Q4 2019 Earnings Call
This call is being recorded.
All audience lines are currently in they listen only mode. Our speakers will address your questions. After the formal remarks during the question and answer session.
At this time I'd like to turn the conference over to Ms., Sara Buda VP Investor Relations for Boston properties. Please go ahead.
Thank you good morning, and welcome to Boston properties fourth quarter 2019 earnings Conference call. The press release and supplemental package were distributed last night and furnished on form 8-K in the supplemental package. The company has reconciled non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Red gene.
If you did not receive a copy these documents are available in the Investor Relations section of our website at investors Duffy XP Dot com.
A webcast of this call will be available for 12 months.
This time, we'd like to inform you that certain statements made during this conference call, which are not historical may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act, Although Boston properties believes the expectations reflected in any forward looking statements are based on reasonable assumptions. It can give no assurance that its expectations will be attained.
Factors and risks that could cause actual results could differ materially from those expressed or implied by forward looking statements.
We are detailed in yesterday's press release and from time to time in the company's filings with the FCC. The company does not undertake no duty to update any forward looking statements.
I'd like to welcome Owen Thomas Chief Executive Officer, does Lindy, President and Mike Labelle, Chief Financial Officer.
During the Q and a portion of the call Ray Ritchey Senior Executive Vice President and original management team is will be available to address questions.
Now before I turn the call over to the team I would like to mention that will be holding our Investor Conference. This fall in Boston as many of you know we hold this event. Once every three years. This conference will be a greater than designed to provide significant insight into our strategy our team and our themes in our business.
The date for the conference at September Thirtyth and will be holding it at our new hub on Causeway Entertainment and office complex in Boston.
I'll send out some reminders, but we do look forward to seeing everybody at the conference.
Now I'd like to turn the call over to Owen Thomas for his remarks.
Great. Thank you Sarah and good morning, everyone. Oh, we completed another strong quarter of performance, which capped off a very successful year at Boston properties.
Oh, specifically in the fourth quarter of 2019, we generated FFO per share of $1.87, which is a quarterly record for Boston properties and two cents above our prior guidance and market consensus.
We leased 1.7 million square feet, including significant leases at the G.M. building 399 Park Reston Town Center, Colorado Center.
We delivered and placed in service 866000 square feet of new developments that were 98% preleased with an initial cash yield of 7.5%.
We increased in service portfolio occupancy to 93%, which is a 40 basis point increase over the last quarter at 160 basis point increase over where we were a year ago.
We increased our average net rental rates on our second generation leases by 48% for the quarter and 28% for all 2000 nicely.
We increased our regular quarterly dividends, 3% to 98 cents per share.
Boston properties has now increased its quarterly dividend by 42% over the past three years.
And we increased our growth outlook for 2020 by raising the midpoint of our AFFO per share guidance by a penny we continue to forecast 8% growth in 2020, following a 11% growth in 2019, leading our office peers over the last two years.
In terms of full year 2019 operational highlights, we completed 7.6 million square feet in service asset in development leasing exceeding 2018 leasing numbers and our second highest level of annual leasing ever.
We commenced 908000 square feet of new developments, including 325 main Street in Cambridge, and 2100, Pennsylvania Avenue in Washington.
We completed new acquisitions for a total of 336 million, including 880, and 890 Winter Street in Waltham, the remaining 5% interest in our Salesforce tower development in San Francisco and land parcels at Carnegie Center in print.
We completed approximately 406 million of asset sales versus our goal of 200 million, including the sale of 540 Madison Avenue in New York Tower Center in East Brunswick, New Jersey, and land parcels in suburban Maryland in Massachusetts.
We also formed a joint venture with CPP I'd be which now holds a 45% interest in our platform 16 development site in San Jose.
We raised 2.2 billion a debt financing, including 850 million in green bonds very attractive interest rate.
And once again, we were recognized throughout the year for sustainability performance and leadership, earning an eighth consecutive Green star recognition ranking among the top 4% of almost 1000 worldwide participants in the grasp assessment and earning energy star partner the year from the EPA.
Overall 2019 was an excellent here from a management development leasing in capital markets perspective, a differentiator for Boston properties is the depth and strength.
Of our regional and corporate management team I'm very proud of our entire team at Boston properties, and what we accomplished in 2019 through experience relationships teamwork and commitment to success.
Now turning to the economic environment conditions remain very favorable for our business and leasing activity is robust in our core markets with few exceptions.
Economic growth in the U.S. at around 2.1% projected for 2020 remain high enough to power job creation space demand and rent growth, but not high enough to spark inflation and higher interest rates.
The tenure U.S. Treasury remains around 1.61, 0.7% and the fed appears to be on indefinite hold for further rate action.
Job creation inexpensive capital is very constructive for what we do.
And in addition concerns over the Jeep geopolitical risks of 2019, particularly trade disputes are currently more tempered, creating confidence for business leaders to make investments like new space requirements for investors to move financial markets positively as we have recently witness.
The private capital market for real estate, an office assets in our core markets remains healthy.
U.S. real estate assets remain an attractive destination for domestic and foreign institutional capital with stable and.
Stable and growing economy, relatively higher yields and decreasing hedging cost.
Significant office transaction volume in the U.S. ended the fourth quarter up to 24.3% from the prior quarter and up 3% for all of 2019.
Yet again, there were numerous significant asset transactions this past quarter and I'll cover the largest of which which were one Marina park in the Seaport District of Boston sold for a little over 480 million or $918 a square foot at about a 4.6% stabilized cap rate.
This a little over half a million square foot building is 100% leased and was sold to a domestic real estate investment manager.
And secondly in New York 333, 30, Madison Avenue in Midtown East is under agreement to sell for 900 million or 1060, a square foot and a 4.8% cap rate.
This 850000 square foot property is 95% leased and will be sold to a non U.S. insurance company.
Now moving to Boston properties capital activities development continues to be our primary strategy for creating value for shareholders and we remain active in our pursuit of new projects and value added redevelopment.
In the fourth quarter of 2019, we delivered two successful and accretive projects into service.
We completed 145 Broadway the new 485000 square foot headquarters for Akamine, Cambridge. The building is 90%, 98% leased akamine was delivered on time and budget at an attractive yield.
We also completed the podium phase of our hub on causeway development in Boston.
The 381000 square foot project is 97% leased and was also delivered at an attractive yield hub on causeway podiums as the new entrance to the TD garden and North station.
Fluids multi level retail amenities restaurants theaters and other exciting entertainment venues further phases of this development all of which will be built on top of the podium include hub 50 House, a 440 unit residential tower to be delivered this quarter 100 Causeway 632000 square foot.
Office tower that is 87% leased and expected to open in 2021 and land under long term lease the citizen EM.
269 run eight story luxury hotel, which was delivered last year.
With these deliveries removed our current development pipeline stands at 12 office and residential developments and redevelopments, comprising five and a half million square feet.
And 3.1 billion of total investment for our share the commercial component of this portfolio is currently 76% preleased aggregate projected cash yields on cost or just shy of 7%.
Most of the development pipeline is well underway and we have 1.4 billion of equity capital remained coupon.
In 2020, we anticipate our development pipeline will continue to be dynamic we plan to deliver six projects, representing 2 million square feet and 1.1 billion of investment, including 17 50, President Street 150, 950, Threerd Street Dock 70, 220, Citypoint hub 50 house in disguise.
Line, we're already recognizing a portion of the income expected from most of these projects.
As replacement for these deliveries we expect to begin the first phase is a fourth and Harrison and San Francisco and platform 16 in San Jose.
Fourth and Harrison received 505000 square feet of prop M allocation in the fourth quarter of 2019 that will allow us to begin construction in 2020.
At site enablement work is underway at platform 16.
The first phases of these future developments totaled 935000 square feet and approximately a billion dollars in new investment.
With our current pipeline of deliveries and these new potential starts our development pipeline at year end 2020 could be approximately eight projects comprising 4.4 million square feet and 3 billion of investment.
And for beyond 2020, we have a 13 million square foot landbank under control, which should lead to additional development opportunities near term prospects. In this portfolio include three Hudson Boulevard in New York, 25% owned by Us.
171, Dartmouth Street adjacent to the back Bay station in Boston and city point in Waltham for all of which we are pursuing anchor tenants before commencing vertical development.
In addition, we have another phase of significant residential development at Reston Town Center.
Moving to acquisitions and dispositions, we are under contract subject to due diligence for the sale of new Dominion Technology Park for in excess of $250 million that we will that we believe will close this quarter.
Property comprises 493000 square feet leased to the federal government and two buildings located in northern Virginia.
We recently extended the current government tendency for 15 years at flat Rev, making the property a strong disposition candidates, we anticipate completing like a like kind exchange for this asset and retaining all proceeds for other investments.
We also just completed a joint venture with Alexandria real estate equities for our gateway comments portfolio in South San Francisco.
This joint venture, where both parties will have approximately a 50% ownership when fully funded.
We'll be formed with Boston properties contributing three existing office buildings totaling 768000 square feet and Alexandria, contributing three adjacent buildings, including a newly constructed amenity center totaling 313000 square feet.
The critical value creation for Boston properties, and Alexandria, with a joint venture is that both parties will contribute land, including a parcel owned by us and encumbered with surface parking by Alexandria.
And excess structured parking associated with the existing buildings, creating three sites totaling a minimum of 640000 square feet of potential development for lab and office use.
Upon completion of the development plan the joint venture will comprise a significant critical mass of 1.7 million square feet of office in life Science space in a premier location in one of the strongest life science market in the us.
So in summary.
2019, with a very successful year for Boston properties, we executed well on our growth plan driven by the lease up of in service properties and external growth driven by development.
Given our leading property market positioning constructive market conditions.
Growing new investment pipeline and a team eager to produce we're very excited for 2020 and beyond.
Let me turn it over to Doug Thanks, and good morning, everybody happy new year rockets it anymore.
It should be pretty clear from Owens macro commentary that we are feeling really good very positive about the state of the business economy and the overall daily transactional leasing activity that we're experiencing across our portfolio really is in lockstep.
And as you heard during the last 12 months, we increased our in service occupancy by more than 160 basis points, so strong leasing volumes everywhere.
You shouldn't interpret this though I mean that every market strong we have our strong markets, which are characterized by tight supply and very modest short term new deliveries, Boston, Cambridge, Waltham Lexington, San Francisco CBD in West La and there we have rental economics that continue to grow grow significantly strongly.
We operate in the second group of markets, which have higher availability.
Consistent new construction deliveries I'd less supply constraints, but that our coupled with very significant technology demand. So silicon valley. The Reston Town Center area, the new construction on the far west side of Manhattan.
These markets are improving.
So it's more of a function of the premium of new product being added to the market as opposed to simple market conditions.
The third segment is the Plaza district in Manhattan, It behaves differently since it lacks the technology demand growth. We continue to have strong activity from non tech users. Obviously, they have more modest growth. Although we had two deals this quarter, which were expansions from non tech users.
And we'll talk about those in a few minutes.
But there does remain significant supply and there really hasn't been much in the way of changes and the economics over the last year or two.
And then fourth category really is limited and our portfolio to DC.
BD, which both has supply and demand headwinds the best buildings continued have leasing activity, but the market concessions are at an elevated level.
Our primary customer large real estate users beat a private or public startup or established.
Until you to make decisions to upgrade and consolidate their space and in many cases expand as they use their space in the competition for talent, which is the key to our business.
Even in our most expensive markets, we see very few tenants taking actions that reflect looming concerns about their business prospects a case in point, we're in discussions with the service Herman San Francisco that is currently located in the base of one of our easy buildings. The tenant is negotiating to move to the top of the building with a rent will be 25%.
Higher that on a renewal in one place versus the other and they will have to come out of pocket over $100 per square foot to build their new improvement and their square footage isn't changing a bit.
Let's talk about the markets now our expectations and what's going on in our portfolio. Let me begin with New York City.
The significant technology tenant leasing in Manhattan that was completed over the last few months was very much in line with market rumors in expectations, there really weren't any surprises.
Great since it represents lots of growth in absorption and practically speaking we think it may accelerate the timing of three Hudson Boulevard. Since there are fewer new construction options with large space block opportunities.
The two law firm leases in the new developments that were now will lead to availability in existing product.
So we are optimistic while we're optimistic about the shrinking availability of the newly constructed space. We will continue to have a cautious view of transaction economics over the next few years.
That being said leasing volumes very strong last quarter, we completed a 20 year lease renewal at 599, Lexington Avenue with German Sterling, our anchor tenant starting in 2022 from minimum of 330000 square feet. We've now extended every major lease expiration in our portfolio above 140000 square feet.
That was due to expire through 2024, and the reason I use 140000 square feet as we have a tenant that looks to be moving into one of the new developments in our six on one Lexington Avenue development in 2022.
We have signed leases.
On three of the four available floors that 390 Park Avenue and are negotiating a lease on the remaining floor.
As a barometer of market conditions. These leases on these four floors have average starting rents of about $100 per square foot and market level rent bumps T.I.s in free rent.
Spiry went on the floors was about $107 a square foot.
We would have done a similar deal in 2018 or 2019. In addition, we signed a renewal and expansion at the base for 80000 square feet and we are negotiating an expansion for one of the tower floors that we're going to get back in 2021, So again very strong leasing activity.
At the General Motors building since the completion of the Plaza working the opening of the Apple Cube in September we've completed 140000 square feet of office leasing, including a new tenant on a beacon floor full floor. The proportion of the building a long term expense.
Expansion and to short term renewal.
CBR, we reports of the city, some more than 2.1 million square feet of relocation deals with starting rent.
Over $120 per square foot and 1.2 million a relocation deals we starting rents between 101 hundred 19, so that 3.3 million square feet and that versus 2.5 million square feet. In 2018. So we are encouraged by the level of activity at the high end in the market and at our building.
We also completed a lease on the available 6600 square feet, a fifth Avenue retail space for a retailer that is playing to remodel in existing Madison Avenue store.
And we did a 7500 square foot renewal with that for our 2021 exploration on Madison Avenue retail.
Switching to Washington, DC. The CBD continues to have as I said, the most challenging market conditions amongst our reasons that would only represents 6% of our NOI.
This quarter, we completed a 76000 square foot 10 year renewal at 21 2200 pen for lease it was expected to expire in 21.
The current men.
This has been escalating for 2.5% for a decade is going to roll down about 18%.
Give you a sense of the conditions in DC.
Northern Virginia, where 90% of our company in Hawaii originates and where we are developing continue to have significant tenant demand growth. The same technology companies that are growing in San Francisco and in Boston and in New York City are also expanding in northern Virginia as they both service the U.S. government and search for the Hyatt.
Quality labor markets.
We believe that the $10 billion Jed I cloud computing contract will create significant office demand in northern Virginia.
We're still significant vacancy in the market, but the urban core unrest and continues to outperform with starting rents in the high fortys to looked at.
This quarter, we completed 430000 square feet of leasing in Reston Town center, including 75000 square feet for Facebook at 312000 square foot renewal with Bechtel and 11 smaller deals.
We are in lease renewal and relocation negotiations with another 135000 square for tenant.
The 270000 square feet Lydalls relocation and expansion to 17 50 is expected to occur by the end of April so they're going to vacate wanted to freedom square. So we'll still have to work to do filling our 500000 square feet of availability in Reston, but we are an active discussions with tenants that could fill significant portions of that space.
Most recently.
We entered into a dialogue AK a lease negotiation with a tenant with a two 2023 to 2024 occupancy requirement that is interested in a significant portion of the availability at RTC next that's the building that's under construction for Fannie Mae So really strong activity in Reston.
Switching to the West Coast the story in San Francisco CBD is the lack of availability in 2020 through 2022, and a meaningful increase in asking and taking rents that has occurred the vacancy rate is at its all time lowest level since the last cycle began after the great financial crisis.
There's about three and a half million square feet of either under construction or announced and permitted projects with delivery beginning no earlier than late 2022, and more than 1.6 million square feet is either in lease negotiation or leased.
With our prop M allocation in hand, we are moving towards the purchase of the land to develop fourth and Harrison and we could start construction in late 2020 for an early 2023 delivery tenant conversations have begun.
There are additional permitted potential development in 2024 and beyond.
New construction rent are approaching over $100 a square foot triple net on all this new development.
New to the market or about 700000 of sublet opportunities stemming from hubers anticipated moved to mission Bay, So perhaps will be a little bit early for tenants.
Our San Francisco CBD portfolio ended the quarter at 97.2% occupied and 98% committed with little availability. We had one of the quietest quarters I can remember with only 24000 square feet of CBD leasing.
In 2020, we have very limited availability. So our focus today is 21 and 22 explorations.
Based on current market fundamentals, we continue to believe that we will realize double digit rental increases as we realize space.
As an example, we just recaptured a floor at 680 Folsom Street that was leased in 2015, the terminated leases, which had 3% annual bumps.
Had a mark to market in 2020, even after five years of Escalations of almost 20%. So the market rents continue to grow.
In the Silicon Valley.
We have our mountain view assets in a portfolio of great development opportunities. This market continued to experience strong growth led by Google, which at least another 475000 square feet during the quarter and the market had record setting absorption in 2019.
Our existing mountain view portfolio, we continue to really release and renewed space at rents in excess of $55 Triple net this quarter. We completed two leases totaling 52000 square feet with an average rental increase of 65 per se.
In 2020, our most significant opportunity in the Bay area is in the mountain view portfolio, where we'll have about a 150000 square feet of availability.
Own mentioned platform 16, and our opportunity in San Jose, it's been quite clear that as a technology companies continue to grow their employees can be to work is becoming a critical factor in their recruitment and retention, we've seen companies like Facebook and Google expand in San Francisco as they provide an alternative location for employees that may spend three plus.
How are the day on a private boss and likewise, Hubert and Splunk and Twitter in Air Bnb have all expanded down into the Silicon Valley for similar reasons, we've seen a distinct premium for those valley and Peninsula office assets that are in close proximity to the caltrans stops and particularly the bullet locations.
Platform 16, and the Plaza element in our other development are less than one mile from the Oregon, Caltrans Bullock stop as well as future Bart connections I.
I think the last owner occupied new construction in downtown San Jose was in 2911 years ago and it was based on US that set of plans that was that was drawn in 1987, we believe downtown San Jose is due to significant growth and as you read in the Wall Street Journal. This morning, it's clearly coming.
But.
Last but not least we're going to get to Boston.
The CBD, Cambridge, and Waltham Lexington continue to be the beneficiaries of ongoing growth in the technology and life science sectors and significant migration from the outer suburban market and corporate relocations.
As the Boston region comprises more than one third of our NOI. We are benefiting from this growth in a big way.
Similar to San Francisco, there's very little available space in large blocks in the Boston CBD.
There are multiple buildings under construction in Boston, which will deliver in late 22 in 23 with some current availability and there are active plans for new construction, including his own suggested are permitted project at 171, Dartmouth three thats the back base station site, which will create additional supply in 2023 and beyond to meet demand.
In an interesting twist many of the Newbuildings are being designed for life science users as the availability in Cambridge has all but disappeared.
Our CBD the portfolio is 99% leased today and we continue to complete forward leasing transaction.
During the quarter, we did about 200000 square feet, including 72000 square feet at the hub on causeway as and when talked about.
Addition, at 200 clarity, we continue to get early renewals and expansions, we completed over 114000 square feet of leases with an average increase of rents of 30%.
In Cambridge, 145 Broadway 485000 scrip. These building leased to Akamai is open and to put the strength of the Cambridge office marketing perspective, if the ACA My lease which was negotiated in 2016, which are role to market today, the mark to market would be over 50%.
For years, there continues to be significant demand in the Waltham Lexington suburban market, which is where we have our largest availability in the region in 2020.
Our 200 westerly project, which is actively being converted to lab use.
We'll be ready for tenant build out in the third quarter, we will continue to expand our potential tenant universe in Waltham to include lab requirements.
New construction office rents in this market are in the mid Fortys Triple net and lab rents are pushing through $60 triple that.
Our 180 Citypoint project is permitted and in a position to start with either a lab for in office installation.
I'll conclude with a comment about the Prudential Center Observatory.
Later this year, we expect to comment on major repositioning of the 50 to 52nd floors of the potential power, we anticipate spending in excess of $125 million, creating an extraordinary experience for local area residents and visitors to Boston expect an initial return on this and capital.
Thats been including Forgone income from the space, which is part of our 2020 guidance in line with our recent development project and we hope to open this public facility in mid 2022 with that make up some comments about the fourth quarter results in 2020 ethanol.
Great. Thank you Doug good morning.
Its own described we had a really strong year in 2019. In addition to our 11% FFO growth, we demonstrated substantial revenue growth of 9% and the growth came organically from higher occupancy and higher rents in the same property portfolio as well as externally.
From the delivery of developments.
Our share of 2019 same property NOI growth ended the year higher but 5.4% over full year 2018, and it was even higher on a cash basis at 6.7% growth.
We also had an incremental $78 million in in Hawaii from our developments contributing 6.5% to our growth.
And we still have an active pipeline of $3.1 billion in development under construction that are projected to provide incremental earnings growth every year for the next several years.
Turning to our fourth quarter 2019 results, we reported funds from operation of $1.87 per share and that was two cents per share above the midpoint of our guidance.
The increase was primarily from improved portfolio revenues due to a combination of leases commencing earlier than projected as well as better than projected service income from our tenants in the quarter.
Our results would have been a penny stronger had we not incurred a $1.5 million charge from extinguishment of debt, we elected to prepay at $26.5 million mortgage Encumbering, our new Dominion property. The loan carried a high interest rate of 7.69% and the repayment is reflected in our lower interest.
Runs for 2020.
Looking ahead to 2020.
We've updated our FFO guidance with changes primarily coming from a pending asset sale and changes in our interest expense assumptions.
Our portfolio NOI assumptions remain inline with last quarter's guidance.
Doug detailed the solid leasing activity, we're seeing in the majority of our markets, which gives us confidence in our ability to deliver ongoing same property growth.
Our assumption for 2020 include same property NOI growth of between 3% and four in three quarters percent and incremental growth from our non same properties, primarily our development deliveries of $60 million to $70 million.
As own described we have new Dominion under contract for sale and we expect diligence to be completed and the sale to close in the first quarter.
The sale result in a significant gain we plan to complete the like kind exchange was 88 90 winter suite that we acquired in 2019 and the acquisition of the land under our fourth in Harrison development in San Francisco those currently under option.
These exchanges allow us to retain the sale proceeds for reinvestment in higher growth developments.
The projected earnings impact of the sale net of interest earned on the proceeds is four cents per share of FFO dilution compared to our prior guidance.
The other change in our assumptions relates to reduced interest expense. We now anticipate that will commence construction. This year on the first phases of both our platform 16 development in San Jose and our fourth in Harrison development in San Francisco the associated capitalized interest for these developments reduces our interest expense assumptions also.
Also contributing to the reduced interest expense other repayment of the new Dominion mortgage and lower interest rates overall.
The combination of these items lowers our assumption for net interest expense by approximately $15 million at the midpoint and our new range is $395 million to $415 million for 2020.
So we're increasing our guidance for 2020 funds from operation, but any per share at the midpoint. Despite the projected dilution of four cents per share from asset sales.
Revised guidance range is $7.47 to $7.65 per share.
So excluding the asset sale, we would have increased our guidance, but five cents per share.
All of this points to continuing our strong earnings growth rate with 11% AFFO growth in 2019, followed up by projected 8% FFO growth in 2020 at the midpoint.
Our 2020 growth will be driven by strong topline revenue growth from increasing rental rates in our existing portfolio and the delivery of profitable developments from our pipeline.
We have a robust 3.1 billion dollar development pipeline under construction with the commercial space currently 76% Preleased.
This puts the expected additions of platform 16, and fourth in Harrison later, this year position us well to delivered continued multiyear growth.
That that's all we have for our formal remarks I think the operator, we'll now open it up for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press star one on your telephone keypad, if you're using a speakerphone. Please pick up the handset before asking your question.
Well pause for just a moment tick upon the Q any roster.
Your first question comes from the line of Nick Yulico with Scotia Bank.
Okay. Good morning, everyone I guess, starting out with the new joint venture in South San Francisco.
Clearly very strong market can you give us a fuel for.
Hi, this is going to work in terms of redeveloping existing buildings versus.
Doing new development and if there's any I know you've gone through the plan still mr. any.
Early indications of how we should think about cost per square foot incrementally to build this out along with.
Rents you think you can get in the market today.
Nick Let me, let me start off Im sure Doug I'll have a few comments as well so just to backup for a second and talk a little bit about our rationale for.
Doing this joint venture.
Gateway is a very well located office park near transit in South San Francisco, which is a very strong lab market and frankly, a less strong office market.
The key that drove the joint venture as there is a land parcel that is located between our assets and alexandrias assets that are part of this joint venture.
And that land is owned by us, but its encumbered by a surface parking easement.
By one of the Alexandria buildings, so by doing this joint venture.
Both we and Alexandra contributing our rights to that site.
And we can develop on it.
So this JV opens up that parcel to new development and we and Alexandria also contributed additional sites and also on the Boston properties side, we have some excess parking that we can contribute as well.
So the way we look at this is.
From our standpoint.
And I do think Alexandrias is one plus one equal three.
It's.
We're creating value just by putting the two sides together.
Also from our standpoint, we get to reorient, our investment in Gateway, which is primarily in office project to date to the lab market locally, which which is much stronger.
We free up three new development opportunities, we have no loss of income.
So again I think this is a win win for both Boston properties and Alexandria as it relates to some of your questions about the development.
The total development rights as I mentioned and as mentioned in the release and in my remarks as over 600000 feet. It's on three separate sites.
We in Alexandria, our will have been and we'll be working on development plans for those sites. So we're not prepared at this point to answer some of your questions as it relates to costs.
There is possibility that we could launch one of these buildings in this year so.
Not all of them, but one of them.
Yeah, I would just just a couple of more just clarifying comments.
So that the current portfolio is our three office buildings, a office building that Alexandria owns a lab building the Alexandria owned and amenity building.
So think of this way right now were 100% office and as of the formation of transaction where.
I have about about 13% lab, so we've reduced our office exposure and assuming we build all the lab buildings on and we do some conversion of some of our of the existing assets were probably going to be somewhere closer to 50 or 60% lap in the in this marketplace at the end of the day right now I think we contemplate that the buildings that we will get developed will be lab buildings there or.
All sort of in a couple hundred thousand square feet range, and we're actually there's a there's a plan that we've agreed to on for the first building and we're hopeful that we're going to be in a position to have gotten our permits pulled and start construction on that building by the latter parts of 2020, and you know as as with regards to market rents I think our view.
A market rents and does that that the labyrinth during the mid fiftys, plus or minus and so where we try to achieve a 7% return on cost and I think Alexandria has the same perspective, and so I can sort of give you a sense of where we think new construction will be.
Okay. That's helpful. And then and then just in terms of the 50 50 nature of the venture are we to assume that the contributions are roughly equal so any future spend would be split 50 50.
The.
We are the value of what we are contributing is slightly more than the value of what Alexandria is contributing so the venture starting off with us owning a little bit more than 50% and as we proceed with new development Alexandria will be funding all of it until its trued up to 50 50.
Okay. That's helpful. Thanks, just one last question on GM building I was hoping to get an update I know you've got some leasing done in the quarter, but in terms of the leasing prospects for the remaining vacancy there as well as the upcoming lease expirations and.
You know as well there was you know there's been some reports about pro Weinberg, which has a lease for I think 130000 square feet in the building expiring in early 22, there's been some reports about them being quoted for some other redevelopment in the city.
How are the renewal prospects looking for that along with the rest of the leasing you're trying to do right now thanks.
Paris, you want to take that one.
Yes, yes, we think per hour will leave.
We tried to keep them we were we worked on that free.
Very hard but for a number reasons and restacking in place is always difficult and I think that they will leave the building.
We are talking right down to a couple of tenants for that space I don't know, we'll make that deals of those deals.
And we have space rolling up but as Doug said, we had a pretty good quarter.
At the end of year, and I'm pretty optimistic I think we'll be moving forward with some amenities space in the building, which will also be a plus.
Thanks, everyone.
Your next question comes from the line of Craig Melman with Keybanc capital markets.
Hey, guys.
The the the $12 million increase in NOI loss from dispositions that all Dominion or is are there is no leakage from.
JV contribution no none at all it's a 100% new demand I mean, obviously, that's it that's not a net number right.
It's just growth number.
So what depending on alma what timing you guys have in there what was the cap rate on new Dominion.
We're not going to talk about that it's going to start close.
Okay.
And then just you guys had talked about three Hudson, maybe kicking off sooner than expected I mean, what kind of.
Interest for you guys getting now that a lot of the other new supplies being absorbed and what timing do you think.
Realistically could could be accelerate too.
John you want to its own.
John can you hear me, yes, yes.
Yes.
Yes, Doug, yes, well aware.
We are pretty.
Optimistic based on the response first of all the building that we received very positive response, the building and of course, it's on a full acre and it has avenues on three sides.
So it's a great site and we've we've designed to building that's that's pretty design were 100% Cds now.
So we're we've shown that to a lot of brokers, but we've made.
Probably a dozen tenant presentations and it's been very very well received so based on that where we still rolling with the foundation. The foundation is not quite complete yet.
Obviously, we will not go forward result, an anchor tenants.
We have.
A stream of tenants that are interested.
Some have we could make a 24 lease expiration date that would be the earliest that we could make.
Some of the deals that have been done that had been announced those tenants met with us.
I think every one of the likes the building, but we could not make the earlier dates the that they really want it.
So we have also some tenants would later dates were talking to some 20 526, even 27.
So I think what we've decided now is we have the building that we want to build we have the foundations and so this is going to be a when not if.
And we have to just see how it goes over the next.
Quarter or two quarters to see whether we just continue on go forward or we slow down the construction process.
Great and then just one last one I know we've talked previously about a land site you told US is that still kicking around where are you guys on that.
We are looking at different sites all the time.
So we continue to in order to think about northern Virginia as are really important focus for our growth and so we don't have anything that we can comment on specifically, but we continue to look at different assets.
Great. Thank you.
Your next question comes from the line of Manny Korchman with Citi.
It's Michael Bilerman Herewith Manny.
Doug in your opening comments you talked about three other predevelopment projects, we have seen yards, which John just talked about Walt I mean back Bay.
I guess, if you had to think about the probability of one or more of those projects starting this year.
I guess, how would you rank them.
And how much of it is tenant demand.
Driven versus the rent and the returns that youve require.
In getting those projects off the ground, Greg because I assume you know.
It's a park adult EBIT tends to show up can you need them to pay the rents that you want for your shareholders.
And the returns today.
Yes, so so I would answer the question in the falling way Michael the the so we are we are actively engaged in conversations with with tenants as John said at three of them Boulevard and we're also actively engaged with tenants on conversations on both when 71 garment three and on when 80 City point, we don't have signed letter of intent with anyone yet.
So I don't I don't think we're in a position where we're close to announcing something the rent that we are asking are I would say commensurate with where the market is today and they are more than satisfactory to provide us with an acceptable return to start those buildings.
So if you force me to push from a timing perspective, I think that.
The 171 Dart with Street building is probably the one where we have the most significant.
Conversation with tenants, who we know are going to want to make a move from where they currently are we're expanding the city and so I'd say, that's probably the one of the three thats most likely.
Okay.
This is Brian Coupe of some additional color would be as we ended last year with the.
Completion of leasing, let's say for the hub, which was our major exposure on the urban side.
It's we're thrilled with our position on our development pipeline from the standpoint of our basis as well because when you look at the recent sales of land at record numbers, we couldn't be more thrilled with our position in this late cycle with both.
The back base station and also Walt them with some of the new sites that have been delivered up for sale it exceeding $500 buildable foot and then the compound that with them, 6% increases in construction costs over the last five years, we couldn't be happy about or our position with these development sites as Doug mentioned.
Well, thank you for that too.
And then the second question Elinor or Doug.
Can you take us a little bit behind the curtain on the joint venture with Alexandria sort of when Youre discussion started.
And also you you'd have a lot of overlap and some of your other core markets you think about holdings in Cambridge, Jordan San Francisco.
Did you have your conversations expanded to see other ways that you can have a one plus one.
Equal or greater than two between your two organizations that do have very similar philosophy, you to cap allocation to development to management should all those sorts of things.
So Michael it's a it's Owen.
No.
We initiated these conversations with Alexandria last year and the reason we initiated it was for the rationale that I went through earlier you know the one plus one equals three Ria Reoriented Reorienting, our investment in gateway from office to lab.
No loss of income and also I think not only win for US. It also wind for Alexandria. So we initiated it we just got a closed as you know.
We have and hope to continue to have a strong relationship with Alexandria, but theres no additional dialogue with them at this time about other joint ventures or other collaborations.
Did you discuss at all just selling outright youre holdings to them or.
Four of them selling their holdings to you.
Our preference was to do the deal that Weve currently constructed we think thats, a better outcome for Boston properties shareholders in selling the park.
Because it's all as I mentioned earlier, it's all office in a strong the lab market, we think will create more value for our shareholders by doing the joint venture as currently constructed than we would if we sold it for cash.
Okay. Thanks.
Your next question comes from the line of Jamie Feldman with Bank of America Securities.
Great. Thank you just a quick follow up on the JV can you talk about who's going to be managing construction and then managing the assets.
So.
The joint venture will be jointly controlled from a governance standpoint.
Alexandria will be the property manager, although we will receive a portion of the fees.
We in Alexandria will be code developers, though Alexandria will be in the lead and we will also receive a portion of those fees and we think this structure makes sense given the larger presence that Alexandria has in south San Francisco market.
Okay.
And it sounds like there is an amenity building thats not going to be included in your joint portfolio in the gateway I mean, what kind of value to think that adds to your holdings and that submarket.
So this is Doug Jimmy we think it holds a lot value, which is why we did the transaction. So we have three buildings of almost 700000 square feet that are currently office buildings and are pretty de minimis amount of amenities and we saw you know that Alexander is building was building at.
90000 square foot high quality first class amenities building with a significant advantage from a leasing perspective with regards to both office and the lab tenants that are in that marketplace. So we really this this was this was truly a an opportunity where the two organizations looked at their their assets in this particular.
Submarket and said we are much better off operating this is one collective as opposed to us sort of doing our own separate things and not being able to on untied. This piece of land, where we owned it and they had an easement on it and where we had extra parking and other assets.
And where they had an amenity building. So you through all this stuff together and it's a win win for all the customers in both.
Locations today and in the future.
Alright, Thanks, and then I when I want to go back to some of your comments at the beginning of the call I guess starting out maybe just your thoughts on capital flows.
You talked about hedging costs and maybe it maybe a potential increase in foreign capital just as you look at the office business or office assets that have been kind of slow to trade in the last few years do you see a meaningful pickup and if so kind of what markets and what types of assets, whether its core value add opportunistic just anything you think may change, yes, yes. So.
I am.
Just look at the numbers the transaction volume for our space those being larger office buildings was a little bit up in 19 versus 18, but I think the market is very solid there's good liquidity.
I look at things like.
Interest rates are going down in cap rates are at least so far have not so that spread between where the cap rates are and the risk free rate is very healthy from a liquidity standpoint.
I think there is a lot of liquidity in the world is looking for real estate I think the U.S. is a very strong destination.
Given that even though our we look at our rates is being low they're lower and most of the other developed countries and cap rates or even lower so there's yield available here.
Theres stability available here.
And I'm optimistic for capital flows going into 2020.
In terms of the markets.
I do think there is a higher level of liquidity for the.
Tech and life science sectors of the private capital markets. So I think competitions for buildings that are in Boston or in San Francisco or in West La ours are stronger I think in general than they are in New York for example.
Okay. We've we've heard about the pushback on just people getting their heads around capex costs might come to office do you think that that tone has changed at all or that's going to that's going to be persistent.
I don't know if it's changed.
Thats certainly a focus on the private market as well, but again every quarter and I did a couple more this quarter the cap rates haven't changed much may not have been giving.
On these calls a pretty robust report on the private capital market for class a office buildings in our core markets and the cap rates have been sticking more or less in the force. So I think capex is always something that's discussed.
For office and frankly for all types of real estate.
But I don't think it's had a material impact on the cap rates.
Okay and then just finally you would also commented that.
Business conditions admittance confidence in better today than heading into 19, given some of the global risks at the time.
Are there we saw a lot of tech leasing last year do you think of us is going to spread to other sectors, where you could see major large expansions from other sectors into some of these markets or do you think it'll still be mostly tech thats taking down.
Space.
I think that tech and life science and other creative industries will continue to be the drivers of net absorption I think the more traditional industries.
Financial customers legal customers their businesses are fine.
They are doing well I don't see as much growth in those areas. So I think you'll see them there'll be lease expiration driven leasing I think many of these employers will also be seeking to upgrade their space, but I'm not sure they're going to necessarily grow substantially.
Okay. Thank you.
Thank you.
Your next question comes from the line of Gerrick Johnson with Deutsche Bank.
Hi, everyone.
Doug do you believe that technology company demand you mentioned in New York City actually has some runway and could it potentially continue at this pace or potentially even accelerate.
So Derrick I would answer the question in the falling way I believe that that New York City as a.
Physical location for.
The kind of workers at the technology companies are looking for will continue to be very attractive. It has relatively speaking the best transportation system in all the major metropolitan markets and is got.
Affordable and reasonable housing prices within great easy proximity to where companies are locating and those two things in my opinion are very important determinant for where the technology companies are looking to expand their workforce plus they obviously have.
A lot of college educated workers, So I do believe that New York City.
Has a lot of legs under it and on the long term basis will be a market, where the technology companies will continue to grow prosper.
Okay, great guys Thats it from me.
Your next question comes from the line of Jason Green with Evercore ISI.
Good morning split Rolling, California has been a topic that scanning a lot of traction to start the year, just curious if you're able to share your thoughts on the probability of passage and also the impact it would have in your portfolio.
So I'll talk about what the impact on the portfolio will be and I'm going to let Bob Pease or talk about the quote unquote probability of passage. So the way the way. We look at this is that we have triple net leases and we have gross leases.
And in a strong market you can very easily make the argument that well, but the triple net lease ex escalation of taxes will get pushed along to the tenants.
And with the gross leases.
The escalation to the tenants, it's not rolling will get passed along but to the extent that you're set resetting based here is on gross leases. The question will be how will that impact your your net and if it's a really strong market you probably could choose to move those gross leases to net leases and sort of continue that that quote unquote.
Jeff I'll, along with your other portfolio.
The thing about this this split taxes that it's very unclear is how the reassessments will occur how long it will take how they're going to do it how much quote unquote annual escalation there will be in the assessments will be every three years that they get to you will that be on an annual basis.
How long how many years, we'll take for them to actually start the reassessment process. So all that stuff is very very much in flux.
If you if you said to US okay, well, assuming everything had to get reassessed and assuming you are able to continue to pass along all of your triple net escalation to the tenants, but on your gross leases you had to.
Demonstrate what the impact was we would tell you, it's probably somewhere between two and three cents a share I'm on our portfolio and it would take our average lease length as a year. So it would take eight years for that to roll through.
Bob you want to talk about the probability of of split real passion for sure I think the jury's still out on how this is going to turn out although I believe current pulling showing that doesn't pass and then there is the issue is this just the first step of them trying to raise property taxes not just on commercial property.
But then having a second phase that hits residential which I think.
As a nonstarter for anyone that on the house in California.
This will play out over the next six to nine months and we'll have a better feel during that time.
At present time, I don't think it's going to pass.
Got it and then I guess just a follow up just given the votes getting closer have you seen any change in asset pricing or transaction activity in California, just relative to this actually being on the ballot.
I have not.
And remember that when a new building is.
Is sold it gets access to market, so and unless there were some odd structure about the way. The sale is going to occur every one would assume that the assessment would change and I don't think people are are viewing the building escalations. After the assessment to have a material impact on on the value on a going forward basis, and that's not a change.
It's always been though is that they always get reassessed on purchase so that's always been kind of baked into the.
Those assets.
Got it thank you very much.
Your next question comes from the line of Alexander Goldfarb with Piper Santa Clara.
Hey, good morning up there so two questions.
Yes. So first one just on the Sherman Sterling renewal can you just talk about what played into that I'd. Maybe every partner there can be extended out a grand central but can you talk about yeah. The things that you were able to do to keep them in that building versus some of the other major law firms that shows and other major tenants the chose to go to new.
Construction, so I didn't know if they're restocking in place, but maybe I don't know if their particular things or if it was just general they just they like where they office they weren't interested and relocating to a different submarkets. Just curious so I'll just make one quick comment and then I'll, let John John .
Described that the negotiation we are really good at what we do Alex and so tenants likes it to be in our buildings I just make that as sort of a visceral reaction to that John do you want to talk about.
Thank you Doug I appreciate I would expect nothing western yes.
[laughter].
John maybe I'll be a little more specific.
Yes, there were I think they were intending to leave I think there we're going to leave and I have lunch.
We've kept in touch with them, but I had lunch with the Chief operating officer, there and he gave me a list of all the things that we're forcing them to leave and then we took that list one by one and we responded to it.
And we found swing space for them in the building.
We made a deal with Citi back across the street can move to get there.
The Conference Center.
So that would be available it's very hard to rebuild the conference center pay for that and then move back into a conference center. So Citibank has downsized as everyone knows Carolyn.
Corner and they were they were ready to do something different with that conference center. So we made a deal with a firm in London to sublease from Citibank and then we made to deal with the from the Sublease did two allows sherman to use it for years. They go.
Across the street to rebuild their.
There the conference center, so the swing space The conference Center, they had some operational issues in in the building because it was a these weren't really built based building problems, but they were.
Problems that stemmed from the way they did their build out way way back in the late 19 eighties.
We were able to get.
Got them to understand how that'll happen from an MLP standpoint, and they were very.
Very comfortable that we're going to fix it all so given you a high point of a number of things on a much longer list, but when we had all that done.
They decided when they look to their alternatives that they could live here happily for another 20 years, which will by the way to make it 50 years at the end of 20 that there will be in this asset.
Okay.
Thank you and then second question as I was talking to a broker recently and.
One of the life science markets and.
The point came up about the political rhetoric that was on the campaign trail in healthcare and all the fun stuff and you had a question is if it's having any impact on life science leasing. So were you are you seeing any life science tenants you know maybe starting to dial back their thoughts on on taking space.
Based on what may happen the election or in healthcare legislation or is all that rhetoric, you know not having any impact in life Science continues to go full bore so so our our venue on life Sciences, primarily in the greater Boston market, because that's where our life science assets are and I would I would tell you that art.
View is that interestingly enough there are more life science tenants looking for space today than there ever happen and many of those same life science and its are actually if you will warehousing space because they're concerned about finding space as they grow so we have not seen on any of the rhetoric translate into a visceral.
Action that we should slow down or stop what we're doing because our business models are going to somehow be stressed by what goes on from a political perspective.
Thank you that so we are having also seen any.
Slowdown in the investment portion of the life Sciences.
A record number of VC investment last year I think it was one of every $4 NBC came to the Boston market. We continue to see that and then we also continue to see several of our clients have a pipeline of call. It new drugs that are up for approval, which have a tremendous amount of opportunity. So we haven't seen any of the rhetoric translate into.
Demand.
Thank you.
Your next question comes from the line.
Malhotra with Morgan Stanley .
Thanks for taking the questions. So just just two quick ones one can you.
Both sort of we work and maybe just a bit of a slowing down in base here in New York and maybe some other markets.
Give us some updated thoughts on.
Oh, you CB XP flex evolving.
And just maybe broader thoughts or specific touch on plans for the make ready suites that you've referenced in the bust.
Yes, Okay. So maybe I'll make a general comment on.
The whole shared workspace business I'll turn it over to Brian to talk about flex by be XP.
Clearly theres been a slowdown in new leasing from the co working operators given all of the Tamale with we work last year I think thats not only been true of we worked but also some of the smaller operators I think the market the markets continue to be held.
Anything that that demand driver has.
Gone away at least for the beginning of 2020.
Yes. This is Brian too if you look at our strategy with flux in Boston, It's really been almost complimentary to our existing products. So as an example, with the hub.
On causeway, we have one full floor that we had always planned on putting in the podium and that's 100% pre leased and opened last week and we're just thrilled with the product and how it came out by year end, we hope that four locations, but it's really complimentary to our existing assets and has nothing to do with what's taking place in the greater.
Market and then in the greater market on co working I think our flex products been immune from.
A lot of that noise, because the flex product is really for the small to medium enterprise and it's not a co working product per se, it's a space as a service for small to medium enterprises, yes. So we look at it as we're not trying to grow flex.
For the sake of growth, but if we have we do think the product is interesting to a segment of our customer base and if we have the right space in the right place, we'll consider future stores and we're the.
The only other places that were currently in process is uncertain.
Or that we actually got back.
In November and it's under way to to be a floor of a similar elkin in San Francisco.
Great and then just.
The JV with do it with Alexandria definitely interesting tanks for all the color.
Is this is this a very this seems like a very specific deal specific opportunity, but just curious as you step back and look at sort of UIL holdings on the east coast as well.
I think there there are opportunities kind of to partner with or whether its private capital are there other firms sort of more than a joint venture bases, given sort of maybe where we on the cycle.
Yes.
So.
To answer it let me think you asked two questions there the.
Absolutely. This this joint venture at Gateway, we're very excited about it we think it's going to create a lot of value for shareholders versus what we own right now, but it's very specific you know, it's very specific to the fact that.
Alexandria, and the assets next door and it had these sites where the development potential with unlocked. So thats why we did it.
As it relates to joint ventures overall, we're increasingly using joint ventures in our portfolio for different reasons than the Gateway project.
We recently brought in CPP to own a 45% interest in the platform 16 project.
They are our partner on the Santa Monica Business Park acquisition that we I guess increasingly less recently made so we are continuing and we'll continue to inject private equity into our investment portfolio to extend our capital.
But it's very good if the rate the rationale for that is very different from the rationale to gateway joint venture.
Great and then just one last quick one so the street retail deals how you'd referenced earlier in.
The two deals I think you recently did maybe just give us a.
There's obviously been a lot of.
Turning to assist Avenue Madison sort of sub markets and I'm. Just curious your thoughts you don't have a there's not a massive exposure there, but just your thoughts on where we are under sort of evolution in terms of rent resets and do you have a sense of where rents that create might be there and the two specific submarkets, where you have exposure.
So so the answer is obviously, we know what the rents are of the deals that we just did but we're not going to disclose the specifics of what those those tenants are paying.
I just make two comments and then John powers, if you want to make some more of your welcome. The first is that we've now had our second.
What I refer to as success successful tenant look at the fifth Avenue store that we have as a great place to conduct their business. While they are on doing an ongoing remodel and they paid what we would believe our fair market rents for that space.
But they havent not invested in and on the long term basis, and then on Madison Avenue, where we recognize that rents are not where they were five years ago and so there's a reset and you know where that's just the reality John do you have any other comments.
Well, we don't have any retail exposures.
In that area.
Obviously is the overall wrench have dropped in the retail market, but for a specific sure for specific need there were still people in the markets looking.
For an alternative.
We've done in some of our other retail is concentrate on food and beverage because that's an amenity to the office towers, which is very important.
Great. Okay. Thank you.
Your next question comes from the line of John Guinee with Stifel.
Great. Thank you a wonderful quarter wonderful guidance life is good.
One question Mike.
Bouncing up around 6364 net debt to EBITDA and I think you on a path to deliver about 800 million 2 billion of development every year, maybe sell two to 400 million of assets. When do you what is your.
Self imposed maximum on your net debt to EBITDA and when do you anticipate needing to go to the equity markets if at all.
So our we've been pretty consistent over the last many years of targeting that that EBITDA between second half and seven have done.
So we've been able to.
To a lot of development and deliver a lot of properties without raising equity.
We have a number of opportunities in front of us, including two we talked about today.
And things that are in the future pipeline.
As we.
Determine.
If those and when those will come in we will look at all the sources of capital that are available to us.
So we mentioned private equity.
And bringing that in and we did that with CVP.
We can bring in additional debt, which is very attractive and very inexpensive.
We would also considered public equity in the future.
To make sure that we maintain our leverage in a place where we think it's where we think we should be.
Great and then just a couple of cleanup questions up.
I don't think third 30 Hudson is in Europe .
Development page on the Sop any reason for that or maybe I just missed it and then second is everything going smoothly on dock 72, and we work taking it on time taken so based on last month alerts on just of the three Hudson So.
Right now that's in our land position and the work that we're doing there is improving the land and since we have not made a commitment or decision to move forward with that full development. We are not putting it on our development page until such time as we would do that and that's very similar to the way that we handle.
These other projects I mean for example platform 16 that we've talked about we're doing enabling work we're doing prep work.
We're improving the land that we have.
But until we decide that we're going forward, we are going to put those projects on the development pipeline.
Great.
Thank you.
John do you want to make a comment about him duct 72.
Yes, everything is is fine on the we work side, they're a big built out about two thirds of this space and they're paying rent on all this space.
They have.
A good number of members trying to help.
We are slow unfortunately on the amenities and we need to get that Don that will be done in the first quarter and after that is complete we should.
We expect more we worked members will move in.
The amenities at 35000 feet in there are a key part of what we're creating there.
On the lesion size, it's been very slow as you know we do have a proposal and we're trading paper on a 50000 foot full floor, which were optimistic about but we'll have to see how it comes out.
Great. Thank you.
And again, if he would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Danielle is now with Green Street advisor.
Thank you and good morning.
The observation deck at Prudential Tower is this something you're going to seek to manage internally to look for an operator, and then are there any opportunities to address and other developments like three Hudson.
So the anywhere we haven't made any decisions from decisions yet about how the.
The observation deck it on the per tower will get operated.
Interestingly that it's you know it.
It exists and therefore doing a major renovation of it obviously made a lot of sense we.
I thought about having an observation deck when we were developing salesforce tower, but we just couldn't make the vertical transportation work I mean that building given where the design had already been and I would say that at the moment none of our other assets are candidates for those types of uses.
All right.
And then on proposition that use on the ballots in San Francisco in March assuming it passes does it cause.
You guys it.
Change your thinking on development timing or acquisitions outside of a city and are you hearing anything from tenants regarding this initiative.
So Bob you want to explain what what about the about initiative is everyone understands it.
Yes proposition knee is a ballot measure put forth by Taco John ever link.
Basically would tie affordable housing deliveries to the amount of office space that could be delivered in San Francisco, thereby reducing the amount of prop M allocation yes.
The affordable housing goals aren't Matt.
It's pulling fairly well right now.
In our case, the central Soma projects, all would get there.
Existing allocation that still outstanding so in our case with yet another 250000 feet because they want to get the.
Fees from the developers upfront.
We're not hearing anything from any tenants as far as its impacting their desire to be in San Francisco or they're looking elsewhere.
And San Francisco has always been a difficult market develop in so I don't think it really changes anything.
Do you think that's what impact the an accelerated phasing of projects in San Francisco or elsewhere.
Only on the central Soma projects that have already been approved where it where it would accelerate the.
Second phase of their prop M a lot.
So and being what it being what it would what the impact will be is existing product. The rent should continue to rise substantially because it's going to restrict supply.
The Danny there.
The way. This works is that that that projects that are currently in the pipeline and south and central Soma, we'll get there additional allocation to the reason why there would be theory and acceleration is because if you don't use your prop M allocation within a certain period of time I, Bob I think it's two years then.
It goes back into the bank.
And so to the extent that you get the allocation you know you you'd want to figure out a way to use it.
Thanks, and thanks, everyone.
There are no further questions at this time.
I would now like to turn it back over to the speakers for closing remarks.
Okay, well I think that concludes all the questions that concludes all of management remarks. Thank you all for your.
Attention and interest in Boston properties.
Yes.
This concludes todays Boston properties conference call. Thank you again for attending and have a good day.