6       | ) | (4.6 | )% |
| Depreciation and amortization expense           |       | 169.7    |       | 164.5    |       | 5.2           |       | 3.2                 |       |
| Loan loss reserves, net of recoveries           |       | 12.3     |       | 123.7    |       | (111.4        | )          | (90.1               | )          |
| Transaction related costs                       |       | 8.4      |       | —   |       | 8.4           |       | —              |       |
| Marketing, general and administrative expense   |       | 55.3     |       | 54.7     |       | 0.6           |       | 1.1                 |       |
| Total                                           |       | $        | 425.2      |     | $          | 531.0         |       | $                   | (105.8     | ) | (19.9 | )% |

 

The decrease in interest expense was primarilyattributable to the early repurchase of our exchangeable and non-exchangeablenotes and the reduction of the outstanding balance on our 2007 unsecured revolvingcredit facility.  The weighted averageinterest rate increased from 4.32% for the nine months ended September 30,2009 to 4.68% for the nine months ended September 30, 2010.  The weighted average debt balance decreasedfrom $5.2 billion as of September 30, 2009 to $4.8 billion as of September 30,2010.

 

We expensed approximately $8.4 million oftransaction related costs during the nine months ended September 30,2010.  Of these costs, $6.6 million wererequired to be expensed under new accounting guidelines which took effect in2009.  Transaction costs includedapproximately $1.8 million for non-recoverable costs incurred in connectionwith the pursuit of a redevelopment project.

 

Marketing, general and administrative expenserepresented 6.6% of total revenues in 2010 compared to 7.3% in 2009.

 

**Liquidityand Capital Resources**

 

We continue to experience a global economic downturnand difficult credit environment although positive signs have started tomaterialize.  As a result, many financialindustry participants including commercial real estate owners, operators,investors and lenders continue to find it difficult to obtain cost-effectivedebt capital to finance new investment activity or to refinance maturingdebt.  When debt is available, it isgenerally at a cost higher than may have been available in the past.

 

We currently expect that our principal sources ofworking capital and funds for acquisition and redevelopment of properties,tenant improvements and leasing costs and for structured finance investmentswill include:

 

(1)          Cash flow from operations;

(2)          Cash on hand;

(3)          Borrowings under our 2007 unsecured revolving credit facility;

(4)          Other forms of secured or unsecured financing by us or SL Green;

 

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(5)          Net proceeds from divestitures of properties and redemptions,participations and dispositions of structured finance investments; and

(6)          Proceeds from common or preferred equity or debt offerings by us or SLGreen (including issuances of limited partnership units and trust preferredsecurities).

 

Cash flow from operations is primarily dependentupon the occupancy level of our portfolio, the net effective rental ratesachieved on our leases, the collectability of rent and operating escalationsand recoveries from our tenants and the level of operating and other costs.Additionally, we believe that our joint venture investment programs will alsocontinue to serve as a source of capital.

 

Our combinedaggregate principal maturities of our property mortgages, other loans payable,corporate obligations and our share of joint venture debt, including as-of-right extension options, as of September 30,2010 are as follows (in thousands):

 
| ** **                   | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Property mortgages           |       | $        | 7,608      |     | $          | 246,606  |       | $        | 146,682    |     | $          | 656,852        |       | $         | 211,713    |   | $ | 1,627,485 |   | $ | 2,896,946 |   |
| Corporate obligations        |       | —   |       | 84,823   |       | 922,448  |       | —   |       | 98,578   |       | 625,412        |       | 1,731,261 |       |
| Joint venture debt-our share |       | 2,078    |       | 218,698  |       | 62,080   |       | 37,146   |       | 361,917  |       | 1,137,199      |       | 1,819,118 |       |
| Total                        |       | $        | 9,686      |     | $          | 550,127  |       | $        | 1,131,210  |     | $          | 693,998        |       | $         | 672,208    |   | $ | 3,390,096 |   | $ | 6,447,325 |   |

 

As of September 30,2010, we had approximately $342.9 million of cash on hand, inclusive ofapproximately $72.1 million of marketable securities.  Weexpect to generate positive cash flow from operations for the foreseeablefuture. We and/or SL Green may also seek to access private and public debt andequity capital when the opportunity presents itself, although there is noguarantee that this capital will be made available to us.  Management believes that these sources ofliquidity, if we are able to access them, along with potential refinancingopportunities for secured debt and continued repurchase of our senior unsecurednotes, will allow us to satisfy our debt obligations, as described above, uponmaturity, if not before.

 

We also haveinvestments in several real estate joint ventures with various partners who weconsider to be financially stable and who have the ability to fund a capitalcall when needed.****Most of our joint ventures arefinanced with non-recourse debt. We believe that property level cash flowsalong with unfunded committed indebtedness and proceeds from the refinancing ofoutstanding secured indebtedness will be sufficient to fund the capital needsof our joint venture properties.

 

**Cash Flows**

 

The following summary discussion of our cash flowsis based on our condensed consolidated statements of cash flows in “Item 1.Financial Statements” and is not meant to be an all-inclusive discussion of thechanges in our cash flows for the periods presented below.

 

Cashand cash equivalents were $270.8 million and $634.1 million at September 30,2010 and 2009, respectively, representing a decrease of $363.3 million.  The decrease was a result of the followingincreases and decreases in cash flows (in thousands):

 
| ** **                                           | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **2010**                                                | ** ** | **2009** | ** ** | **Increase********(Decrease)** | ** ** |
|                                                 |       |                                                    |       |   |   |   |   |
| Net cash provided by operating activities            |       | $                                                       | 254,049    |   | $ | 214,812 |   | $ | 39,237 |   |
| Net cash provided by (used in) investing  activities |       | $                                                       | 174,990    |   | $ | (37,413 | ) | $ | 212,403 |   |
| Net cash used in financing activities                |       | $                                                       | (501,951   | ) | $ | (270,216 | ) | $ | (231,735 | ) |

 

Our principal source of operating cash flow isrelated to the leasing and operating of the properties in our portfolio. Ourproperties provide a relatively consistent stream of cash flow that provides uswith resources to pay operating expenses, debt service and fund quarterlydividend and distribution payment requirements. At September 30, 2010 ourportfolio was 90.9% occupied.  Ourstructured finance and joint venture investments also provide a steady streamof operating cash flow to us.

 

Cash is used in investing activities to fundacquisitions, redevelopment projects and recurring and nonrecurring capitalexpenditures. We selectively invest in new projects that enable us to takeadvantage of our development, leasing, financing and property management skillsand invest in existing buildings that meet our investment criteria.  During the nine months ended September 30,2010, when compared to the nine months ended September 30, 2009, we usedcash primarily for the following investing activities (in thousands):

 

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| Acquisitions of and additions to real estate                |   | $        |  (167,984 | )      |
|-------------------------------------------------------------|--------|----------|----------------|--------|
| Escrow cash-capital improvements/acquisition  deposits      |   | (142     | )              |
| Joint venture investments                                   |   | (68,833  | )              |
| Distributions from joint ventures                           |   | (11,471  | )              |
| Proceeds from sales of real estate/ joint venture  interest |   | 595,175  |           |
| Structured finance and other investments                    |   | (134,342 | )              |
|                                                        |   |     |           |
| Increase in net cash provided by investing  activities      |   | $        |  212,403  |   |

 

We generally fund our investment activity throughproperty-level financing, our 2007 unsecured revolving credit facility, seniorunsecured notes, construction loans and from time to time SL Green issuescommon or preferred stock and contributes the proceeds to us in exchange forpartnership units of a corresponding class. During the nine months ended September 30,2010, when compared to the nine months ended September 30, 2009, we usedcash for the following financing activities (in thousands):

 
| Proceeds from our debt obligations                                  |   | $        |  253,366  |   |
|---------------------------------------------------------------------|--------|----------|----------------|--------|
| Repayments under our debt obligations                               |   | (221,796 | )              |
| Noncontrolling interests, contributions in excess  of distributions |   | 7,458    |           |
| Other financing activities                                          |   | (41,486  | )              |
| Proceeds from sale of common/ preferred stock                       |   | (265,211 | )              |
| Proceeds from stock options exercised                               |   | 13,967   |           |
| Dividends paid                                                      |   | 21,967   |           |
|                                                                |   |     |           |
| Decrease in net cash used in financing activities                   |   | $        |  (231,735 | )      |

 

**Capitalization**

 

Asof September 30, 2010, we had 78,252,240 general and limited partnercommon units, 1,249,274 limited partner common units, 11,700,000 units of our7.625% Series C cumulative redeemable preferred units, or Series Cpreferred units, and 4,000,000 units of our 7.875% Series D cumulativeredeemable preferred units, or Series D preferred units, outstanding.Whenever SL Green issues common or preferred stock, the net proceeds receivedare contributed to us in exchange for an equivalent number of operatingpartnership units of a corresponding class.

 

InJanuary 2010, SL Green sold 5,400,000 shares of its Series Cpreferred stock in an underwritten public offering. Following this offering, SLGreen 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 shareincluding accrued dividends equating to a yield of 8.101%. SL Green contributedthe net offering proceeds of approximately $122.0 million to us inexchange for an equivalent number of operating partnership units of acorresponding class. We used the net offering proceeds for general corporateand/or working capital purposes, including purchases of the indebtedness of oursubsidiaries and investment opportunities.

 

InMay 2009, SL Green sold 19,550,000 shares of its common stock. The netproceeds from this offering (approximately $387.1 million), which werecontributed to us in exchange for an equivalent number of common units, wereprimarily used to repurchase unsecured debt and for other corporate purposes.

 

**Compensation Plans**

 

Allemployees of SL Green are compensated through a subsidiary of SLGOP. SL Green’semployee and director compensation plans are described below. Under each plan,whenever SL Green issues common or preferred stock, we issue an equivalentnumber of operating partnership units of a corresponding class to SL Green.

 

**Rights Plan**

 

SL Green adopted a shareholder rights plan whichprovided, among other things, that when specified events occur, itsshareholders would be entitled to purchase from it a newly created series ofjunior preferred shares.  This planexpired in March 2010.

 

**Dividend Reinvestment and Stock Purchase Plan**

 

SLGreen registered 2,000,000 shares of common stock under its dividendreinvestment and stock purchase plan, or DRIP. The DRIP commenced onSeptember 24, 2001.

 

Duringthe nine months ended September 30, 2010 and 2009, approximately 251,000and 142 shares were issued and approximately $11.3 million and $3,300proceeds were received, respectively, from dividend reinvestments and/or stockpurchases under the DRIP.

 

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DRIPshares may be issued at a discount to the market price. The $11.3 millionin proceeds received during the nine months ended September 30, 2010 werecontributed to us by SL Green in exchange for an equivalent number common units.

 

**SecondAmended and Restated 2005 Stock Option and Incentive Plan**

 

Subject to adjustments upon certain corporatetransactions or events, up to a maximum of 10,730,000 fungible units may begranted as options, restricted stock, phantom shares, dividend equivalentrights and other equity-based awards under the Second Amended and Restated 2005Stock Option and Incentive Plan, or the 2005 Plan.  At September 30, 2010, approximately 5.2million fungible units, calculated on a weighted basis, were available forissuance under the 2005 Plan, or 6.6 million shares of common stock if allshares available under the 2005 Plan were issued as five-year stock options.

 

**2003 Long-Term Outperformance Compensation Program**

 

SLGreen’s board of directors adopted a long-term, seven-year compensation programfor certain members of senior management. The program provided for restricted stock awards to be made to planparticipants if the holders of its common equity achieved a total return inexcess of 40% over a 48-month period commencing April 1, 2003.  In April 2007, the compensationcommittee determined that under the terms of the 2003 Outperformance Plan, asof March 31, 2007, the performance hurdles had been met and the maximumperformance pool of $22,825,000, taking into account forfeitures, wasestablished.  In connection with thisevent, approximately 166,312 shares of restricted stock (as adjusted forforfeitures) 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 scheduledto vest ratably over the subsequent three years based on continuedemployment.  The fair value of the awardsunder this program on the date of grant was determined to be $3.2 million.  This fair value is expensed over the term ofthe restricted stock award.  Fortypercent of the value of the award was amortized over four years from the dateof grant and the balance was amortized, in equal parts, over five, six and sevenyears (i.e., 20% of the total value was amortized over five years (20% peryear), 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% peryear)).  We recorded compensation expenseof none, $23,000, $29,500 and $88,500 related to this program during the threeand nine months ended September 30, 2010 and 2009, respectively.

 

**2005 Long-Term Outperformance Compensation Program**

 

InDecember 2005, the compensation committee of SL Green’s board of directorsapproved a long-term incentive compensation program, the 2005 OutperformancePlan.  Participants in the 2005Outperformance Plan were entitled to earn LTIP Units in SLGOP if SL Green’stotal return to stockholders for the three-year period beginning December 1,2005 exceeded a cumulative total return to stockholders of 30%.; provided thatparticipants were entitled to earn LTIP Units earlier in the event that SLGreen achieved maximum performance for 30 consecutive days.  The total number of LTIP Units that could beearned was to be a number having an assumed value equal to 10% of theoutperformance amount in excess of the 30% benchmark, subject to a maximumdilution cap equal to the lesser of 3% of SL Green’s outstanding shares andunits of limited partnership interest as of December 1, 2005 or $50.0million.  On June 14, 2006, thecompensation committee determined that under the terms of the 2005Outperformance Plan, as of June 8, 2006, the performance period hadaccelerated and the maximum performance pool of $49,250,000, taking intoaccount forfeitures, had been earned. Under the terms of the 2005 Outperformance Plan, participants alsoearned additional LTIP Units with a value equal to the distributions that wouldhave been paid with respect to the LTIP Units earned if such LTIP Units hadbeen earned at the beginning of the performance period.  The total number of LTIP Units earned underthe 2005 Outperformance Plan by all participants as of June 8, 2006 was490,475.  Under the terms of the 2005Ouperformance Plan, all LTIP Units that were earned remained subject totime-based vesting, with one-third of the LTIP Units earned scheduled to veston each of November 30, 2009 and the first two anniversariesthereafter based on continued employment. The earned LTIP Units are to receive regular quarterly distributions ona per unit basis equal to the dividends per share paid on SL Green’s commonstock, whether or not they are vested.

 

Thecost of the 2005 Outperformance Plan (approximately $8.0 million, subject toadjustment for forfeitures) will continue to be amortized into earnings throughthe final vesting period.  We recordedapproximately none, $1.6 million, $0.6 million and $1.8 million of compensationexpense during the three and nine months ended September 30, 2010 and2009, respectively, in connection with the 2005 Outperformance Plan.

 

**2006 Long-Term Outperformance Compensation Program**

 

On August 14, 2006, the compensation committeeof SL Green’s board of directors approved a long-term incentive compensationprogram, the 2006 Outperformance Plan. Participants in the 2006 Outperformance Plan were entitled to earn LTIPUnits in SLGOP if SL Green’s total return to stockholders for the three-yearperiod beginning August 1, 2006 exceeded a cumulative total return to stockholdersof 30%.; provided that participants were entitled to earn LTIP Units earlier inthe event that SL Green achieved maximum performance for 30 consecutivedays.  The total number of LTIP Unitsthat could be earned was to be a number having an assumed value of 10% of theoutperformance amount in excess of the 30% benchmark, subject to a maximumdilution cap equal to $60.0 million.  The2006 Outperformance Plan provided that if the LTIP Units were earned, each participantwould also have been entitled to the distributions that would have been paidhad the number of earned LTIP Units been issued at the beginning of theperformance

 

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period.  Thosedistributions would have been paid in the form of additional LTIP Units.  Thereafter, distributions would have beenpaid currently with respect to all earned LTIP Units, whether vested orunvested.  Any LTIP Units earned underthe 2006 Outperformance Plan were to remain subject to time-based vesting, withone-third of the awards vesting on each of July 31, 2009 and the first twoanniversaries thereafter based on continued employment.

 

Thecost of the 2006 Outperformance Plan (approximately $16.4 million, subject toadjustment for forfeitures) will be amortized into earnings through the finalvesting period.  We recordedapproximately $0.1 million, $0.2 million, $0.1 million and $0.3 million ofcompensation expense during the three and nine months ended September 30,2010 and 2009, respectively, in connection with the 2006 OutperformancePlan.  During the fourth quarter of 2008,we and certain of our employees, including SL Green’s executive officers,mutually agreed to cancel a portion of the 2006 Outperformance Plan.  The performance criteria under the 2006Outperformance Plan were not met and, accordingly, no LTIP Units have beenearned under the 2006 Outperformance Plan.

 

**SL Green Realty Corp. 2010 Notional Unit Long-TermCompensation Plan**

 

InDecember 2009, the compensation committee of SL Green’s board of directorsapproved the general terms of the SL Green Realty Corp. 2010 Notional UnitLong-Term Compensation Program, the 2010 Long Term Compensation Plan.  The 2010 Long-Term Compensation Plan is along-term incentive compensation plan pursuant to which award recipients mayearn, in the aggregate, from approximately $15 million up to approximately $75million of LTIP Units in SLGOP based on SL Green’s stock price appreciationover three years beginning on December 1, 2009; provided that, if maximumperformance has been achieved, approximately $25 million of awards may beearned at any time after the beginning of the second year and an additionalapproximately $25 million of awards may be earned at any time after thebeginning of the third year.  The amountof awards earned will range from approximately $15 million if SL Green’saggregate stock price appreciation during the performance period is 25% to themaximum amount of approximately $75 million if SL Green’s aggregate stock priceappreciation during the performance period is 50% or greater.  No awards will be earned if our aggregatestock price appreciation is less than 25%. After the awards are earned, they will remain subject to vesting, with50% of any LTIP Units earned vesting on January 1, 2013 and an additional25% vesting on each of January 1, 2014 and 2015 based, in each case, oncontinued 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 theearned LTIP Units since the beginning of the performance period.

 

Overall,the 2010 Long Term Compensation Plan contemplates maximum potential awards of1,179,987 LTIP Units and a cap of approximately $75 million when earned.  However, sufficient shares were not availableunder 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 744,128LTIP Units, subject to performance-based and time-based vesting, unless anduntil additional shares became available under the 2005 Plan prior to the endof the performance period for the 2010 Long Term Compensation Plan.  At SL Green’s annual meeting of stockholderson June 15, 2010, SL Green’s stockholders approved the adoption of the2005 Plan which, among other things, increased the number of shares availableunder the plan to award the balance of the LTIP Units due under the 2010Long-Term Compensation Plan.  The cost ofthe 2010 Long Term Compensation Plan granted in December 2009(approximately $24.8 million, subject to forfeitures) will be amortized intoearnings through the final vesting period. We recorded compensation expense of approximately $1.3 million and $2.8million during the three and nine months ended September 30, 2010 relatedto this program.

 

**Deferred Stock Compensation Plan for Directors**

 

UnderSL 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 annualretainer fee, chairman fees and meeting fees. Unless otherwise elected by a participant, fees deferred under theprogram shall be credited in the form of phantom stock units.  The phantom stock units are convertible intoan equal number of shares of common stock upon such directors’ termination ofservice from SL Green’s board of directors or a change in control by SL Green,as defined by the program.  Phantom stockunits are credited to each non-employee director quarterly using the closingprice of SL Green’s common stock on the applicable dividend record date for therespective quarter.  Each participatingnon-employee director’s account is also credited for an equivalent amount ofphantom stock units based on the dividend rate for each quarter.

 

Duringthe nine months ended September 30, 2010, approximately 9,300 phantomstock units were earned.  As of September 30,2010, there were approximately 57,700 phantom stock units outstanding.

 

**Employee Stock Purchase Plan**

 

OnSeptember 18, 2007, SL Green’s board of directors adopted the 2008Employee Stock Purchase Plan, or ESPP, to encourage its employees to increasetheir efforts to make our business more successful by providing equity-basedincentives to eligible employees.  The ESPP is intended to qualify as an “employeestock purchase plan” under Section 423 of the Internal Revenue Code of1986, as amended, and has been adopted by the board to enable eligibleemployees to purchase SL Green’s shares of common stock through

 

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payrolldeductions.  The ESPP became effective on January 1, 2009 with amaximum of 500,000 shares of the common stock available for issuance, subjectto adjustment upon a merger, reorganization, stock split or other similarcorporate change.  SL Green filed a registration statement on Form S-8with the Securities and Exchange Commission with respect to the ESPP.  The common stock will be offered for purchasethrough a series of successive offering periods.  Each offering period will be three months induration and will begin on the first day of each calendar quarter, with thefirst offering period having commenced on January 1, 2009.  The ESPP provides for eligible employees topurchase the common stock at a purchase price equal to 85% of the lesser of (1) themarket value of the common stock on the first day of the offering period or (2) themarket value of the common stock on the last day of the offering period. TheESPP was approved by SL Green’s stockholders at its 2009 annual meeting ofstockholders.  As of September 30,2010, approximately 45,300 shares of SL Green’s common stock had been issuedunder the ESPP. SL Green contributed the proceeds from the sale of those sharesto us in exchange for an equivalent number of our common units.

 

**MarketCapitalization**

 

AtSeptember 30, 2010, borrowings under our mortgage loans and other loanspayable, our 2007 unsecured revolving credit facility, senior unsecured notesand trust preferred securities (including our share of joint venture debt ofapproximately $1.8 billion) represented 54.3% of SL Green’s combined marketcapitalization of approximately $11.9 billion (based on a common stock price of$63.33 per share, the closing price of SL Green’s common stock on the New YorkStock Exchange on September 30, 2010). Market capitalization includes our consolidated debt, SL Green commonand preferred stock and the conversion of all our units of limited partnershipinterest into SL Green common stock, and our share of joint venture debt.

 

**Indebtedness**

 

Thetable below summarizes our consolidated mortgage debt and other loans payable,our 2007 unsecured revolving credit facility, senior unsecured notes and trustpreferred securities outstanding at September 30, 2010 and December 31,2009, respectively (dollars in thousands):

 
| **Debt Summary:**                             | ** ** | **September 30,********2010** | ** **    | **December 31,********2009** | ** ** |
|----------------------------------------------------|------------|------------------------------------|---------------|-----------------------------------|------------|
| **Balance**                                        |       |                               |          |                              |       |
| Fixed rate                                         | ** ** | **$**                              | **3,360,132** |                              | $          | 3,256,081 |   |
| Variable rate — hedged                        | ** ** | **—**                         |          | 60,000                            |       |
| Total fixed rate                                   | ** ** | **3,360,132**                      |          | 3,316,081                         |       |
| Variable rate                                      | ** ** | **845,989**                        |          | 1,053,947                         |       |
| Variable rate—supporting variable rate assets | ** ** | **422,086**                        |          | 522,660                           |       |
| Total variable rate                                | ** ** | **1,268,075**                      |          | 1,576,607                         |       |
| Total                                              | ** ** | **$**                              | **4,628,207** |                              | $          | 4,892,688 |   |
|                                               |       |                               |          |                              |       |
| **Percent of Total Debt**:                         |       |                               |          |                              |       |
| Total fixed rate                                   | ** ** | **72.6**                           | **%**         | 67.8                              | %          |
| Variable rate                                      | ** ** | **27.4**                           | **%**         | 32.2                              | %          |
| Total                                              | ** ** | **100.0**                          | **%**         | 100.0                             | %          |
|                                               |       |                               |          |                              |       |
| **Effective Interest Rate for the  Quarter:**      | ** ** | ** **                         |          |                              |       |
| Fixed rate                                         | ** ** | **6.17**                           | **%**         | 5.60                              | %          |
| Variable rate                                      | ** ** | **1.92**                           | **%**         | 1.45                              | %          |
| Effective interest rate                            | ** ** | **4.99**                           | **%**         | 4.30                              | %          |

 

The variable rate debt shown above generally bearsinterest at an interest rate based on 30-day LIBOR (0.26% and 0.25% at September 30,2010 and 2009, respectively).  Ourconsolidated debt at September 30, 2010 had a weighted average term tomaturity of approximately 5.0 years.

 

Certain of our structured finance investments, witha face amount net of discount of approximately $422.1 million, are variablerate investments which mitigate our exposure to interest rate changes on ourunhedged variable rate debt at September 30, 2010.

 

**Mortgage Financing**

 

Asof September 30, 2010, our total mortgage debt (excluding our share ofjoint venture debt of approximately $1.8 billion) consisted of approximately$2.4 billion of fixed rate debt, including hedged variable rate debt, with aneffective weighted average interest rate of approximately 5.91% and $468.1million of variable rate debt with an effective weighted average interest rateof approximately 3.30%.

 

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**Corporate Indebtedness**

 

**2007 Unsecured Revolving Credit Facility**

 

Wehave a $1.5 billion unsecured revolving credit facility.  The 2007 unsecured revolving credit facilitybears interest at a spread ranging from 70 basis points to 110 basis pointsover the 30-day LIBOR which, based on our leverage ratio, is currently 80 basispoints.  This facility matures in June 2011and has a one-year as-of-right extension option.  The 2007 unsecured revolving credit facilityalso requires a 12.5 to 20 basis point fee on the unused balance payableannually in arrears.  The 2007 unsecuredrevolving credit facility had approximately $0.8 billion outstanding at September 30,2010.  Availability under the 2007unsecured revolving credit facility was further reduced at September 30,2010 by the issuance of approximately $24.0 million in letters of credit.  The 2007 unsecured revolving credit facilityincludes certain restrictions and covenants (see restrictive covenants below).The 2007 unsecured revolving credit facility is guaranteed by certain of SLGOP’ssubsidiaries and structured finance investment entities. ROP and certain of itssubsidiaries also provide a senior guaranty of SLGOP’s obligations under the2007 unsecured revolving credit facility. As of September 30, 2010, themaximum amount of ROP and its subsidiaries’ guaranty obligation wasapproximately $575.4 million.

 

InAugust 2009, we amended our 2007 unsecured revolving credit facility toprovide us with the ability to acquire a portion of the loans outstanding underour 2007 unsecured revolving credit facility. Such repurchases reduce our availability under the 2007 unsecuredrevolving credit facility.  In August 2009,one of our subsidiaries repurchased approximately $48.0 million of the totalcommitment, and we realized gains on early extinguishment of debt ofapproximately $7.1 million.

 

**Senior Unsecured Notes**

 

Thefollowing table sets forth our senior unsecured notes and other relateddisclosures by scheduled maturity date as of September 30, 2010 (inthousands):

 
| **Issuance**                      | ** ** | **Accreted  Balance** | ** **        | **Coupon Rate(4)** | ** ** | **Term  (in Years)** | ** ** | **Maturity**         | ** **            |
|-----------------------------------|------------|-----------------------|-------------------|-------------------------|------------|---------------------------|------------|----------------------|-----------------------|
| January 22, 2004(1) (5) |       | $                     |  84,823      |                    | 5.15       | %                         | 7          |                 | January 15, 2011 |   |
| August 13, 2004(1) (5)  |       | 98,578                |              | 5.875                   | %          | 10                        |       | August 15, 2014 |                  |
| March 31, 2006(1)            |       | 274,755               |              | 6.00                    | %          | 10                        |       | March 31, 2016  |                  |
| March 16, 2010               |       | 250,000               |              | 7.75                    | %          | 10                        |       | March 15, 2020  |                  |
| June 27, 2005(1)(2)(5)       |       | 657                   |              | 4.00                    | %          | 20                        |       | June 15, 2025   |                  |
| March 26, 2007(3)(5)         |       | 122,448               |              | 3.00                    | %          | 20                        |       | March 30, 2027  |                  |
|                              | ** ** | **$**                 | ** **831,261 | ** **              | ** ** |                      |       |                 |                  |   |

 

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|   | (1) | Assumed  as part of the Reckson Merger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (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 our common stock per $1,000 of principal amount of debentures and  the adjusted reference dividend for the debentures is $1.3491. During the  nine months ended September 30, 2010, we and SL Green repurchased approximately  $115.4 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 $0.3 million. On the date of the  Reckson Merger, $13.1 million was recorded in equity and was fully amortized  as of June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | (3) | In  March 2007, we issued $750.0 million of these convertible bonds.  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 our 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 our 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 our common stock and for general corporate purposes.  During the nine months ended September 30, 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  September 30, 2010, approximately $4.4 million 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 the outstanding 3.000% Exchangeable Senior Notes due 2027 issued  by the operating partnership, 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 Reckson.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

InMarch 2009, the $200.0 million, 7.75% unsecured notes scheduled to maturein March 2009, issued by Reckson, were repaid at maturity.

 

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**Junior Subordinate Deferrable Interest Debentures**

 

InJune 2005, we and SL Green issued $100.0 million of Trust PreferredSecurities, which are reflected on the balance sheet as Junior SubordinateDeferrable Interest Debentures. The proceeds were used to repay our unsecuredrevolving credit facility.  The $100.0million of junior subordinate deferred interest debentures have a 30-year termending July 2035.  They bearinterest 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 securitiesare redeemable at par beginning in July 2010.

 

**Restrictive Covenants**

 

Theterms of our 2007 unsecured revolving credit facility and certain of our seniorunsecured notes include certain restrictions and covenants which limit, amongother things, the payment of dividends (as discussed below), the incurrence ofadditional indebtedness, the incurrence of liens and the disposition of assets,and which require compliance with financial ratios relating to the minimumamount of tangible net worth, the minimum amount of debt service coverage, theminimum amount of fixed charge coverage, the maximum amount of unsecuredindebtedness, the minimum amount of unencumbered property debt service coverageand certain investment limitations.  Thedividend restriction referred to above provides that, except to enable SL Greento continue to qualify as a REIT for Federal income tax purposes, it will notduring any four consecutive fiscal quarters make distributions with respect tocommon stock or other equity interests in an aggregate amount in excess of 95%of funds from operations for such period, subject to certain otheradjustments.  As of September 30,2010 and December 31, 2009, we were in compliance with all such covenants.

 

**Market Rate Risk**

 

Weare exposed to changes in interest rates primarily from our floating rateborrowing arrangements.  We use interestrate derivative instruments to manage exposure to interest rate changes.  A hypothetical 100 basis point increase ininterest rates along the entire interest rate curve for 2010 would increase ourannual interest cost by approximately $12.5 million and would increase ourshare of joint venture annual interest cost by approximately $6.1 million,respectively.

 

Werecognize all derivatives on the balance sheet at fair value.  Derivatives that are not hedges must beadjusted 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 thechange in fair value of the hedged asset, liability, or firm commitment throughearnings, or recognized in other comprehensive income until the hedged item isrecognized in earnings.  The ineffectiveportion of a derivative’s change in fair value is recognized immediately inearnings.

 

Approximately$3.4 billion of our long-term debt bore interest at fixed rates, and thereforethe fair value of these instruments is affected by changes in the marketinterest rates.  The interest rate on ourvariable rate debt and joint venture debt as of September 30, 2010 rangedfrom LIBOR plus 75 basis points to LIBOR plus 400 basis points.

 

**Contractual Obligations**

 

Combinedaggregate principal maturities of mortgages notes and other loans payable, our2007 unsecured revolving credit facility, senior unsecured notes (net ofdiscount), trust preferred securities, our share of joint venture debt, includingas-of-right extension options, estimated interest expense (based on weightedaverage interest rates for the quarter), and our obligations under our capitallease and ground leases, as of September 30, 2010 are as follows (inthousands):

 
| ** **                 | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Property Mortgages         |       | $        | 7,608      |     | $          | 246,606  |       | $        | 146,682    |     | $          | 656,852        |       | $         | 211,713    |   | $ | 1,627,485 |   | $ | 2,896,946 |   |
| Revolving Credit Facility  |       | —   |       | —   |       | 800,000  |       | —   |       | —   |       | —         |       | 800,000   |       |
| Trust Preferred Securities |       | —   |       | —   |       | —   |       | —   |       | —   |       | 100,000        |       | 100,000   |       |
| Senior Unsecured Notes     |       | —   |       | 84,823   |       | 122,448  |       | —   |       | 98,578   |       | 525,412        |       | 831,261   |       |
| Capital lease              |       | 387      |       | 1,555    |       | 1,555    |       | 1,555    |       | 1,555    |       | 45,651         |       | 52,258    |       |
| Ground leases              |       | 7,432    |       | 28,929   |       | 28,179   |       | 28,179   |       | 28,179   |       | 580,600        |       | 701,498   |       |
| Estimated interest expense |       | 57,041   |       | 211,726  |       | 191,195  |       | 172,605  |       | 147,383  |       | 410,733        |       | 1,190,683 |       |
| Joint venture debt         |       | 2,078    |       | 218,698  |       | 62,080   |       | 37,146   |       | 361,917  |       | 1,137,199      |       | 1,819,118 |       |
| Total                      |       | $        | 74,546     |     | $          | 792,337  |       | $        | 1,352,139  |     | $          | 896,337        |       | $         | 849,325    |   | $ | 4,427,080 |   | $ | 8,391,764 |   |

 

**Off-Balance Sheet Arrangements**

 

Wehave a number of off-balance sheet investments, including joint ventures andstructured finance investments.  Theseinvestments all have varying ownership structures.  Substantially all of our joint venturearrangements are accounted for under the equity method of accounting as we havethe ability to exercise significant influence, but not control over theoperating and financial decisions of these

 

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jointventure arrangements.  Our off-balancesheet arrangements are discussed in Note 5, “Structured Finance Investments”and Note 6, “Investments in Unconsolidated Joint Ventures” in the accompanyingfinancial statements. Additional information about the debt of ourunconsolidated joint ventures is included in “Contractual Obligations” above.

 

**Capital Expenditures**

 

Weestimate that for the three months ending December 31, 2010, we will incurapproximately $30.9 million of capital expenditures, net of loan reserves,(including tenant improvements and leasing commissions) on existingwholly-owned properties and our share of capital expenditures at our jointventure properties, net of loan reserves, will be approximately $4.8million.  We expect to fund these capitalexpenditures with operating cash flow, additional property level mortgagefinancings, and cash on hand.  Futureproperty acquisitions may require substantial capital investments forrefurbishment and leasing costs.  Weexpect that these financing requirements will be met in a similar fashion.  We believe that we will have sufficientresources to satisfy our capital needs during the next 12-month period.  Thereafter, we expect that our capital needswill be met through a combination of cash on hand, net cash provided byoperations, borrowings, potential asset sales or additional equity or debtissuances.

 

**Dividends**

 

SLGreen expects to pay dividends to its stockholders based on the distributionswe make to them primarily from property revenues net of operating expenses or,if necessary, from working capital or borrowings.

 

Tomaintain its qualification as a REIT, SL Green must pay annual dividends to itsstockholders of at least 90% of its REIT taxable income, determined beforetaking into consideration the dividends paid deduction and net capitalgains.  SL Green intends to continue topay regular quarterly dividends to its stockholders on an annual basis.  Based on SL Green’s current annual dividendrate of $0.40 per share, it would pay approximately $31.3 million individends.  Before SL Green pays anydividend, whether for Federal income tax purposes or otherwise, which wouldonly be paid out of available cash to the extent permitted under our unsecuredand secured credit facilities, and our term loans, we must first meet both ouroperating requirements and scheduled debt service on our mortgages and loanspayable.

 

**Related Party Transactions**

 

**Cleaning/ Security/ Messenger and Restoration Services**

 

ThroughAlliance Building Services, or Alliance, First Quality Maintenance, L.P., orFirst Quality, provides cleaning, extermination and related services, ClassicSecurity LLC provides security services, Bright Star Couriers LLC providesmessenger services, and Onyx Restoration Works provides restoration serviceswith respect to certain properties owned by us. Alliance is owned by Gary Green, a son of Stephen L. Green, the chairmanof SL Green’s board of directors.  Inaddition, First Quality has the non-exclusive opportunity to provide cleaningand related services to individual tenants at our properties on a basisseparately negotiated with any tenant seeking such additional services.  The Service Corporation has entered into anarrangement with Alliance whereby it will receive a profit participation abovea certain threshold for services provided by Alliance to certain tenants atcertain buildings above the base services specified in their leaseagreements.  Alliance paid the ServiceCorporation approximately $0.6 million, $1.6 million, $0.4 million and $1.3million for the three and nine months ended September 30, 2010, and 2009,respectively.  We paid Allianceapproximately $3.4 million, $9.6 million, $3.3 million and $11.0 million forthe three and nine months ended September 30, 2010 and 2009, respectively,for these services (excluding services provided directly to tenants).

 

**Leases**

 

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

 

**Management Fees**

 

S.L.Green Management Corp., a consolidated entity, receives property managementfees 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 $92,000, $293,000,$89,000 and $269,000 for the three and nine months ended September 30,2010 and 2009, respectively.

 

**Gramercy Capital Corp.**

 

Ourrelated party transactions with Gramercy are discussed in Note 11, “RelatedParty Transactions” in the accompanying financial statements.

 

**Insurance**

 

Wemaintain “all-risk” property and rental value coverage (including coverageregarding the perils of flood, earthquake and terrorism) within two propertyinsurance portfolios and liability insurance. The first property portfoliomaintains a blanket limit of $750.0 million

 

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peroccurrence for the majority of the New York City properties in our portfoliowith a sub-limit of $500.0 million for acts of terrorism. This policyexpires on December 31, 2010.  Thesecond portfolio maintains a limit of $600.0 million per occurrence, includingterrorism, for a few New York City properties and the majority of the Suburbanproperties.  The second property policy expires on December 31,2010.  Additional coverage may be purchased on a stand-alone basis forcertain assets.  We maintain liabilitypolicies which cover all our properties and provide limits of$201.0 million per occurrence and in the aggregate per location.  Theliability policies expire on October 31, 2011.

 

InOctober 2006, SL Green formed a wholly-owned taxable REIT subsidiary,Belmont Insurance Company, or Belmont, to act as a captive insurance companyand be one of the elements of our overall insurance program.  Belmont was formed in an effort to, amongother reasons, stabilize to some extent the fluctuations of insurance marketconditions. Belmont is licensed in New York to write Terrorism, NBCR (nuclear,biological, chemical, and radiological), General Liability, EnvironmentalLiability and D&O coverage.

 

·                          Terrorism:Belmont acts as a direct property insurer with respect to a portion of ourterrorism coverage for the New York City properties.  Effective September 1, 2009, Belmontincreased its terrorism coverage from $250 million to $400 million in an upperlayer.  In addition Belmont purchasedreinsurance to reinsure the retained insurable risk not otherwise covered underTerrorism Risk Insurance Program Reauthorization and Extension Act of 2007, orTRIPRA, as detailed below.

 

·                          NBCR: Belmontacts as a direct insurer of NBCR coverage up to $250 million on the entireproperty portfolio for certified acts of terrorism above a program trigger of$100.0 million.  Belmont is responsiblefor a small deductible and 15% of the remaining balance of a loss, with theremaining 85% covered by the Federal government.

 

·                          GeneralLiability: For the period commencing October 31, 2010, Belmont will insurea retention on the general liability insurance of $150,000 per occurrence and a$2.1 million annual aggregate stop loss limit. We have secured excess insuranceto protect against catastrophic liability losses above the $150,000retention.  Prior policy years carried a higher per occurrence deductibleand/or higher aggregate stop loss. Belmont has retained a third party administrator to manage all claimswithin the retention and we anticipate that direct management of liabilityclaims will improve loss experience and ultimately lower the cost of liabilityinsurance in future years. In addition, we have an umbrella liability policy of$200.0 million per occurrence and in the aggregate on a per location basis.

 

·                          EnvironmentalLiability: Belmont insures a deductible of $975,000 per occurrence in excess of$25,000 on a $25 million per occurrence/$30 million aggregate environmentalliability policy covering the entire portfolio.

 

Aslong as we own Belmont, we are responsible for its liquidity and capitalresources, and the accounts of Belmont are part of our consolidated financialstatements. If we experience a loss and Belmont is required to pay under itsinsurance policy, we would ultimately record the loss to the extent of Belmont’srequired payment. Therefore, insurance coverage provided by Belmont should notbe considered as the equivalent of third-party insurance, but rather as amodified form of self-insurance.

 

TheTerrorism Risk Insurance Act, or TRIA, which was enacted in November 2002,was renewed on December 31, 2007. Congress extended TRIA, now calledTRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of2007) until December 31, 2014. The law extends the federal TerrorismInsurance Program that requires insurance companies to offer terrorism coverageand provides for compensation for insured losses resulting from acts ofcertified terrorism, subject to our 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, our2007 unsecured revolving credit facility and other corporate obligations,contain customary covenants requiring us to maintain insurance. Although webelieve that we currently maintain sufficient insurance coverage to satisfythese obligations, there is no assurance that in the future we will be able toprocure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or groundlessors under these instruments will not take the position that a total orpartial exclusion from “all-risk” insurance coverage for losses due toterrorist acts is a breach of these debt and ground lease instruments thatallows the lenders or ground lessors to declare an event of default andaccelerate repayment of debt or recapture of ground lease positions. Inaddition, if lenders insist on full coverage for these risks and prevail inasserting that we are required to maintain such coverage, it could result insubstantially higher insurance premiums.

 

Wehave a 49.9% interest in the property at 100 Park Avenue, where we participatewith 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, CreditSuisse Securities (USA) LLC, or CS.  We monitor the coverage provided byCS to make sure that our asset is adequately protected.  We have a 50.6% interest in the property at388 and 390 Greenwich Street, where we participate with SITQ, which is leasedon a triple net basis to Citigroup, N.A., which provides insurance coveragedirectly.  We monitor all triple netleases to ensure that tenants are providing adequate coverage.  Other joint ventures may be covered under

 

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separatepolicies from our policies, at coverage limits which we deem to beadequate.  We continually monitor thesepolicies.  Although we consider ourinsurance coverage to be appropriate, in the event of a major catastrophe, suchas an act of terrorism, we may not have sufficient coverage to replace certainproperties.

 

**Inflation**

 

Substantiallyall of the office leases provide for separate real estate tax and operatingexpense escalations as well as operating expense recoveries based on increasesin the Consumer Price Index or other measures such as porters’ wage.  In addition, many of the leases provide forfixed base rent increases.  We believethat inflationary increases may be at least partially offset by the contractualrent increases and expense escalations described above.

 

**Accounting Standards Updates**

 

The Accounting Standards Updates are discussed inNote 2, “Significant Accounting Policies- Accounting Standards Updates” in theaccompanying consolidated financial statements.

 

**Forward-LookingInformation**

 

Thisreport includes certain statements that may be deemed to be “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, or the Act, and Section 21E of the Securities Exchange Actof 1934, as amended, or the Exchange Act. Such forward-looking statements relate to, without limitation, ourfuture capital expenditures, dividends and acquisitions (including the amountand nature thereof) and other development trends of the real estate industryand the Manhattan, Westchester County, Connecticut, Long Island and New Jerseyoffice markets, business strategies, and the expansion and growth of ouroperations.  These statements are basedon certain assumptions and analyses made by us in light of our experience andour perception of historical trends, current conditions, expected futuredevelopments and other factors we believe are appropriate.  We intend such forward-looking statements tobe covered by the safe harbor provisions for forward-looking statementscontained in Section 27A of the Act and Section 21E of the ExchangeAct.  Such statements are subject to anumber of assumptions, risks and uncertainties which may cause our actual results,performance or achievements to be materially different from future results,performance or achievements expressed or implied by these forward-lookingstatements.  Forward-looking statementsare generally identifiable by the use of the words “may,” “will,” “should,” “expect,”“anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or thenegative of these words, or other similar words or terms.  Readers are cautioned not to place unduereliance on these forward-looking statements. Among the factors about which we have made assumptions are:

 

·                  generaleconomic or business (particularly real estate) conditions, either nationallyor in the New York Metro area being less favorable than expected if the creditcrisis continues;

·                  reduced demandfor office space;

·                  risks of realestate acquisitions;

·                  risks ofstructured finance investments and borrowers;

·                  availabilityand creditworthiness of prospective tenants and borrowers;

·                  tenantbankruptcies;

·                  adverse changesin the real estate markets, including increasing vacancy, increasingavailability of sublease space, decreasing rental revenue and increasinginsurance costs;

·                  availability,terms and deployment of capital (debt and equity);

·                  unanticipatedincreases in financing and other costs, including a rise in interest rates;

·                  our ability tocomply with financial covenants in our debt instruments;

·                  declining realestate valuations and impairment charges;

·                  market interestrates could adversely affect the market price of SL Green’s common stock, aswell as our performance and cash flows;

·                  SL Green’sability to satisfy complex rules in order for SL Green to qualify as aREIT, for federal income tax purposes, SLGOP and ROP’s abilities to satisfy therules in order for them to qualify as a partnership for federal income taxpurposes, the ability of certain of SL Green’s subsidiaries to qualify as REITsand certain of SL Green’s subsidiaries to qualify as taxable REIT subsidiariesfor federal income tax purposes and the ability of SL Green’s subsidiaries,including SLGOP and ROP, to operate effectively within the limitations imposedby these rules;

·                  accountingprinciples and policies and guidelines applicable to REITs;

·                  competitionwith other companies;

·                  availability ofand our ability to attract and retain qualified personnel;

·                  the continuingthreat of terrorist attacks on the national, regional and local economiesincluding, in particular, the New York City area and our tenants;

·                  legislative orregulatory changes adversely affecting REITs and the real estate business; and

 

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·                  environmental,regulatory and/or safety requirements.

 

Exceptas required by applicable law, we undertake no obligation to publicly update orrevise any forward-looking statements, whether as a result of new information,future events or otherwise. In light of these risks and uncertainties, theforward-looking events and circumstances discussed in this prospectus might notoccur and actual results, performance or achievement could differ materiallyfrom that anticipated or implied in the forward-looking statements.

 

Therisks included here are not exhaustive. Other sections of this report may include additional factors that couldadversely affect the Company’s business and financial performance.  Moreover, the Company operates in a verycompetitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible formanagement to predict all such risk factors, nor can it assess the impact ofall such risk factors on the Company’s business or the extent to which anyfactor, or combination of factors, may cause actual results to differmaterially from those contained in any forward-looking statements.  Given these risks and uncertainties,investors should not place undue reliance on forward-looking statements as aprediction of actual results.

 

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**ITEM 3.  Quantitative andQualitative Disclosure About Market Risk**

 

Seethe section entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations of SLGOP—Market Rate Risk” for additionalinformation regarding SLGOP’s exposure to interest rate fluctuations.

 

Thetable below presents principal cash flows based upon maturity dates of SLGOP’sdebt obligations and structured finance investments and the relatedweighted-average interest rates by expected maturity dates, includingas-of-right extension options, as of September 30, 2010 (in thousands):

 
| ** ** | ** ** | ** **          | ** ** | **Long-Term Debt**         | ** ** | ** **             | ** ** | **Structured Finance  Investments** | ** ** |
|------------|------------|---------------------|------------|---------------------------------|------------|------------------------|------------|------------------------------------------|------------|
| **Date**   | ** ** | **Fixed Rate** | ** ** | **Average Interest  Rate** | ** ** | **Variable Rate** | ** ** | **Average  Interest Rate**          | ** ** | **Amount** | ** ** | **Weighted Yield** | ** ** |
| 2010       |       | $                   | 7,230      |                            | 6.07       | %                      | $          | 378                                      |       | 1.92 | % | $ | 3,538 |   | 3.00 | % |
| 2011       |       | 329,850             |       | 6.07                            | %          | 1,579                  |       | 2.31                                     | %          | 192,569 |   | 12.05 | % |
| 2012       |       | 154,211             |       | 6.06                            | %          | 914,919                |       | 3.68                                     | %          | 156,799 |   | 5.98 | % |
| 2013       |       | 335,651             |       | 6.08                            | %          | 321,200                |       | 2.96                                     | %          | 50,422 |   | 5.37 | % |
| 2014       |       | 310,291             |       | 6.15                            | %          | —                 |       | 3.05                                     | %          | 44,972 |   | 12.21 | % |
| Thereafter |       | 2,222,898           |       | 6.44                            | %          | 30,000                 |       | 3.05                                     | %          | 459,636 |   | 5.79 | % |
| Total      |       | $                   | 3,360,131  |                            | 6.44       | %                      | $          | 1,268,076                                |       | 2.37 | % | $ | 907,936 |   | 7.46 | % |
| Fair Value |       | $                   | 3,425,000  |                            |       |                   | $          | 1,221,000                                |       |   |   |   |   |   |   |

 

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(1)                                  Our structuredfinance investments had an estimated fair value ranging between$544.8 million and $817.1 million at September 30, 2010.

 

Thetable below presents the gross principal cash flows based upon maturity datesof SLGOP’s share of its joint venture debt obligations and the relatedweighted-average interest rates by expected maturity dates as of September 30,2010 (in thousands):

 
| ** ** | ** ** | **Long-Term Debt** | ** ** |
|------------|------------|-------------------------|------------|
| **Date**   | ** ** | **Fixed Rate**     | ** ** | **Average Interest Rate** | ** ** | **Variable Rate** | ** ** | **Average Interest Rate** | ** ** |
| 2010       |       | $                       | 160        |   | 4.49 | % | $ | 1,918 |   | 3.35 | % |
| 2011       |       | 405                     |       | 4.49 | % | 218,294 |   | 3.57 | % |
| 2012       |       | 12,870                  |       | 4.48 | % | 49,211 |   | 3.18 | % |
| 2013       |       | 1,182                   |       | 4.48 | % | 35,964 |   | 3.36 | % |
| 2014       |       | 124,752                 |       | 4.43 | % | 237,165 |   | 3.36 | % |
| Thereafter |       | 1,121,199               |       | 3.90 | % | 16,000 |   | 1.46 | % |
| Total      |       | $                       | 1,260,566  |   | 4.33 | % | $ | 558,552 |   | 3.33 | % |
| Fair Value |       | $                       | 1,241,000  |   |   |   | $ | 561,000 |   |   |   |

 

Thetable below lists all of our derivative instruments, which are hedging variablerate debt, including joint ventures, and their related fair value as of September 30,2010 (in thousands):

 
| ** **                | ** ** | **Asset Hedged** | ** ** | **Benchmark  Rate** | ** ** | **Notional  Value** | ** ** | **Strike Rate** | ** ** | **Effective  Date** | ** ** | **Expiration  Date** | ** ** | **Fair Value** | ** ** |
|---------------------------|------------|-----------------------|------------|---------------------|------------|---------------------|------------|----------------------|------------|---------------------|------------|----------------------|------------|---------------------|------------|
|                      |       |                  |       |                |       |                |       |                 |       |                |       |                 |       |                |       |
| Interest Rate Cap         |       | Mortgage              |       | LIBOR               |       | 128,000             |       | 6.000                | %          | 2/2010              |       | 2/2011               |       | —              |       |
| Interest Rate Cap         |       | Mortgage              |       | LIBOR               |       | 139,672             |       | 5.000                | %          | 1/2010              |       | 1/2011               |       | —              |       |
| Interest Rate Swap        |       | Mortgage receivable   |       | LIBOR               |       | 30,000              |       | 2.295                | %          | 7/2010              |       | 6/2016               |       | (1,102              | )          |
| Currency Hedge            |       | Mortgage receivable   |       | GBP-USD             |       | 20,748              |       | 1.55185              |       | 9/2010              |       | 12/2012              |       | (82                 | )          |
|                      |       |                  |       |                |       |                |       |                 |       |                |       |                 |       |                |       |
| Total Consolidated Hedges |       |                  |       |                |       | $                   | 318,420    |                 |       |                |       |                 |       |                | $          | (1,184 | ) |
|                           |            |                       |            |                     |            |                     |            |                      |            |                     |            |                      |            |                     |            |  |  |

 

Inaddition to these derivative instruments, some of SLGOP’s joint venture loanagreements require the joint venture to purchase interest rate caps on itsdebt. All such interest rate caps were out of the money and had a value ofapproximately $600 at September 30,

 

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2010.One of our joint ventures had a LIBOR swap in place on a notional amount of$560.0 million. This hedge, which matures in December 2017, had afair value obligation of approximately $42.5 million at September 30,2010.

 

**ITEM 4.  Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto our management, including the Chief Executive Officer and Chief FinancialOfficer of our general partner, as appropriate, to allow timely decisionsregarding required disclosure based closely on the definition of “disclosurecontrols and procedures” in Rule 13a-15(e) of the Exchange Act.  Notwithstanding the foregoing, a controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that it will detect or uncover failures within theCompany to disclose material information otherwise required to be set forth inour periodic reports.  Also, we haveinvestments in certain unconsolidated entities. As we do not control these entities, our disclosure controls andprocedures with respect to such entities are necessarily substantially morelimited than those we maintain with respect to our consolidated subsidiaries.

 

Asof the end of the period covered by this report, we carried out an evaluation,under the supervision and with the participation of our management, includingthe Chief Executive Officer and Chief Financial Officer of our general partner,of the effectiveness of the design and operation of our disclosure controls andprocedures.  Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by this report.

 

**Changesin Internal Control over Financial Reporting**

 

Therehave been no significant changes in our internal control over financialreporting during the quarter ended September 30, 2010, that has materiallyaffected, or is reasonably likely to material affect, our internal control overfinancial reporting.

 

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**PART II.****                                               ****OTHERINFORMATION**

 

**ITEM 1.****                                                    ****LEGAL PROCEEDINGS**

 

Asof September 30, 2010, we were not involved in any material litigationnor, to management’s knowledge, is any material litigation threatened againstus or our portfolio other than routine litigation arising in the ordinarycourse of business or litigation that is adequately covered by insurance.

 

**ITEM 1A.****                                           ****RISKFACTORS**

 

**RisksRelated to Our Business**

 

***Declines in the demand for officespace in New York City, and in particular, in midtown Manhattan, as well as ourSuburban markets, including Westchester County, Connecticut, New Jersey andLong Island, resulting from general economic conditions could adversely affectthe value of our real estate portfolio and our results of operations and,consequently, our ability to service current debt.***

 

Mostof our commercial office properties are located in midtown Manhattan. As aresult, our business is dependent on the condition of the New York City economyin 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 ourreal estate portfolio and our rental revenues, and thus adversely affect ourability to service current debt. The Manhattan vacancy rate continues to exceed11% although we expect that to moderate slightly by the end of 2010. We couldalso be impacted by weakness in our Suburban markets, including WestchesterCounty, Connecticut, New Jersey and Long Island.

 

***We may be unable to renew leases orrelet space as leases expire.***

 

Whenour tenants decide not to renew their leases upon their expiration, we may notbe 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. Through the end of 2014, leaseswill expire on approximately 33.6% and 15.3% of the rentable square feet at ourconsolidated properties and unconsolidated joint venture properties,respectively, and these leases currently have annualized escalated rentalincome totaling approximately $271.2 million and $65.7 million,respectively. We also have some leases with termination options beyond 2014. Ifwe are unable to promptly renew the leases or relet this space at similarrates, our cash flow and ability to service debt would be adversely affected.

 

***The expiration of long term leasesor operating sublease interests could adversely affect our results ofoperations.***

 

Ourinterests in seven of our consolidated commercial office properties are througheither long-term leasehold or operating sublease interests in the land and theimprovements, rather than by a fee interest in the land. Unless we can purchasea fee interest in the underlying land or extend the terms of these leasesbefore their expiration, we will lose our right to operate these properties andour interest in the improvements upon expiration of the leases, which wouldsignificantly adversely affect our results of operations. These properties are673 First Avenue, 420 Lexington Avenue, 461 Fifth Avenue, 711 Third Avenue, 625Madison Avenue, 1185 Avenue of the Americas, all in Manhattan, and 1055Washington Avenue, in Connecticut. We have the ability to acquire the feeposition at 461 Fifth Avenue for a fixed price on a specific date. The averageremaining term of these long-term leases, including our unilateral extensionrights on each of the properties, is approximately 42 years. Pursuant tothe operating sublease arrangements, we, as tenant under the operatingsublease, perform the functions traditionally performed by landlords withrespect to our subtenants. We are responsible for not only collecting rent fromour subtenants, but also maintaining the property and paying expenses relatingto the property. Our share of annualized escalated rents of these properties atSeptember 30, 2010 totaled approximately $241.9 million, or 23.9%, ofour share of total portfolio annualized revenue associated with theseproperties.

 

***Our results of operations rely onmajor tenants, including in the financial services sector, and insolvency,bankruptcy or receivership of these and other tenants could adversely affectour results of operations.***

 

Givingeffect to leases in effect as of September 30, 2010 for consolidatedproperties and unconsolidated joint venture properties as of that date, ourfive largest tenants, based on square footage leased, accounted forapproximately 22.4% of our share of portfolio annualized rent, and threetenants, Citigroup, Inc. (and its affiliates), ViacomInternational Inc. and Credit Suisse Securities (USA) LLC, accountedfor approximately 8.1%, 5.3% and 6.0% of our share of portfolio annualizedrent, respectively. In addition, the financial services sector accounted forapproximately 40% of our total annualized revenues and 37% of our square feetleased of our portfolio as of September 30, 2010. This sector continues toexperience significant turmoil which has resulted in significant job losses.

 

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Ifcurrent economic conditions persist or deteriorate, we may experience increasesin past due accounts, defaults, lower occupancy and reduced effective rents,particularly in respect of our financial service tenants. Our business would beadversely affected if any of our major tenants or any other tenants became insolvent,declared bankruptcy, are put into receivership or otherwise refused to pay rentin a timely fashion or at all.

 

***Adverse economic and geopoliticalconditions in general and the Northeastern commercial office markets inparticular could have a material adverse effect on our results of operationsand financial condition.***

 

Ourbusiness may be affected by the unprecedented volatility and illiquidity in thefinancial and credit markets, the general global economic recession, and othermarket or economic challenges experienced by the U.S. economy or real estateindustry as a whole. Our business may also be adversely affected by localeconomic conditions, as substantially all of our revenues are derived from ourproperties located in the Northeast, particularly in New York City, WestchesterCounty and Connecticut. Because our portfolio consists primarily of commercialoffice buildings (as compared to a more diversified real estate portfolio)located principally in Manhattan, if economic conditions persist or deteriorate,then our results of operations, financial condition and ability to servicecurrent debt may be adversely affected by the following, among other potentialconditions:

 

·                  significant job losses inthe financial and professional services industries have occurred and maycontinue to occur, which may decrease demand for our office space, causingmarket rental rates and property values to be negatively impacted;

 

·                  our ability to borrow onterms and conditions that we find acceptable, or at all, may be limited, whichcould reduce our ability to pursue acquisition and development opportunitiesand refinance existing debt, reduce our returns from both our existingoperations and our acquisition and development activities and increase ourfuture interest expense;

 

·                  reduced values of ourproperties may limit our ability to dispose of assets at attractive prices orto obtain debt financing secured by our properties and may reduce theavailability of unsecured loans; and

 

·                  reduced liquidity in debtmarkets and increased credit risk premiums for certain market participants mayimpair our ability to access capital.

 

Theseconditions, which could have a material adverse effect on our results ofoperations, financial condition and ability to pay distributions, may continueor worsen in the future.

 

***There can be no assurance that theactions of the U.S. Government, Federal Reserve and other governmental andregulatory bodies for the purpose of stabilizing the financial markets, ormarket response to those actions, will achieve the intended effect, and ourbusiness may not benefit from and may be adversely impacted by these actionsand further government or market developments could adversely impact us.***

 

Sincemid-2007, and particularly during the second half of 2008, the financialservices industry and the securities markets generally were materially andadversely affected by significant declines in the values of nearly all assetclasses and by a serious lack of liquidity. This was initially triggered bydeclines in the value of subprime mortgages, but spread to all mortgage andreal estate asset classes, to leveraged bank loans and to nearly all assetclasses, including equities. The global markets have been characterized bysubstantially increased volatility and short-selling and an overall loss ofinvestor confidence, initial in financial institutions, but more recently incompanies in a number of other industries and in the broader markets. Thedecline in asset values has caused increases in margin calls for investors, requirementsthat derivatives counterparties post additional collateral and redemptions bymutual and hedge fund investors, all of which have increased the downwardpressure on asset values and outflows of client funds across the financialservices industry. In addition, the increased redemptions and unavailability ofcredit have required hedge funds and others to rapidly reduce leverage, whichhas increased volatility and further contributed to the decline in assetvalues.

 

Inresponse to the recent unprecedented financial issues affecting the bankingsystem and financial markets and going concern threats to investment banks andother financial institutions, the Emergency Economic Stabilization Act of 2008(“EESA”), was signed into law on October 3, 2008. The EESA provides theU.S. Secretary of Treasury with the authority to establish a Troubled AssetRelief Program (“TARP”), to purchase from financial institutions up to$700 billion of residential or commercial mortgages and any securities,obligations, or other instruments based on, or related to, such mortgages, thatin each case was originated or issued on or before March 14, 2008. EESAalso provides for a program that would allow companies to insure their troubledassets. On February 17, 2009, President Obama signed the American Recoveryand Reinvestment Act of 2009 (“ARRA”), a $787 billion stimulus bill forthe purpose of stabilizing the economy by creating jobs among other things. Asof June 25, 2010, the U.S. Treasury is managing or overseeing the followingprograms under TARP: the Capital Purchase Program (“CCP”), the SystemicallySignificant Failing

 

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InstitutionsProgram (“SSFIP”), the Auto Industry Financing Program (“AIFP”), the LegacyPublic-Private Investment Program (“-PPIP”), and the Homeowner Affordabilityand Stability Plan (“HASP”) which is partially financed by TARP.

 

Therecan be no assurance that the EESA, TARP or other programs will have abeneficial impact on the financial markets, including current extreme levels ofvolatility. In addition, the U.S. Government, Federal Reserve and othergovernmental and regulatory bodies have taken or are considering taking otheractions to address the financial crisis. We cannot predict whether or when suchactions may occur or what impact, if any, such actions could have on ourbusiness, results of operations and financial condition.

 

***We may suffer adverse consequencesif our revenues decline since our operating costs do not necessarily decline inproportion to our revenue.***

 

Weearn a significant portion of our income from renting our properties. Ouroperating costs, however, do not necessarily fluctuate in relation to changesin our rental revenue. This means that our costs will not necessarily declineeven if our revenues do. Our operating costs could also increase while ourrevenues do not. If our operating costs increase but our rental revenues donot, we may be forced to borrow to cover our costs, we may incur losses and wemay not have cash available for distributions.

 

***We face risks associated withproperty acquisitions.***

 

Wemay acquire individual properties and portfolios of properties, including largeportfolios that could significantly increase our size and alter our capitalstructure. Our acquisition activities and their success may be exposed to thefollowing risks:

 

·                  even if we enter into anacquisition agreement for a property, it is usually subject to customaryconditions to closing, including due diligence investigations to oursatisfaction;

 

·                  we may be unable to financeacquisitions on favorable terms or at all;

 

·                  acquired properties may failto perform as we expected;

 

·                  our estimates of the costsof repositioning or redeveloping acquired properties may be inaccurate;

 

·                  we may not be able to obtainadequate insurance coverage for new properties;

 

·                  acquired properties may belocated in new markets where we may face risks associated with a lack of marketknowledge or understanding of the local economy, lack of business relationshipsin the area and unfamiliarity with local governmental and permitting procedures;and

 

·                  we may be unable to quicklyand efficiently integrate new acquisitions, particularly acquisitions ofportfolios of properties, into our existing operations, and as a result ourresults of operations and financial condition could be adversely affected.

 

Wemay acquire properties subject to liabilities and without any recourse, or withonly limited recourse, with respect to unknown liabilities. As a result, if aliability were asserted against us based upon those properties, we might haveto pay substantial sums to settle it, which could adversely affect our cashflow. Unknown liabilities with respect to properties acquired might include:

 

·                  liabilities for clean-up ofundisclosed environmental contamination;

 

·                  claims by tenants, vendorsor other persons dealing with the former owners of the properties;

 

·                  liabilities incurred in theordinary course of business; and

 

·                  claims for indemnificationby general partners, directors, officers and others indemnified by the formerowners of the properties.

 

***Competition for acquisitions mayreduce the number of acquisition opportunities available to us and increase thecosts of those acquisitions.***

 

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

 

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·                  an inability to acquire adesired property because of competition from other well-capitalized real estateinvestors, including publicly traded and privately held REITs, private realestate funds, domestic and foreign financial institutions, life insurancecompanies, sovereign wealth funds, pension trusts, partnerships and individualinvestors; and

 

·                  an increase in the purchaseprice for such acquisition property, in the event we are able to acquire suchdesired property.

 

***We rely on seven large propertiesfor a significant portion of our revenue.***

 

Asof September 30, 2010, seven of our properties, 220 East 42nd Street, 420Lexington Avenue, One Madison Avenue, 485 Lexington Avenue,1185 Avenue of the Americas, 1515 Broadway and 388-390 Greenwich Street,accounted for approximately 41.1% of our portfolio annualized rent, includingour share of joint venture annualized rent, and no single property accountedfor more than approximately 7% of our portfolio annualized rent, including ourshare of joint venture annualized rent. Revenue and cash available fordistribution by SL Green’s subsidiaries, including SLGOP, to SL Green and by SLGreen to its stockholders would be materially adversely affected if the groundlease for the 420 Lexington Avenue or 1185 Avenue of the Americas propertywere terminated for any reason or if one or all of these properties werematerially damaged or destroyed. Additionally, revenue would be materiallyadversely affected if our tenants at these properties experienced a downturn intheir business which may weaken their financial condition and result in theirfailure to timely make rental payments, defaulting under their leases or filingfor bankruptcy.

 

***The continuing threat of terroristattacks may adversely affect the value of our properties and our ability togenerate cash flow.***

 

Theremay be a decrease in demand for space in New York City because it is consideredat risk for future terrorist attacks, and this decrease may reduce our revenuesfrom property rentals. In the aftermath of a terrorist attack, tenants in theNew 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 targetsof future terrorist activity. This in turn would trigger a decrease in thedemand for space in the New York City area, which could increase vacancies inour properties and force us to lease our properties on less favorable terms. Asa result, the value of our properties and the level of our revenues couldmaterially decline.

 

***A terrorist attack could causeinsurance premiums to increase significantly.***

 

Wemaintain “all-risk” property and rental value coverage (including coverageregarding the perils of flood, earthquake and terrorism) within two propertyinsurance portfolios and liability insurance. The first property portfoliomaintains a blanket limit of $750.0 million per occurrence for themajority of the New York City properties in our portfolio with a sub-limit of$500.0 million for acts of terrorism. This policy expires on December 31,2010.  The second portfolio maintains alimit of $600.0 million per occurrence, including terrorism, for a few New YorkCity properties and the majority of the Suburban properties.  The secondproperty policy expires on December 31, 2010.  Additional coveragemay be purchased on a stand-alone basis for certain assets.  We maintain liability policies which coverall of our properties and provide limits of $201.0 million per occurrenceand in the aggregate per location.  The liability policies expire onOctober 31, 2011.

 

InOctober 2006, SL Green formed a wholly-owned taxable REIT subsidiary,Belmont Insurance Company, or Belmont, to act as a captive insurance companyand be one of the elements of our overall insurance program.  Belmont was formed in an effort to, amongother reasons, stabilize to some extent the fluctuations of insurance marketconditions. Belmont is licensed in New York to write Terrorism, NBCR (nuclear,biological, chemical, and radiological), General Liability, EnvironmentalLiability and D&O coverage.

 

·                          Terrorism:Belmont acts as a direct property insurer with respect to a portion of ourterrorism coverage for the New York City properties.  Effective September 1, 2009, Belmontincreased its terrorism coverage from $250 million to $400 million in an upperlayer.  In addition Belmont purchasedreinsurance to reinsure the retained insurable risk not otherwise covered underTerrorism Risk Insurance Program Reauthorization and Extension Act of 2007, orTRIPRA, as detailed below.

 

·                          NBCR: Belmontacts as a direct insurer of NBCR coverage up to $250 million on the entireproperty portfolio for certified acts of terrorism above a program trigger of$100.0 million.  Belmont is responsiblefor a small deductible and 15% of the remaining balance of a loss, with the remaining85% covered by the Federal Government.

 

·                          GeneralLiability: For the period commencing October 31, 2010, Belmont will insurea retention on the general liability insurance of $150,000 per occurrence and a$2.1 million annual aggregate stop loss limit. We have secured excess insuranceto protect against catastrophic liability losses above the $150,000retention.  Prior policy years carried a higher per occurrence deductibleand higher aggregate stop loss.  Belmonthas retained a third party administrator to manage all claims within theretention and we anticipate that direct management of liability claims willimprove loss experience and ultimately lower the

 

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cost of liability insurancein future years. In addition, we have an umbrella liability policy of $200.0million per occurrence and in the aggregate on a per location basis.

 

·                          EnvironmentalLiability: Belmont insures a deductible of $975,000 per occurrence in excess of$25,000 on a $25 million per occurrence/$30 million aggregate environmentalliability policy covering the entire portfolio.

 

Aslong as we own Belmont, we are responsible for its liquidity and capitalresources, and the accounts of Belmont are part of our consolidated financialstatements. If we experience a loss and Belmont is required to pay under itsinsurance policy, we would ultimately record the loss to the extent of Belmont’srequired payment. Therefore, insurance coverage provided by Belmont should notbe considered as the equivalent of third-party insurance, but rather as amodified form of self-insurance.

 

TheTerrorism Risk Insurance Act, or TRIA, which was enacted in November 2002,was renewed on December 31, 2007. Congress extended TRIA, now calledTRIPRA (Terrorism Risk Insurance Program Reauthorization and Extension Act of2007) until December 31, 2014. The law extends the federal TerrorismInsurance Program that requires insurance companies to offer terrorism coverageand provides for compensation for insured losses resulting from acts ofcertified terrorism, subject to our 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, our2007 unsecured revolving credit facility and other corporate obligations,contain customary covenants requiring us to maintain insurance. Although webelieve that we currently maintain sufficient insurance coverage to satisfythese obligations, there is no assurance that in the future we will be able toprocure coverage at a reasonable cost. In such instances, there can be no assurance that the lenders or groundlessors under these instruments will not take the position that a total orpartial exclusion from “all-risk” insurance coverage for losses due toterrorist acts is a breach of these debt and ground lease instruments thatallows the lenders or ground lessors to declare an event of default andaccelerate repayment of debt or recapture of ground lease positions. Inaddition, if lenders insist on full coverage for these risks and prevail inasserting that we are required to maintain such coverage, it could result insubstantially higher insurance premiums.

 

Wehave a 49.9% interest in the property at 100 Park Avenue, where we participatewith 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, CreditSuisse Securities (USA) LLC, or CS.  We monitor the coverage provided byCS to make sure that our asset is adequately protected.  We have a 50.6% interest in the property at388 and 390 Greenwich Street, where we participate with SITQ, which is leasedon a triple net basis to Citigroup, N.A., which provides insurance coveragedirectly.  We monitor all triple netleases to ensure that tenants are providing adequate coverage.  Other joint ventures may be covered underseparate policies from our policies, at coverage limits which we deem to beadequate.  We continually monitor thesepolicies.  Although we consider ourinsurance coverage to be appropriate, in the event of a major catastrophe, suchas an act of terrorism, we may not have sufficient coverage to replace certainproperties.

 

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

 

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

 

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

 

***Scheduled debt payments couldadversely affect our results of operations.***

 

Thetotal principal amount of our outstanding consolidated indebtedness wasapproximately $4.6 billion as of September 30, 2010, consisting ofapproximately $0.8 billion under the 2007 unsecured revolving creditfacility, $0.8 billion under our senior unsecured notes,$100.0 million under our junior subordinated deferrable interestdebentures and approximately $2.9 billion of non-recourse mortgage loanson seventeen of our properties. In addition, we could increase the amount ofour outstanding indebtedness in the future, in part by borrowing under the 2007unsecured revolving credit facility, which had $628.0 million availablefor draw as of September 30, 2010. The 2007 unsecured revolving creditfacility matures in June 2011 and has a one-year as-of-right extensionoption. As of September 30, 2010, the total principal amount ofnon-recourse indebtedness outstanding at the joint venture properties wasapproximately $4.1 billion, of which our proportionate share wasapproximately $1.8 billion. Cash flow could be insufficient to paydistributions at expected levels and meet the payments of principal andinterest required under our current mortgage indebtedness, the

 

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2007unsecured revolving credit facility, senior unsecured notes, debentures andindebtedness outstanding at our joint venture properties.

 

Ifwe are unable to make payments under the 2007 unsecured revolving creditfacility, all amounts due and owing at such time will accrue interest at a rateequal to 4% higher than the rate at which each draw was made. If a property ismortgaged to secure payment of indebtedness and we are unable to meet mortgagepayments, the mortgagee could foreclose on the property, resulting in loss ofincome and asset value. Foreclosure on mortgaged properties or an inability tomake payments under the 2007 unsecured revolving credit facility would have anegative impact on our financial condition and results of operations.

 

Wemay not be able to refinance existing indebtedness, which in all cases requiressubstantial principal payments at maturity. In 2010, none of our corporateindebtedness or debt on our unconsolidated joint venture properties willmature. There are no debt maturities in 2010 on our consolidated properties. Atthe present time, we intend to exercise extension options or refinance the debtassociated with our properties on or prior to their respective maturity dates.If any principal payments due at maturity cannot be refinanced, extended orpaid with proceeds of other capital transactions, such as new equity capital,our cash flow will not be sufficient in all years to repay all maturing debt.At the time of refinancing, prevailing interest rates or other factors, such asthe possible reluctance of lenders to make commercial real estate loans mayresult in higher interest rates. Increased interest expense on the refinanceddebt would adversely affect cash flow and our ability to service debt.

 

***Financial covenants could adverselyaffect our ability to conduct our business.***

 

Themortgages and mezzanine loans on our properties contain customary negativecovenants that limit our ability to further mortgage the property, to enterinto new leases or materially modify existing leases, and to discontinueinsurance coverage. The 2007 unsecured revolving credit facility containscustomary restrictions and requirements on our method of operations. The 2007unsecured revolving credit facility also requires us to maintain designated ratiosof total debt-to-assets, debt service coverage and unencumberedassets-to-unsecured debt. In addition, the terms of our senior unsecured notesinclude certain restrictions and covenants which limit, among other things, theincurrence of additional indebtedness and liens, and which require compliancewith financial ratios relating to minimum amount of debt service coverage, themaximum amount of consolidated unsecured and secured indebtedness and theminimum amount of unencumbered assets. These restrictions could adverselyaffect our results of operations.

 

***Rising interest rates couldadversely affect our cash flow.***

 

Advancesunder the 2007 unsecured revolving credit facility and certain property-levelmortgage debt bear interest at a variable rate. These consolidated variablerate borrowings totaled approximately $1.3 billion at September 30,2010. In addition, we could increase the amount of our outstanding variablerate debt in the future, in part by borrowing under the 2007 unsecuredrevolving credit facility, which had $628.0 million available for draw asof September 30, 2010. Borrowings under the 2007 unsecured revolvingcredit facility currently bear interest at a spread equal to the 30-day LIBOR,plus 90 basis points. As of September 30, 2010, borrowings under the 2007unsecured revolving credit facility and junior subordinated deferrable interestdebentures totaled $0.8 billion and $100.0 million, respectively, andbore interest at 1.12% and 5.61%, respectively. We may incur indebtedness inthe future that also bears interest at a variable rate or may be required torefinance our debt at higher rates. Accordingly, increases in interest ratesabove that which we anticipated based upon historical trends could adverselyaffect our results of operations and financial conditions. At September 30,2010, a hypothetical 100 basis point increase in interest rates along theentire interest rate curve would increase our annual interest costs byapproximately $12.5 million and would increase our share of joint ventureannual interest costs by approximately $6.1 million.

 

***Failure to hedge effectively againstinterest rate changes may adversely affect results of operations.***

 

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

 

***No limitation on debt couldadversely affect our cash flow.***

 

Ourorganizational documents do not contain any limitation on the amount ofindebtedness we may incur. As of September 30, 2010, assuming theconversion of all outstanding units of SLGOP into shares of SL Green commonstock, our combined debt-to-market capitalization ratio, including our share ofjoint venture debt of approximately $1.8 billion, was approximately 54.3%.We have historically targeted a debt-to-market capitalization less than this.However, due to the significant decrease in SL Green’s stock price

 

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weare currently operating in excess of that threshold. We are currentlyundertaking steps aimed at reducing our debt. Any changes that increase ourdebt to market capitalization percentage could be viewed negatively by investors.As a result, SL Green’s stock price could decrease. SL Green’s marketcapitalization is variable and does not necessarily reflect the fair marketvalue of its assets at all times. We also consider factors other than marketcapitalization 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 abilityof particular properties and our business as a whole to generate cash flow tocover expected debt service.

 

***Structured finance investments couldcause us to incur expenses, which could adversely affect our results ofoperations.***

 

Weowned mezzanine loans, junior participations and preferred equity interests in26 investments with an aggregate book value of approximately$907.9 million at September 30, 2010. Such investments may or may notbe recourse obligations of the borrower and are not insured or guaranteed bygovernmental agencies or otherwise. In the event of a default under theseobligations, we may have to realize upon our collateral and thereafter makesubstantial improvements or repairs to the underlying real estate in order tomaximize the property’s investment potential. Borrowers may contest enforcementof foreclosure or other remedies, seek bankruptcy protection against suchenforcement and/or bring claims for lender liability in response to actions toenforce their obligation to us. Relatively high loan-to-value ratios anddeclines in the value of the property may prevent us from realizing an amountequal to our investment upon foreclosure or realization.

 

Wemaintain and regularly evaluate financial reserves to protect against potentialfuture losses. Our reserves reflect management’s judgment of the probabilityand severity of losses. We cannot be certain that our judgment will prove to becorrect and that reserves will be adequate over time to protect againstpotential future losses because of unanticipated adverse changes in the economyor events adversely affecting specific properties, assets, tenants, borrowers,industries in which our tenants and borrowers operate or markets in which ourtenants and borrowers or their properties are located. We believe the increasein our non-performing loans has been driven by the recent credit crisis, whichhave adversely impacted the ability of many of our borrowers to service theirdebt and refinance our loans to them at maturity. We increased our provisionfor loan loss by $16.0 million, prior to any recoveries, during the ninemonths ended September 30, 2010. If our reserves for credit losses proveinadequate, we could suffer losses which would have a material adverse affecton our financial performance, and the market prices of our securities.

 

***Special Servicing Activities couldresult in liability to us.***

 

Weprovide special servicing activities on behalf of third parties. We have beenrated by Fitch and S&P to provide such services. Any breach of theservicing standards and/or our fiduciary duties to bondholders could result inmaterial liability to us.

 

***Joint investments could be adverselyaffected by our lack of sole decision-making authority and reliance upon aco-venturer’s financial condition.***

 

Weco-invest with third parties through partnerships, joint ventures, co-tenanciesor other entities, acquiring noncontrolling interests in, or sharingresponsibility for managing the affairs of, a property, partnership, jointventure, co-tenancy or other entity. Therefore, we will not be in a position toexercise sole decision-making authority regarding that property, partnership,joint venture or other entity. Investments in partnerships, joint ventures, orother entities may involve risks not present were a third party not involved,including the possibility that our partners, co-tenants or co-venturers mightbecome bankrupt or otherwise fail to fund their share of required capitalcontributions. Additionally, our partners or co-venturers might at any timehave economic or other business interests or goals, which are inconsistent withour business interests or goals. These investments may also have the potentialrisk of impasses on decisions such as a sale, because neither we nor thepartner, co-tenant or co-venturer would have full control over the partnershipor joint venture. Consequently, actions by such partner, co-tenant orco-venturer might result in subjecting properties owned by the partnership orjoint venture to additional risk. In addition, we may, in specificcircumstances, be liable for the actions of our third-party partners,co-tenants or co-venturers. As of September 30, 2010, our unconsolidatedjoint ventures owned 21 properties and we had an aggregate cost basis in thejoint ventures totaling approximately $777.6 million. As of September 30,2010, our share of joint venture debt totaled approximately $1.8 billion.

 

***Our joint venture agreements maycontain terms in favor of our partners that could have an adverse effect on thevalue of our investments in the joint ventures.***

 

Eachof our joint venture agreements has been individually negotiated with ourpartner in the joint venture and, in some cases, we have agreed to terms thatare favorable to our partner in the joint venture. For example, our partner maybe entitled to a specified portion of the profits of the joint venture beforewe are entitled to any portion of such profits and our partner may have rightsto buy our interest in the joint venture, to force us to buy the partner’sinterest in the joint venture or to compel the sale of the property owned bysuch

 

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jointventure. These rights may permit our partner in a particular joint venture to obtaina greater benefit from the value or profits of the joint venture than us, whichcould have an adverse effect on the value of our investment in the jointventure and on our financial condition and results of operations. We may alsoenter into similar arrangements in the future.

 

***We are subject to possibleenvironmental liabilities and other possible liabilities.***

 

Weare subject to various federal, state and local environmental laws. These lawsregulate our use, storage, disposal and management of hazardous substances andwastes and can impose liability on property owners or operators for theclean-up of certain hazardous substances released on a property and anyassociated damage to natural resources without regard to whether the releasewas legal or whether it was caused by the property owner or operator. Thepresence of hazardous substances on our properties may adversely affectoccupancy and our ability to develop or sell or borrow against thoseproperties. In addition to potential liability for clean-up costs, privateplaintiffs may bring claims for personal injury, property damage or for similarreasons. Various laws also impose liability for the clean-up of contaminationat any facility (e.g., a landfill) to which we have sent hazardous substancesfor treatment or disposal, without regard to whether the materials weretransported, treated and disposed in accordance with law.

 

***We may incur significant costscomplying with the Americans with Disabilities Act and similar laws.***

 

Ourproperties may be subject to other risks relating to current or future lawsincluding laws benefiting disabled persons, and other state or local zoning,construction or other regulations. These laws may require significant propertymodifications in the future for which we may not have budgeted and could resultin fines being levied against us. The occurrence of any of these events couldhave an adverse impact on our cash flows and ability to make distributions tostockholders.

 

Underthe Americans with Disabilities Act, or ADA, all public accommodations mustmeet federal requirements related to access and use by disabled persons.Additional federal, state and local laws also may require modifications to ourproperties, or restrict our ability to renovate our properties. We have notconducted an audit or investigation of all of our properties to determine ourcompliance with the ADA. If one or more of our properties is not in compliancewith the ADA or other legislation, then we would be required to incuradditional costs to bring the property into compliance. We cannot predict theultimate amount of the cost of compliance with ADA or other legislation. If weincur substantial costs to comply with the ADA and any other legislation, ourfinancial condition, results of operations and cash flow and/or ability tosatisfy our debt service obligations could be adversely affected.

 

**We face potential conflictsof interest.**

 

***Limitations on our ability to sellor reduce the indebtedness on specific mortgaged properties could adverselyaffect our results of operations and financial condition.***

 

OnMay 15, 2002, we acquired the property located at 1515 Broadway, New York,New York. Under a tax protection agreement established to protect the limitedpartners of the partnership that transferred 1515 Broadway to us, we haveagreed not to take certain action that would adversely affect the limitedpartners’ tax positions before December 31, 2011. We also acquired theproperty 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 thetax positions of certain of the partners who held interests in this propertyprior to the acquisition, for a period of seven years after the acquisition.

 

Inconnection with future acquisitions of interests in properties, we may agree tosimilar restrictions on our ability to sell or refinance the acquiredproperties with similar potential adverse consequences.

 

***There are potential conflicts ofinterest between SL Green and Mr. Green.***

 

Thereis a potential conflict of interest relating to the disposition of certainproperty contributed to us by Stephen L. Green, and his family in SL Green’sinitial public offering. Mr. Green serves as the chairman of SL Green’sboard 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 partnershipinterest in SLGOP. He did not recognize any taxable gain as a result of thecontribution. SLGOP, however, took a tax basis in the contributed propertyequal to that of the contributing unitholder. The fair market value of theproperty contributed by him exceeded his tax basis by approximately$34.0 million at the time of contribution. The difference between fairmarket value and tax basis at the time of contribution represents a built-ingain. If we sell a property in a transaction in which a taxable gain isrecognized, for tax purposes the built-in gain would be allocated solely to himand not to SL Green. As a result, Mr. Green has a conflict of interest ifthe sale of a property, which he contributed, is in SL Green’s best interestbut not his.

 

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Thereis a potential conflict of interest relating to the refinancing of indebtednessspecifically allocated to Mr. Green. Mr. Green would recognize gainif he were to receive a distribution of cash from SLGOP in an amount thatexceeds his tax basis in his partnership units. His tax basis includes hisshare of debt, including mortgage indebtedness, owed by SLGOP. If SLGOP were toretire such debt, then he would experience a decrease in his share ofliabilities, which, for tax purposes, would be treated as a distribution ofcash to him. To the extent the deemed distribution of cash exceeded his taxbasis, he would recognize gain.

 

***Members of management may have aconflict of interest over whether to enforce terms of agreements with entitieswith which senior management, directly or indirectly, has an affiliation.***

 

ThroughAlliance 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 StarCouriers LLC provides messenger services, and Onyx Restoration Worksprovides restoration services with respect to certain properties owned by us.Alliance is owned by Gary Green, a son of Stephen L. Green, the chairman of SLGreen’s board of directors. We and our tenants accounted for approximately23.7% of Alliance’s 2009 estimated total revenue. The contracts pursuant towhich these services are provided are not the result of arm’s lengthnegotiations and, therefore, there can be no assurance that the terms andconditions are not as favorable as those which could be obtained from thirdparties providing comparable services. In addition, to the extent that wechoose to enforce our rights under any of these agreements, we may determine topursue available remedies, such as actions for damages or injunctive relief,less vigorously than we otherwise might because of our desire to maintain ourongoing relationship with the individual involved.

 

***Members of management may have aconflict of interest over whether to enforce terms of senior management’semployment and non-competition agreements.***

 

StephenGreen, Marc Holliday, Gregory Hughes, Andrew Levine and Andrew Mathias enteredinto employment and non-competition agreements with SL Green pursuant to whichthey have agreed not to actively engage in the acquisition, development oroperation of office real estate in the New York City metropolitan area. For themost part these restrictions apply to the executive both during his employmentand for a period of time thereafter. Each executive is also prohibited fromotherwise disrupting or interfering with our business through the solicitationof our employees or clients or otherwise. To the extent that SL Green choosesto enforce its rights under any of these agreements, SL Green may determine topursue available remedies, such as actions for damages or injunctive relief,less vigorously than we otherwise might because of its desire to maintain itsongoing relationship with the individual involved. Additionally, thenon-competition provisions of these agreements, despite being limited in scopeand duration, could be difficult to enforce, or may be subject to limitedenforcement, should litigation arise over them in the future. Mr. Greenhas interests in two properties in Manhattan, which are exempt from thenon-competition provisions of his employment and non-competition agreement.

 

***SL Green’s failure to qualify as aREIT would be costly.***

 

Webelieve that SL Green has operated in a manner to qualify as a REIT for federalincome tax purposes and SL Green intends to continue to so operate. Many ofthese requirements, however, are highly technical and complex. Thedetermination that SL Green is a REIT requires an analysis of factual mattersand circumstances. These matters, some of which may not be totally within SLGreen’s control, can affect its qualification as a REIT. For example, toqualify as a REIT, at least 95% of SL Green’s gross income must come fromdesignated sources that are listed in the REIT tax laws. SL Green is alsorequired to distribute to stockholders at least 90% of its REIT taxable incomeexcluding capital gains. The fact that SL Green holds its assets throughsubsidiaries further complicates the application of the REIT requirements. Evena technical or inadvertent mistake could jeopardize SL Green’s REIT status.Furthermore, Congress and the Internal Revenue Service, which we refer to asthe IRS, might make changes to the tax laws and regulations, and the courtsmight issue new rulings that make it more difficult, or impossible, for SLGreen to remain qualified as a REIT.

 

IfSL Green fails to qualify as a REIT, it would be subject to federal income taxat regular corporate rates. Also, unless the IRS grants SL Green relief underspecific statutory provisions, it would remain disqualified as a REIT for fouryears following the year it first failed to qualify. If SL Green failed toqualify as a REIT, we would have to pay significant income taxes and ROP wouldtherefore have less money available to service indebtedness.

 

***We are dependent on external sourcesof capital.***

 

Becauseof distribution requirements imposed on SL Green to qualify as a REIT, it isnot likely that we will be able to fund all future capital needs, includingacquisitions, from income from operations. We therefore will have to rely onthird-party sources of capital, which may or may not be available on favorableterms or at all. Our access to third-party sources of capital depends on anumber of things, including the market’s perception of our growth potential andour current and potential future earnings. In addition, we anticipate having toraise money in the public equity and debt markets with some regularity and ourability to do so will depend upon

 

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thegeneral conditions prevailing in these markets. At any time conditions mayexist which effectively prevent us, and REITs in general, from accessing thesemarkets. Moreover, additional debt financing may substantially increase ourleverage. Due to the current financial crisis and the lack of liquidity in themarket, such capital may not be available.

 

***We face significant competition fortenants.***

 

Theleasing of real estate is highly competitive. The principal means ofcompetition are rent charged, location, services provided and the nature andcondition of the facility to be leased. We directly compete with all lessorsand developers of similar space in the areas in which our properties arelocated. Demand for retail space has been affected by the recent bankruptcy ofa number of retail companies and a general trend toward consolidation in theretail industry, which could adversely affect our ability to attract and retaintenants.

 

Ourcommercial office properties are concentrated in highly developed areas ofmidtown Manhattan and certain Suburban central business districts, or CBD’s.Manhattan is the largest office market in the United States. The number ofcompetitive office properties in Manhattan and CBD’s in which our Suburbanproperties are located (which may be newer or better located than ourproperties) could have a material adverse effect on our ability to lease officespace at our properties, and on the effective rents we are able to charge.

 

***Loss of our key personnel could harmour operations.***

 

Weare dependent on the efforts of Marc Holliday, SL Green’s chief executiveofficer, and Andrew Mathias, SL Green’s president and chief investment officer.These officers have employment agreements which expire in January 2013 andDecember 2013, respectively. A loss of the services of either of theseindividuals could adversely affect our operations. In addition, the employmentagreement of Gregory F. Hughes, SL Green’s chief operating officer and chieffinancial officer, expires in November 2010.

 

***Our business and operations wouldsuffer in the event of system failures.***

 

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

 

***Compliance with changing regulationapplicable to corporate governance and public disclosure may result inadditional expenses, affect our operations and affect our reputation.***

 

Changinglaws, regulations and standards relating to corporate governance and publicdisclosure, including the Sarbanes-Oxley Act of 2002 and new Commissionregulations and NYSE rules, can create uncertainty for public companies. Thesenew or changed laws, regulations and standards are subject to varyinginterpretations in many cases due to their lack of specificity, and as aresult, their application in practice may evolve over time as new guidance isprovided by regulatory and governing bodies, which could result in continuinguncertainty regarding compliance matters and higher costs necessitated byongoing revisions to disclosure and governance practices. We are committed tomaintaining high standards of corporate governance and public disclosure. As aresult, our efforts to comply with evolving laws, regulations and standardshave resulted in, and are likely to continue to result in, increased generaland administrative expenses and a diversion of management time and attentionfrom revenue-generating activities to compliance activities. In particular, ourefforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 andthe related regulations regarding SL Green’s required assessment of internalcontrols over financial reporting and our external auditors’ audit of thatassessment has required the commitment of significant financial and managerialresources. In addition, it has become more difficult and more expensive for usto obtain director and officer liability insurance. We expect these efforts torequire the continued commitment of significant resources. Further, ourdirectors, chief executive officer and chief financial officer could face anincreased risk of personal liability in connection with the performance oftheir duties. As a result, we may have difficulty attracting and retainingqualified directors and executive officers, which could harm our business. Ifour efforts to comply with new or changed laws, regulations and standardsdiffer from the activities intended by regulatory or governing bodies due toambiguities related to practice, our reputation may be harmed.

 

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| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE  OF PROCEEDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        | In  September 2010, we issued 44,772 units of limited partnership interest to The  Swig Investment Company, LLC as consideration for the contribution of a  leasehold interest to one of our subsidiaries. In October 2010, we issued  317,780 units of limited partnership interest to Eretz LLC in connection with  the execution of an agreement to acquire a membership interest in a joint  venture entity that owns commercial real estate property. We may satisfy  redemption requests for the units issued in each of the transactions  described above with shares of SL Green’s common stock, on a one-for-one  basis, pursuant to our operating partnership agreement. The units were issued  in reliance on the exemption from registration provided by Section 4(2) of  the Act. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        | In  October 2010, we issued $345.0 million of 3.00% exchangeable senior notes due  2017. The notes are exchangeable for cash and, if applicable, shares of SL  Green’s common stock. If settled in stock, SL Green will deliver shares of  its common stock to satisfy any future exchange of the notes. The initial  conversion price will be approximately $85.81 per share of common stock,  which represents approximately a 30% conversion premium. We received proceeds  of approximately $336.5 million from the offering, which will be used for  investment opportunities, to repay outstanding indebtedness and other general  corporate purposes. The notes were sold in reliance on the exemption from  registration provided by Rule 144A under the Act.                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **ITEM 4.** | **(REMOVED AND RESERVED)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **ITEM 5.** | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **ITEM 6.** | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 

(a)                                 Exhibits:

 

4.1                             Indenture,dated as of October 12, 2010, by and among SL Green Operating Partnership, L.P.as Issuer, Reckson Operating Partnership, L.P., as Guarantor, SL Green RealtyCorp. and The Bank of New York Mellon, as Trustee, incorporated by reference tothe Company’s Form 8-K dated October 12, 2010, filed with the SEC on October14, 2010.

 

10.1                      Amended andRestated Employment and Non-Competition Agreement, dated September 3, 2010,between SL Green Realty Corp. and Andrew Mathias, incorporated by reference toPre-Effective Amendment No. 2 to the Registration Statement on Form S-4, filedwith the SEC on September 14, 2010.

 

10.2                      LetterAgreement, dated September 8, 2010, to the Amended and Restated Employment andNon-Competition Agreement, between SL Green Realty Corp. and Gregory F. Hughes,dated April 16, 2007, incorporated by reference to the Company’s QuarterlyReport on Form 10-Q for the quarterly period ended September 30, 2010, filedwith the SEC on November 9, 2010.

 

10.3                      Employment Agreement,dated as of November 4, 2010, by and between SL Green Realty Corp. and JamesMead, incorporated by reference to the Company’s Form 8-K dated November 4,2010, filed with the SEC on November 10, 2010.

 

10.4                      RegistrationRights Agreement, dated as of October 12, 2010, by and among SL Green OperatingPartnership, L.P., Reckson Operating Partnership, L.P., SL Green Realty Corp.and Citigroup Global Markets Inc., incorporated by reference to the Company’sForm 8-K dated October 12, 2010, filed with the SEC on October 14, 2010.

 

31.1                      Certificationby the Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 filed herewith.

 

31.2                      Certificationby the Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 filed herewith.

 

32.1                      Certificationpursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 filed herewith.

 

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32.2                      Certificationpursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 filed herewith.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                                                        | SL  Green Operating Partnership, L.P. |
|-------------------------------------------------------------|---------------------------------------|
|                                                        | By:  SL Green Realty Corp.            |
|                                                        |                                  |   |
|                                                        |                                  |   |
|                                                        | By:                                   |       /s/ Gregory F. Hughes |
|                                                        |                                  |   |
|                                                        |                                  | Gregory  F. Hughes |
|                                                        |                                  | Chief  Operating Officer and Chief Financial Officer |
|                                                        |                                  |   |
|                                                        |                                  |   |
| Date:      November  12, 2010 |                                  |   |

 

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