Q3 2020 iStar Inc Earnings Call
[music].
Good morning, and welcome to ice stars third quarter 2020 earnings conference call if.
If you need assistance today during the call. Please press star zero, if you'd like to ask a question. Please press one zero.
That's one zero to ask a question.
As a reminder, today's conference is being recorded.
At this time for opening remarks, and introductions I would like to turn the conference over to Jason <unk> Senior Vice President of Investor Relations and marketing please.
Please go ahead Sir.
Thank you and good morning, everyone. Thank you for joining us today to review I stores third quarter 2020 earnings.
With me today are Jay Sugarman, Chairman and Chief Executive Officer, Mark The Silverado, our President and Chief Investment Officer, and Jeremy Fox Gaines, our Chief Financial Officer.
This morning, we published an earnings presentation, highlighting our third quarter results and our call will refer to these slides, which can be found on our website I start dot com in the Investor section.
It will be a replay of the call beginning at one PM Eastern time today. The replay is accessible on our website or by dialing 186 620 710 for one with a confirmation code of 7947936 before I turn the call over to Jay I would like to remind every.
One that statements in this earnings call, which are not historical facts will be forward looking.
Star's actual results may differ materially from these forward looking statements and the risk factors that could cause. These differences are detailed in resi see reports.
I started screens any intent or obligation to update these forward looking statements, except as expressly required by law.
Now I'd like to turn the call over to ice starts chairman and CEO Jay Sugarman Jay.
Thanks, Jason.
We spent a third quarter continuing to focus on our three core strategies building.
Building, our ground lease business recapturing capital from legacy assets and strengthening our balance sheet.
As a result adjusted earnings were solid <unk>.
We extended our debt maturities even further.
I can see how it's the portfolio continues to shrink.
But our primary goal remains highlighting the embedded value of our stores ground lease platform asset portfolio.
Positioning ourselves for expanded growth in the ground lease ecosystem.
As we mentioned on safer safe holds earnings call.
We are beginning to see some pick up in transaction activity in the real estate markets had a concurrent pick up in ground lease opportunities.
Safe Holden I star are well positioned to continue providing innovative bradley's capital to building owners and we are finding new ways to meet our customers needs as we push further and deeper to reinvent the sector and increased the market's understanding of its potential.
Safe old recently closed its first core multifamily transaction in Seattle as part of a custom tailored safe star transaction.
We're working with new customers across the country as we expand our capabilities.
With regard to the existing portfolio, we continue to see certain sectors struggling with covered having a major impact on operating performance.
Theaters and hotels had been hard hit.
We put one of the few remaining entertainment retail loans in our portfolio on NPL status.
Though we remain senior it's a significant equity and subordinated debt.
Do not currently expect any principal loss in that position.
On the other hand, we saw positive developments in our largest net lease exposure in the entertainment sector bolero as the company significantly bolstered their liquidity position and generate operating results that exceeded our expectations on both the revenue and EBITDA basis.
As a result, we executed a comprehensive amendment through our master leases to defer some risk in return for eliminating a sizable Ford capital commitment that no longer fits with our ground lease focused strategy.
But that benefit to our long term master leases with Valero is a tenant in a much stronger position with growing momentum and what now appears to be the firepower to outrun even some of the more pessimistic covert forecasts.
And with that as a quick overview, let me turn it over to Jeremy now to go through the details.
Jeremy.
Thank you Jay and good morning, everyone Mike.
My comments will refer to the earnings deck, we published this morning on our website.
Turning to slide three which highlights our performance this quarter against our strategy.
Safe old continues to demonstrate strong performance both in terms of the business.
And the value of our investment, which now represents a $1.2 billion unrealized gain.
Since Q2 safe hold closed an additional $105 million of ground lease investments.
We strengthened our balance sheet by refinancing $400 million of unsecured senior notes extending our debt maturity profile.
And we continue to simplify our business by monetizing a legacy asset portfolio.
With $21 million of dispositions, reducing that portfolio to 13% of our total asset base.
And just like full with more on seasonal.
Save hold saw an uptick in origination activity through the quarter, which bodes well for the future.
With over $200 million of potential ground lease investments under signed letters of intent. In addition to the $105 million of closed transactions just mentioned.
Its portfolio of ground leases was $2.9 billion at quarter end.
Continued to collect 100% of its ground rent.
Highlighting the safety of its cash flows during these stressed economic.
Since the third quarter of 2019, our investment in safe old increased by $1.3 billion, which includes that $1.2 billion unrealized gain.
During the first three quarters of the year safe hold stock has appreciated by 56%.
Slide five details, how we've strengthened the balance sheet and improve our credit metrics.
During the quarter, we refinanced $400 million of 5.25% senior unsecured notes due in 2022.
And extended our weighted average corporate debt maturity profile to 4.5 years with no corporate debt maturing for just under two years.
As at quarter end, we had $88 million of cash and $330 million available capacity on our revolver.
Year over year, our unencumbered asset base increased by $1.1 billion to $4.6 billion.
Unencumbered assets to unsecured debt ratio improved to 2.2 times.
We Levered 1.2 times debt to adjusted equity based on safes market value.
And we remain primarily an unsecured borrower.
As unsecured debt represents 68 cents about total debt.
Slide six we provide an update on the legacy asset portfolio during the quarter, we sold $21 million of legacy assets, taking total sales proceeds over the past year to $183 million.
Over the past year, we've reduced our legacy assets by 14 cents.
Most of that reduction concentrated within a short time legacy asset portfolio, which is down 25% taking that balance to $285 million.
You know a long time legacy portfolio, the entirety of our $69 million of sales with transactions in Asbury Park in Magnolia Green, where we have can be seen continued steady sales through the comment period.
Slide seven shows our investment activity for the quarter.
During the quarter, we had a total of $148 million of investment activity, including $8 million.
Open market purchases of safe stock.
Hundred $17 million within our loan portfolio and on net lease joint venture.
And $9 million of.
Develop capex.
In addition, we repurchased approximately $1.1 million 1.1 million shares of stock during the quarter.
The $14 million.
On slide eight you.
Do you see.
Portfolio overview.
Rent collections remained consistent with the prior quarter.
Safe, which represents 34% about portfolio based on his market value collected 100% of its ground.
Excluding Valero, we collected 98% of rent on on that lease portfolio consistent with the second quarter.
And we received 92% of our interest payments due within our real estate finance portfolio.
Unpaid interest is due to a single loan on a large entertainment and retail property, which we classified as a non nonperforming loan at the end of the third quarter.
And we collected 80% of rented operating properties, which represents only 5% of our portfolio.
As Jay mentioned Valero reached a comprehensive deal.
Well its capital providers to ensure sufficient flexibility to manage through the business disruption created by Kobin.
As part of that deal, we agreed to defer approximately 60% of the rent code nine months stuff.
Starting October 2020 or a total of $23 million.
This deferred rents will accrue interest and will be repaid over two years commencing January 2023.
And as part of the agreement, we terminated a $55 million forward commitments to purchase additional buildings and.
Slide nine details our results for the quarter.
We reported a net loss for the quarter of $2.1 million.
Which is a net loss of three cents per share.
And adjusted earnings of $22.1 million or 29 cents per share.
Year to date, we reported a net loss of $46.9 million, which is a net loss of 61 cents a share.
And adjusted earnings of $29.8 million.
39 cents a share.
Slide 10, we present, our book value per share, which illustrates the value created through safe.
But not recognized in our reported financial statements.
Including safes market value as of September Thirtyth.
Our common equity value per share is $24.58.
And when adjusted for depreciation amortization and Cecil allowance, our common equity value per share stands at $29.08.
The current stock price represents a substantial discount to this that.
In conclusion, we saw consistent performance from our diversified portfolio and significant embedded unrealized gains from Seyfullah. Moreover, we've seen an uptick in safe holds origination activity pipeline, which should enable us to continue to scale the business.
With that let me hand, it back to Jay.
Thanks, Jeremy.
Well with 2020, almost behind US were pleased the growing value, creating our safe whole platform in shareholdings.
Was more than offset the negative impact on other parts of the portfolio.
The numbers continue to show I stars embedded value is well above the current stock price.
So we'll work to show more investors why the success of our ground lease strategy as great an attractive entry point and I start with a compelling value proposition and significant upside.
Okay, operator lets go open it up for <unk>.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press one zero at this time.
We will take as many questions as time permits and proceed in order that you think more.
Once again, please press one zero to ask a question.
We will pause a moment to assemble the roster.
Our first question comes from Jade Rahmani with.
KBW. Please go ahead.
Thank you very much I'm just looking at the income statement. The other income line was up sharply to 25.6 million from last quarter's 10.3 million a year ago 18.3 million can you give any color on what drove that increase.
Sure, we actually had a nice pop in one of our cold storage offsets in terms of its value and we were able to recognize to that was that was most of it yet.
Is that recurring income or was that a onetime item.
Well, it's oh position than what came out of our preferred freezer a portfolio that we sold and a.
The company that are required and that we now have a small interest and has been great. So are.
They have been able to consistently increase the value of our position, but I can't say, it's a recurring.
Contractual occurring.
Yeah, we really like the position I think there's more upside there.
Could you quantify the the size of that position maybe in terms of book value or some other metric.
Yes, that's right around the $60 million range right now.
Okay.
Great.
The the entertainment retail loan on NPL what.
What time horizon, when do you expect for recovery and I believe you said you don't expect any principal losses, because you're in the senior mortgage position.
Well I think are structured from talking about it during these negotiations, but you know what I would say is yes. It is open.
Cogut is the primary cause of.
Yeah, there's temporary what we expect to be temporary hit so.
If you think drove it sort of runs its course of the next 12 months.
Thanks.
That's the period, we need to get through and out the other side it.
As I mentioned I think it's more a situation where the equity and the subordinated capital needs.
Need to decide exactly how they want to.
Great.
Runway.
But.
Until they have a clean runway set up we thought it was right to put it on NPL.
And the other concerns in the loan book, there's about a 185 million of hotel loans.
There was 84 million of land loans.
There is $168 million of condo.
Yes, hi, thanks.
The land book is actually doing better than we thought so we feel good about that I would say the hotels are the one place.
Again, the covert impact has been.
Outsized and certainly you're outside.
The realm of typical ups and downs so.
Feeling okay about that because again, we think when Kroger is pass those are good solid assets.
I think I said it last quarter the longer covert goes the more variability comes into our projections.
So right now we're kind of anticipating six to 12 months.
Still pretty hard.
Conditions out there and so.
We think our.
Answers have the wherewithal to make it through there but.
A little bit out of our hands right now in terms of covert timing and.
Just how long these sponsors can can stand there and continue to support these assets but.
No we haven't we haven't taken any additional reserves. So we still think we're in good shape.
Keep our you know, we're keeping our eyes on certainly the hospitality side.
Okay are there any loans that you might be interested in looking to monetize the saw a commercial mortgage alert in July reported that there was a mezz loan on the New York Hotel totaling around $50 million that are I think in Brooklyn that I start was looking to sell.
Again, we kind of like most of our position, but there are plenty of places to trade one thing and get into something even better. We certainly continually explore that mark that we spoke to have our finance book.
But it's all fairly calibrated too there's the price at which we can take capital from one sector and put it in the mother and make a lot more money.
I think as Jeremy said, we bought stock we reinvested in some of our net lease assets.
Areas, but mostly we're reinvesting into a ground lease business that we think is fantastic. So.
Slowly, but surely we will try to get rid of a lot of legacy assets and reinvest them into this.
Oh, the Grammys ecosystem.
But were.
I have no real urgency to do that no pressure to do that I think weve moved out our wire.
Liability structure very very nicely. So all these are almost purely discretionary decisions.
You ever get prices that we like real will make that trade and if we don't we'll play on.
And just thinking about the capital position with $88 million of cash and over 400 million of liquidity. How are you thinking about I stars.
Cassidy to make new investments.
Yes.
Capital is there to to be invested and we certainly have a plan to put it to work overtime. We also see significant capital flexibility in the rest of the balance sheet. If we wanted to create incremental capital we could do that so our goal right now is to put the.
Capital to work in the areas that we think are most beneficial for shareholders.
Fit our strategy most closely.
We're laying out plan out for 2021 as we speak.
And are you able to draw on the credit facility to fund.
Additional investments and safe.
Yes.
Yep dollars are fungible, but.
Credit line is available to us right now in full.
Okay and just last question would be if you could give any color on the.
Core multifamily deal in Seattle, maybe yeah.
You mentioned, the safe star nature of it.
But also the 200 million lives you know what.
These actions you're seeing traction on.
Markers, you want to talk a little bit about Seattle and the pipeline.
Hey, Jay so that the Seattle transaction was a class a newly constructed.
For high quality asset and sponsor, where we were able to offer a one stop cap.
Capital solution.
As the assets loan matured so to stabilize that said plus 90% occupancy collections actually at 100%.
So surprising.
Surprising in this in this volatile.
Environment, but where the asset is located no.
Across the.
The street from Apple and Facebook it.
Add up a little bit as to why that performance is so strong and so we were able to create a ground lease for safe that was great for safe and high quality Unlevered with high return for Costar.
On safe pipeline side.
As we said on the on the safe call lot of positive traction over the last two months.
We're seeing a lot of multifamily transactions, primarily they're mostly new sales.
Surprisingly pretty close to pre covert values.
And our product, both with new and repeat clients across the country we have.
Scaled pretty dramatically. So we're excited about the prospects.
Going forward for SAIC.
Thank you.
Our next question comes from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning.
Jay I guess all that touch.
Touch on buybacks I know you talked to in the press release, you had a comment about getting more market participants to recognize the value of the platform and the mark to market basis. I think you guys bought back about 9% of the company last year and.
9% last year in the first half, but on a mark to market basis Doxey for star today than the.
Can you talk about your appetite to increase that stock repurchase signal.
Signaled that the value there.
The leverage numbers you guys highlighted in the deck declined up pretty substantially.
Can you maybe talk about how you look at capital between buying back our safe and potential increases in the dividend.
Sure Stephen.
You know, it's really two things one we have been a consistent bars you know.
Yeah, We do believe Oh star stock price was to get for an undervalued and if we can capture.
Some of that discount for remaining shareholders. That's you know that's always a good trade and warm we've executed on.
Pretty consistently.
What I mentioned in the.
More investors and getting people to really see this.
Buying stock in of itself hasn't really moved the stark where you've seen a pretty.
Pretty consistently itself, it's an excellent.
Smith for capturing some of that value, but I think the big way to unlock the real.
Delta between where its trading what we think it's worth used to go tell the story.
Now that's getting simpler.
Now that we've created a really strong balance sheet.
You've seen some of the positive things.
Things we've done over the last two years to really try to put a very simple story out there.
But frankly, just a simpler every day and petco with much step than here.
I think we'd be telling a different tale, but we probably need to go out and make people understand the components of value, where we're headed how we're going to go up there and why this gap.
GAAP and you really shouldn't exist and.
And we think that's probably even more important than simply buying what we're allowed to buy in the marketplace is to really get more people to just look at what is.
And where we're going and I think if you understand the safe hope story, you'll get even more excited so.
We've got work to do on that front.
There is a.
Relatively concentrated shareholder base that I started we think there is a lot more people who would be interested if they understood the story.
So once we come out of blackout hero.
I certainly think we're in a strong position to tell a story that lots of different kinds of investors will understand.
But as I said I think it's not only a compelling value proposition, but when you understand the sprout lease reinvention that we have so.
Started and you don't have really become the leader in I think you'll see that there's a lot of upside even beyond where we are today.
If say fold and that all translates back to start too so.
No one one silver bullet, but we think between buying.
Buying in the Mispriced securities and telling the story.
Simpler cleaner way as time goes on we'll definitely Merrill.
Narrow that gap.
Great. Thanks for the comments on that Jay It looks switching to the short term legacy assets 285 million can you talk about the.
Timing around resolution there clearly you know a bit I think extended.
Everything for everyone and curious to get an update now that.
Seven month path.
Maybe you could or reset on expectations of me.
Modernizations and asset resolutions around the short term legacy portfolio.
Yeah, I mean, if it's some days are good base given some are frustrating we've had a lot of those assets under contract and some people did fall out.
Whether they did it because they're just probing to see if you know it will sell at a lower price or whether they did it because to have concerns about how long it's going to go yeah, we continue to make progress.
Our team is doing a great job in terms of.
These assets are in a position where they can go to market, we put them on the market.
We've seen good good traction in that short term pool on a number of assets, but some of them have extended closing time frames.
Our conditioned on getting something from a municipality.
And what we've seen is cogut has really slowed down anything that needs to go through the the government channels.
For a while they weren't even meeting then they started to go to the zoo meetings, but it feels like it takes two or three Zhou meetings to get done what used to get done in one.
Council meeting.
So we've got some some time you know push back.
On a couple of those assets, but again I think most.
Trying to think in almost all of them, we are either in market or getting ready to go to market. It's just the closing timeframe on some.
All of those will be pretty expenses can be as much as 12 to 18 months on a few of them. So.
Like what our team is doing there I would say on the long term stuff.
We're actually pretty pleased where things have shaken out it and Magnolia continues to be a top seller in that market.
And Asbury I would tell you the kind of sales has been quite good.
I think we sold.
Six units in October which is.
Really good for us.
But you know Asbury summer was very muted.
Hotels ran at a fraction of their.
Typical summer numbers, although they had a couple of good good a weekends when there towards the end of the year.
So little bit of a mixed bag in terms of a muted summer across all of alsbury, but oh.
Uh huh.
I was very ocean clubs doing really well and we actually have a couple.
Parcels of land that we think are headed for.
Sale or you know pretty competitive bidding so.
Oh, no can't can't really tell you have a future until we get this kind of a thing under control it really does make business much harder.
Yeah, I think it just puts psychologically a little bit of a cap on how much we can get done.
But again, if we can round the.
I wouldn't use that term if where you can solve this problem by the summer of 2021, that's kind of how we're budgeting and thinking about moving forward.
Great and you touched on Asbury out there, but you know the hotel exposure in the finance portfolio can you talk about any.
Any update there and what you're seeing with those investments.
But those are tough.
Yeah, there is almost a dual squeeze which is.
Demand has fallen off.
Yeah, a lot lot of markets supply ones in the pipeline is still coming online.
So there's a there's a period of pain here and we're starting to see the.
Dependence call for 345 years before they get back to 2019 levels.
And that's again a function of both.
Oh I.
I think the demand side.
The zoom application of business and then the supply side, which you can't you can't stop on a dime. So there's still stuff in the pipeline that's coming forward.
Yeah, we rely on our sponsors who are typically row crop alive to see the.
Near term.
Issues or something they can get through and.
Our basis in most cases is you know when we feel quite good about but.
Yeah.
It is not going to be an easy period for the hospitality world and.
In particular sectors I think.
They're going to have a long road to get back, but yeah, we have more of ours are.
Kind of bread and butter hotels, and I think they stay on the probably the quickest recovery.
And so we're just.
We're hanging on with our sponsors to try and to help them get through this and get to the other side because.
We think most of them will.
Great and lastly, Jay.
More positive outlook I guess on on growth at Se and also kind of combined.
Originations on all of US a star safe financing can you talk about the pipeline there on new investments Oh are you seeing any strength in certain regions or certainly not property type you know kind of how is how is that building now as we head into the end of the year and is there any seasonality along that should should we.
Expect any deals that you don't want to close before year end or go into next year or whether that's for critical or tax reasons or simply annual budgeting issues.
I'll throw it back to Mark up again, but I think it would be so we put a real push on multifamily.
Most labor day, we felt like we had a really good solution for a lot of folks and.
You know we have continued.
Continued to try to press into.
More places for more customers I think that's really the story of 2021, that's coming is our ability to to now that we've done this for three years to.
Be able to sit with a customer said what do you need and then find a solution for them that is good for them and good for us.
These kind of win win solutions or why were so excited about this business because.
I think what we're actually doing is providing an entirely.
For people to capitalize the ownership of buildings and it really looks to us like one plus one equals more than two.
So we when they win and ultimately I think the overall real estate market wins, but markets I don't know if you have any more color for for Steve.
No just echo what you said, okay. If you look at the pipeline. The majority of it is what I would call sub urban higher growth.
Business friendly.
Demos.
And very selective on that rather than you guys have all the public multifamily.
And you can see their same store in Europe year over year.
Mark answered pretty pretty easily so I think there is a difficulty across the market, whether you're writing ground capital or equity capital and some of these in the market. So we've seen success in some of the higher right.
More stable.
Markets on the net lease side.
Continuing the theme on the cold storage side, we made an investment there.
We also made an investment.
In the past quarter in the life Sciences space. So we're seeing that in the pipeline. So a lot of logistics life science.
At least.
Great Marcos Jay Thanks, very much for your comments I appreciate it.
Okay.
Our next question comes from Jade Rahmani with KBW. Please go ahead.
Thank you I wanted to ask a bigger question bigger picture question, just around New York.
The office sector in General I believe for Safes portfolio, New York is close to about 40%.
Are you changing how you look at office deals how you underwrite underwrite AWC sales I think last quarter JLL CEO said.
There is a 16% reduction in the typical lease term.
And I think a lot of companies are deferring their decisions and we know that companies are evaluating strategies for supplementing their gateway market footprint with satellite offices now.
In the Tri State area for example in suburban markets. So wanted to hear what your thoughts are on New York and if you're changing how you underwrite office deals.
Well, let me say it really high level and then maybe Marco can talk about some specific viewpoints, but yeah.
Yeah the.
Pension between urban living in suburban living has been going on for a long time. It comes a little bit of cycles that we're clearly on the cycle where.
The benefits of living.
Hey, you know vibrant active walkable location.
Like the New York or.
Yeah, Unfortunately not available.
So yeah, we definitely see a little bit of a pendulum swing the other way right now but.
Jade as you know, we think about that business in decades. You know these are 99 your instruments.
And did you ask us whether our view has changed on major cities with our country suddenly.
Suddenly becoming obsolete we don't believe so.
In the near term because we are yeah.
Super Senior and low in the capital stack.
We don't have to quite make a call on what's happening to.
Lease terms today, and tomorrow, where we have to make a call and those are the two cities capable of providing that kind of environment, where a large percentage of the population will want to live.
And we still think that's the right. So you sort of for a long term business.
We're certainly not abandoning urban cities and would never abandoned in New York, but you know this will go through cycles as well good leadership tends to make city shine and we're certainly hoping coming out to cope with that.
You know top quality leaders can step in and really help.
Like this so.
Cobot impact as shortness does limit the pain as much as possible, but new York is going to go through some pain that we're seeing in San Francisco seeing it that way.
Yeah, well policies will have to reflect that and.
Well a lot of people love living in the suburbs I think lots of people love living in an urban environment and I don't think that's necessarily change any systemic way I think.
Do you have to recognize some of those impacts and you know we do change our underwriting so.
Marcus can tell you, it's it's a fluid process and.
We certainly don't have our heads in the sand, but we also again are trying to make long term decisions not trying to pick what's going to happen in the next couple of quarters. So.
Mark I don't know if you want to go into a little more detail on our underwriting I think I'm sorry.
Oh, sorry, sorry, Jay I think that the the high level thesis is ultimately what drives our decisions.
We're not making three year bets and trying to time.
Markets. So we're still believers in the major markets on a more granular basis Jade.
Our underwriting approach has always taken a mark to market when I would call more lender like conservative approach and certainly.
Office markets the back office assets, depending on the market.
Our net effective rents in our underwriting can be down 20% to 25%.
On a mark to market basis. It doesn't mean that we don't think that those rents will ultimately recover and eat each asset in an individual location and sponsor is in the quality of the asset and is it said in the in the haves bucket versus the have nots bucket has or.
As it relates to quality. So there's a lot that goes into our into our calculus, but we are.
Believers and I'll add just one personal tidbit.
We we've been back.
In the office since Labor day.
Abiding with the social distancing regulations and I can tell you I feel much more productive.
I don't know if it is the kids not running around in the background or just us being able to kind of pop down the hall and talk to somebody it just feels much more productive and much more efficient.
And if you thought that.
Office rents in New York City, we are going to be down 20%.
And that it would take you know three to five years to get back to their prior.
Period.
What would be the impact to pursue.
Purchase price no.
Families the 35% ground these yeah.
Yeah, its down by a similar magnitude.
Yeah, and not necessarily because there's a cost to capital component here and heightening the assets that we invest in a very high quality and there's still people chasing yield across the world in the May June one so one could argue that the cap rates are actually potentially down for the wall.
The state market.
And weve seen some similar trends.
In Japan, and Europe, and potentially the U.S. is in a similar sort of size.
Cycle of lower yields given what's going on in that.
In spending at the federal level so.
It's hard to know I will tell you, we orient ourselves around a few things replacement cost land value coverage percentages CPV.
Yes, it is going to be a general comment.
Jake every asset is different but I would say our you know our ground lease proceeds on probably on the same asset down to 10, 15% from where they were before.
Okay, and if you thought that the average lease duration I think something we work.
[music].
Brought to light in the market was the anachronistic nature of some office leases hyper changing tack enabled world signing a 10 to 15 year lease.
With ever growing that is a big commitment for a company to make if you thought the average lease duration is going to be down.
Into the five to eight year range from 10 years previously how would that impact your underwriting.
Uh huh.
Don't think it necessarily impact us as much to me that's a supply demand.
Shit.
Today, there's no demand and obviously if your company you're preserving your optionality before making a decision.
Which is why to your point references Theres a on a short term lease renewals happening people are just not you know somebody and they are also waiting to see where they can get a bargain.
And they get into a building they could have never gotten into so I think this is a natural cyclicality that you see and I expect that demand to come back and when demand comes back and it's in the landlord's favor, you'll see lease terms go back to being longer you'll see T.I.s going lower you'll see free rent going lower but we're at the beginning of that and that could take that long.
We have time to.
To recover.
Thank you appreciate your thoughts on that.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press one zero at this time.
One moment, while we wait for further question.
Mr folks we have no further questions.
Okay, great. Thank you and anyone else on the call should have any additional questions.
With today's earnings release, please feel free to contact me directly.
Certainly would you please give the conference call replay instructions once again thanks.
Thanks. Thank you. Thank you ladies and gentlemen, this conference will be available for replay after one PM eastern today through November 17 at Midnight you May access 18, <unk> executive replay system at any time by dialing 18662.
To do seven.
One zero for one and entering access code seven 9.79 pre sac.
Those numbers again are 186 620 710 for one.
And entering access code 7947 93.
That does conclude our conference for today. Thank you for your participation for using <unk> conferencing services you may now disconnect.
We're sorry your conference is ending now please hang up.