2440 Fulton: When The Asset Starts Producing Cash, Not Just Value
2440 Fulton has already proved that Leser owns a real operating asset, but at year-end 2025 it was still generating more value than accessible cash. The City of New York lease was entering the income base, $12 million was released from the deposit in March 2026, but $4 million remained trapped and the unleased space still depends on both lease-up and financing.
What This Follow-Up Is Isolating
The main article already established that 2440 Fulton is the key operating proof point in Leser. This follow-up does not go back over the full December 2026 funding story. It isolates Fulton itself and asks one narrower question: when does the asset move from the value layer, the NOI layer, and the headline layer into the cash layer that actually relieves funding pressure?
That matters now for a simple reason. In 2025 the property already generated $10.4 million of revenue and $7.9 million of NOI, yet Leser itself says the positive impact on AFFO in 2025 was only about $3 million. At the same time, out of a roughly $16 million deposit tied to the City of New York lease, only $12 million was released in March 2026, while about $4 million remained with the bank.
Four points define the right read:
- The asset is working. The space was delivered to the City of New York in May 2025, and in 2025 Fulton already produced revenue, NOI, and FFO.
- Cash is entering more slowly than the headline suggests. Even though the lease calls for roughly $13.6 million of annual rent in the first three years, there were still 43 days of free rent left as of December 31, 2025.
- The deposit release was partial, not final. $12 million came out, but $4 million remained blocked as collateral for the senior loan during the free-rent months.
- The unleased space is not sitting on City-of-New-York economics. The appraisal underwrites the vacant portion at $50 per square foot of market rent, not at the stronger economics of the signed municipal lease.
The Signed Lease Is Real, But The Cash Pace Is Slower Than The Headline
The City of New York lease is the main reason Fulton no longer looks like a construction site but like an income-producing property. The agreement runs for 21 years, with annual rent of about $13.6 million in the first three years and then a gradual step-up to about $19.9 million in the final three years. The company also reports average rent of $65.01 per square foot and 77% average occupancy for the property in 2025.
But anyone who stops at the $13.6 million number is moving too fast. The appraiser states explicitly that rent commencement is February 13, 2026, because actual possession was delivered on May 13, 2025 and the free-rent period lasts nine months after delivery. That means that as of the valuation date, December 31, 2025, there were still 43 days of free rent left, and projected first-year rent was estimated at $12.013 million, not $13.6 million.
That gap does not weaken the lease. Quite the opposite. The appraiser even notes that the City is paying above-market rent, and this was considered in the discount-rate selection. That is exactly the point. Fulton is already benefiting from a strong anchor tenant and above-market economics, but the move into cash in 2026 is still shaped by the timing of delivery and by the free-rent days that were still outstanding at year-end 2025.
There is another important distinction here. Under the lease, the tenant bears 64.6% of increases in real estate taxes above the base year and 64.6% of CAM, but the landlord still carries items such as HVAC maintenance, legal, and accounting costs. So even this strong lease does not turn rent into fully free cash dollar for dollar.
What Has Already Reached The Cash Layer, And What Has Not
In 2025 Fulton passed the operating test, but not yet the full cash-conversion test. The company reports $10.445 million of revenue, $2.496 million of operating costs, $7.949 million of NOI, and $2.147 million of FFO for the property in 2025. At the group level, the positive contribution to AFFO in 2025 was estimated at only about $3 million because the asset contributed for only part of the year.
That is important because it shows the property is no longer just lifting valuation. There is a real operating layer here. But it also shows how narrow the path to accessible cash still is. The company itself expects that in 2026, on a fuller annual basis, NOI from the property will be about $16 million, interest expense on the property loan about $9.5 million, and net AFFO contribution about $6.5 million.
Two things stand out. First, Fulton should become a much more meaningful AFFO engine in 2026 than it was in 2025. Second, even at that run-rate, the recurring improvement is still smaller than the immediate impact of the deposit release. For perspective, the $12 million released in March 2026 is almost equivalent to two full years of AFFO using the company’s own annual estimate for the property. In other words, in the short term the release of trapped collateral did more for funding flexibility than the recurring income engine can do in a single year.
There is also an important analytical correction here. Leser now clarifies that the debt raised for Fulton did not hurt AFFO during development because borrowing costs were capitalized to the asset. The right place to start judging Fulton is therefore now, after capitalization ended and the property began carrying its own financing burden.
The Deposit: A Partial Release, Not The End Of The Bridge
The deposit tied to the lease is the clearest difference between value and cash. According to the filing, about $16 million was deposited in connection with the City of New York lease. On November 6, 2025, the City notified the bank holding that deposit that it was releasing all claims against it, which opened the path for release to the company in the first quarter of 2026. In practice, about $12 million was released during March 2026.
But this is exactly where an easy mistake appears. Anyone who stops at the $12 million could think the issue is closed. It is not. Roughly $4 million remained with the bank as collateral for senior-loan payments during the free-rent months, because of the delayed delivery to the City of New York.
The economic meaning is sharp. The March 2026 release does improve liquidity, but it does not come from recurring rental growth and it does not create recurring earning power. It is a one-time bridge built out of collateral that had been locked up in the past. So anyone trying to judge Fulton’s cash quality only through the $12 million release is mixing trapped-capital release with recurring cash production.
Where Value Still Runs Ahead Of Cash
The unleased portion of Fulton is where the property still looks stronger in the valuation layer than in the cash layer. The company writes that the area not leased to the City of New York, around 70 thousand square feet, could add about $3.3 million of annual rent. The appraisal, by contrast, is based on 61,486 square feet of remaining office vacancy, with market rent of $50 per square foot.
That gap matters not only because of the area figures, but because of the lease economics. For the vacant portion, the appraiser assumes six months of lease-up, average rent loss of three months worth $768,575, and another three months of free rent worth $768,575. In other words, even in the appraisal case, the vacant space does not immediately become rent at City-of-New-York terms. It still has to pass through lease-up time, commercial concessions, and friction costs.
| Unleased-space layer | Figure | Why it matters |
|---|---|---|
| Remaining space in the company narrative | About 70 thousand square feet | This is the base of the company’s roughly $3.3 million annual-rent upside |
| Remaining space in the appraisal | 61,486 square feet | This is the economic base used for the future rent-roll underwriting |
| Market rent for the vacant portion | $50 per square foot | Lower than the average rent in the signed lease |
| Lease-up rent loss | $768,575 | A reminder that the path to occupancy costs money |
| Average free-rent assumption for the vacant portion | $768,575 | The unleased space is also expected to require concessions |
| Future financing the company expects | $15 million in the first stage and another $15 million after leasing | Even the financing layer on the vacant portion is staggered, not immediate |
This is exactly where the difference lies between a property that already produces cash and a property that still stores optionality. The company expects to obtain about $15 million of additional financing in the second quarter of 2026 against the part of the asset not leased to the City of New York, once the free-rent period ends and that portion is released from the current lien. But that is only the first stage. The company itself writes that a further financing amount would be achievable only after the space is leased.
So it is not correct to read the remaining vacant space as if it were already equivalent to signed NOI. It is more accurate to read it as three separate layers: appraised value, possible financing flexibility, and future NOI that still needs to be signed.
Why This Matters Now
In operating terms, Fulton has already passed the point where it can be called just a project. In cash terms, it is still in the middle of the transition. The company now benefits from a producing asset with a municipal anchor tenant, real NOI, and a 2026 AFFO outlook that is materially better than 2025. But 2026 cash is still not resting on that rent alone. It is also resting on a one-time deposit release, on the end of free rent, and on a vacant-space layer that is not yet leased.
This matters even more because at the end of 2025 adjusted net financial debt to CAP stood at 74.38%, only 0.62 percentage points below the 75% line relevant for Series G and I. In that kind of structure, a $12 million deposit release matters immediately, but it does not replace the need for a recurring cash engine. On the other hand, $6.5 million of expected annual AFFO is a recurring engine, but one that needs time to build the same liquidity effect.
So the more precise read of Fulton is this: the asset has already started producing cash, but not yet at a pace that should be confused with the release of trapped value. For Fulton to move from operating proof to funding proof, three things have to happen together: the remaining free-rent period has to roll off, the remaining deposit has to be released, and the vacant portion has to move from appraisal and financing into executed leases. Until then, Fulton is a very good asset, but one still sitting half a step short of the full cash layer.
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