Q3 2021 Healthpeak Properties Inc Earnings Call
Good morning, and welcome to the Health Peak properties, Inc. Third quarter Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone.
To withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Andrew Johns Vice President Corporate Finance and Investor Relations. Please go ahead.
Welcome to help each third quarter 2021 financial results Conference call Today's conference call will contain certain forward looking statements. Although we believe expectations reflected in any forward looking statements are based on reasonable assumptions. Our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations for discussion of risks and risk factors is included in our press release and detailed in our filings.
But the SEC, we do not undertake a duty to update any forward looking statements.
Certain non-GAAP financial measures will be discussed on this call and exhibit to the 8-K, we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures and of course, a great. You requirements exhibit is also available on our website.
Also last night, we published at West, Cambridge, and South San Francisco transaction update presentation. This presentation can be found in the investor presentation section of our website.
I will now turn the call over to our Chief Executive Officer, Tom Herzog.
Thanks, a J and good morning, everyone.
On the call with me today are Scott Brinker, our president and CIO and Pete Scott Our CFO.
Also on the line and available for the Q&A portion of the call are Tom <unk>, our CFO and tremor, Henry our Chief legal Officer and General Counsel.
Our Q3 operating and earnings results were favorable.
Meanwhile, we have been very active and productive in our transaction development and leasing activities.
Let me hit the high points.
Starting with operations, our life Science, and then will be businesses, which represent close to 90% of our Q3 NOI continued to perform above expectations.
While our combined CRC and sovereign wealth fund JV performance was roughly in line with expectations.
On the transaction front, we closed our remaining $150 million of rental senior housing sales, bringing total sales since July of 2000 $20 billion to $4 billion.
And we've redeployed the entirety of the sales proceeds into our core life science, and MLB acquisitions and debt reduction.
In life Science, we announced a $625 million largely contiguous assemblage of operating and covered land investments in West Cambridge.
With the strategic play we have now captured the majority of the high quality developable land in this important sub market and plan to develop multiple class a life science properties over the next decade plus.
And Mlps, we added three new acquisitions.
Our year to date and will be acquisitions to approximately $780 million, which are primarily on campus.
We were also awarded three new developments from HCA to traditional medical office buildings.
Along with a Standalone nursing school that will be fully leased by HCA.
As I mentioned last quarter, we expect to continue to focus our MLP growth on flow business to leverage our platform scale and relationships hidden accretive singles and doubles.
Moving to development.
Our life Science development program continues to see positive momentum as fundamentals remained strong across our three core markets of San Francisco, Boston and San Diego.
A $1 $2 billion of active development pipeline is 87% pre leased with the remaining unreleased space and active discussions.
Given this yesterday, we announced the commencement of our 393 million dollar vantage phase one development in South San Francisco.
But the scheduled closings of the remaining West Cambridge acquisitions, we will have aggregated 7 million square feet or $10 billion plus of embedded development and densification opportunities across our three businesses.
And all fully under our ownership and control.
One final comment this quarter, we added to our ESG recognition with the recipe Green Star designation and inclusion in the FTSE for good sustainability index, both for the 10th consecutive year.
We're proud that ESG has and will continue to be woven into the fabric of our corporate culture.
I'll turn it over to Scott.
Thank you Tom.
I'll cover operating results, then discuss acquisition and development.
Starting with life science results virtually our entire footprint is in the three hotbeds of biotech innovation, Boston, San Francisco and San Diego.
Over the past four decades. These markets have developed an unmatched ecosystem of academics capital and scientific talent, placing them at the heart of the biotech Revolution is just getting started.
We've purposely chosen to concentrate our resources and built a strong position in these markets, which is driving strong performance.
Year to date, we've signed $2 2 million square feet of leases, which is two times, our full year budget from the beginning of the year.
The recent success was broad based across all three markets and included new developments renewals and expansions in the third quarter, We signed 406000 square feet of renewals at a 20% cash mark to market.
That's in line with the current upside across our entire life science rent roll through of course, the mark to market vary from quarter to quarter and year to year.
Same store cash NOI growth for the quarter was six 8%.
And year to date growth to seven 7% the results were driven by contractual escalators.
Leasing activity and mark to market on renewals.
Looking forward, we have a leasing pipeline of nearly 600000 square feet under signed letters of intent, including new developments renewals and expansions with existing tenants.
Our run rate annual cash NOI for life Science, now exceeds $500 million and is in the $600 million range, including development leases that have been signed but not yet commenced.
Moving to medical office.
Leasing activity continues to outperform our expectations, we had 700000 square feet of Commencements in the quarter.
Mark to market on renewals was two 3% and retention was strong at 80% for the trailing 12 months both in line with historical averages.
We're seeing strong demand in Nashville, Seattle, Dallas, and Denver, all markets, where you've seen us grow in recent quarters.
Same store cash NOI growth this quarter was two 9% towards the high end of our historical range driven by leasing activity strong collections in card fee income.
We're also benefiting from our green investments to reduce carbon footprint and operating cost.
Hospital inpatient and outpatient volumes are strong and hospitals continue to invest in our affiliated properties benefiting our unique on campus portfolio.
Finishing with <unk>.
Our concentration in Florida, as a long term positive, but made for a more challenging third quarter as the state was hit hard by the Delta vary.
This had a temporary impact on occupancy, especially in assisted living and skilled.
Consistent with the national headlines labor is a headwind.
As a result same store cash NOI growth was negative one 7% for the quarter, excluding the cares Act funding.
Independent living represents two thirds of the total unit count in our campuses and demand for those units is strong the number of entry fee sales and through Q was nearly back to 2019 levels and entry fee cash receipts in the quarter exceeded historical levels, we have strong pricing power in most of our markets.
<unk> by the housing market.
Moving to medical office acquisitions in September we acquired two on campus Mlps in Dallas affiliated with the Baylor, Scott and White system for $60 million. This.
This was an off market acquisition and expand our number one medical office market share in Dallas.
In October we acquired <unk> and will be in Seattle for $43 million to build and expand our footprint on the campus of Swedish Medical center to 600000 square feet, we see potential to significantly densify. The site over time, taking advantage of a land locked location next to one of Seattle's leading hospitals.
<unk>.
Also in October we acquired a 55000 square foot mob on the campus of an HCA Hospital in New Orleans at $34 million.
Once again this acquisition was done off market.
Turning to life Science development.
Lease up is exceeding our underwriting on both rate and timing.
Our active development pipeline is now 87% pre leased excluding package phase, one which commenced yesterday.
The final phase of the shore is now 100% pre leased.
Great on the final lease was 32% higher than the initial lease we signed at the shore just three years ago.
Damian South San Francisco with very strong leasing activity at our Nexus project next door, we chose to commence development advantage.
Picture can say a thousand words. So please take a look at the investment deck, we published yesterday.
On page seven you'll see that the fact its campus sits in the heart of South San Francisco adjacent to our Nexus and <unk> brand campuses phase one for 343000 square feet and deliver in the second half of 2023.
Upon completion of all phases. The vantage campus will include at least 1 million square feet class, a lab and potentially far more subject to entitlements, which are ongoing.
Moving to San Diego, where we fully pre leased or 540000 square feet of active development in the third quarter. We secured the next phase of our growth with a covered land play acquisition.
Site sits between our existing Sorrento gateway and Sorrento summit campuses, all of which have excellent visibility and accessibility from Interstate 85.
Once the site is developed we will have 700000 square feet across these three campuses.
In Boston, Our 101, Cambridge Park drive project in LOI delivered its <unk> 22, and is now 88% pre leased.
The average lease rate is $99 per foot or 27% above our underwriting.
Project brings our footprint in the <unk> Submarket with West team reached one 1 million square feet across 18 acres.
And that brings us to the series of acquisitions, we announced yesterday.
Eight separate transactions totaling $625 million of initial investment.
Assembled 36 acres of largely contiguous land in AOA Submarket in West Cambridge.
We now have a significant development opportunity on the east coast. The balance are enormous development pipeline in South San Francisco.
The blended <unk> yield is four 2% with the potential for huge earnings in any of the upside in the future.
Roughly one quarter of $625 million investment represents stabilized cash flowing acquisitions. The remainder covered land plays primarily single storey industrial flex office that we intend to eventually replace with class a lab buildings in phases over the next decade plus will be <unk>.
Working with the city of Cambridge on the development plan and have more to share in coming quarters.
If you turn to page four of yesterday's investment deck Youll see the assemblage is within walking distance to our existing holdings enable wise.
The sites have to either access by train car and bike in particular, we're within walking distance to the <unk> train station and adjacent to route to and the Midland bypass all of which connect Cambridge downtown Boston in the Western suburbs. These.
These campus settings are a competitive advantage for leasing because we can provide world class amenities infrastructure and flexibility for tenants to grow without relocated.
This is very very different than owning a single lab building isolated location.
I'll turn it to Pete.
Thanks, Scott starting with our financial results for the third quarter, we reported <unk> as adjusted of <unk> 40 per share and blended same store growth of three 2%.
Our strong results are driven by continued outperformance in both life science and medical office.
And for the third quarter, our board declared a dividend of <unk> 30 per share.
Turning to our balance sheet.
We finished the third quarter with a net debt to adjusted EBITDA of five <unk>.
We expect to reach our mid five times target leverage ratio by the end of the year with the majority of our announced acquisition activity closing in the fourth quarter.
During the quarter, we closed on an Upsized 3 billion revolving credit facility, an increase of $500 million.
The Upsized revolver provides us with significant benefit it increases our liquidity position and extends our debt maturity profile and it reduces our overall borrowing costs.
We had 100% of our banking group re up their commitment, which is a testament to their confidence in our company and our future.
Also during the quarter, we raised net proceeds of approximately $320 million of equity under our ATM program at a blended gross stock price of approximately $35 60 per share.
All of the equity was raised under 18 month forward contract.
Pro forma the settlement of our equity forward third quarter net debt to adjusted EBITDA is reduced to four seven times.
Turning to our guidance.
We are increasing our 2021 guidance as follows.
<unk> as adjusted revised from $1 55 to $1 61 per share to $1 58 to $1 62 per share an increase of two pennies at the midpoint.
Blended same store NOI growth revised from two 5% to 375% to three 5% to 4% an increase of 75 basis points at the midpoint.
A major component of our revised guidance are as follows.
In life Sciences, we have increased the midpoint of our same store guidance by 75 basis points to six 5%.
And medical office, we have increased the midpoint of our same store guidance by 25 basis points to 275%.
There are significant non same store portfolios, we have tightened our guidance range to $85 million to $105 million, leaving the midpoint unchanged.
Finishing with acquisition year.
Year to date, we have been at one $6 billion of acquisition.
That have either closed or are under contract.
Accordingly, we have updated our acquisition guidance to reflect this activity.
Please refer to pages 41, and 42 of our supplemental for additional detail on our guidance revision.
With that operator, let's open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
They have a chance to participate we ask that participants limit their questions to one and a related follow up if you have additional questions. Please re queue.
So first question is from Rich Hill of Morgan Stanley. Please go ahead.
Hey, good morning, guys long term long time listener first time caller.
I wanted to just talk about your recent acquisitions, and maybe get a little bit more detail into the Cambridge market why you find that attractive and if we can take a step back.
Acquisitions are a healthy about amount above MSC I was wondering if you have any other big land plays like this across the United States that you've maybe identified and what that what you can tell us about.
No not just 'twenty, two but 'twenty three 'twenty four I should think about.
Your acquisition pipeline.
Hey, rich, it's Tom Herzog.
When you look at our land plays across the country.
It does some up to at this point for what we've acquired and we're under contract to acquire up seven plus million square feet.
Across our life Science business 10 billion plus dollar opportunity.
So it is a massive opportunity over the next decade plus.
I would think in terms of maybe $2 5 million square feet of that CNN on the east coast now in the greater Boston area, primarily West Cambridge and.
But the $4 $5 million of it sitting in South San Francisco, Brisbane, and then some down in Sorrento Mesa. So we have an enormous opportunity without any need to purchase additional land for a long time.
These are going to be in what we would think of as very substantial campuses that create strong clusters overtime.
Which is obviously I think as you all know vital to success in life science.
It takes advantage of the virtuous cycle of aging population and new biologics.
LIBOR organism type drug discoveries the FDA approval time that the heavy VC NIH IPO funding, which has quadrupled in the last decade.
Along with the eco system of research universities and scientific talent.
Like I said all of this.
Venture capital being deeply engaged in these markets.
We think that that's going to create an enormous opportunity for us across.
Both coasts.
And that probably lines of south now for quite a while with some very accretive opportunities with land that could not be replicated today.
The land sites that we picked up are in the heart of some of the best life Science markets really in the world and when we think about what we just acquired this assemblage in west Cambridge that that was about a six month effort.
Yes.
We did not think we could put something together that substantial during that period of time and Fortunately, we were able to so the vast majority of the strong developable land in that Submarket.
To pay great dividends to us we believe so brinker anything you would add on that and how youre thinking about it yes, maybe I'll try to also address that question about the location and what we found attractive about it and it's a couple of things we point to one is that it does have the Cambridge address which is obviously an important.
<unk> factor.
For the tenants and yet it's 20 to $30 per foot cheaper than east, Cambridge, which realistically is sold out anyway.
But economically more attractive it does have the strong accessibility, which is obviously important and a big market like Boston through to the redline bike path. So really no matter. How you are commuting you've got pretty good access to dislocation and then it does have an established reputation it's not like we're breaking new ground here there is a strong.
Long life Science history in West, Cambridge around 2 million square feet today of which were by far the biggest player.
And then the fact that we're able to develop something in scale was ultimately what was the deciding factor here. If it was just a single parcel with one building its not nearly as interesting. There's a lot of new entrants doing that there's a lot of conversions that can do that but the ability to put together 36 acres with the Cambridge addresses pretty much unheard of.
And that was ultimately the deciding factor in <unk>.
Siding to proceed we put together eight separate transactions, but it was really two fairly big parcels that were the linchpin in many street campus and then the Concordat campus and then once we got clarity that we could get those we went to work and put together the surrounding parcels as well who noticed there might be more to do in that sub market.
I would add one more thing is when you think in terms of from the city of Cambridge is perspective, and these deals coming together to create.
Aggregate hole in the.
In aggregate.
So for the overall assemblage that is worth a whole lot more than the individual pieces I think in terms of having a huge cluster.
Being able to transfer.
Between the various parcels that we acquired which really just kind of give us a lot more developable capability and then from the city of Cambridge as perspective.
Being able to have quick riches across the tracks multifamily development vibrant mixed use neighborhood et cetera, a variety of goals that they set forth.
We can help them realize their dreams, while we also take advantage of I think quite an opportunity.
Great. That's helpful guys and so if I just had to summarize all of this this is a capital development pipeline over the next five years to 10 years.
That doesn't require any additional acquisitions, so just a matter of executing on that development.
Yeah, rich good point that I would describe it even a little bit.
Yes.
Slightly differently, we have enough land and Densification covered land plays on our books now at $10 billion plus to keep us busy not even for five years to 10 years with probably 10 to 12 years going forward without acquiring another single land or covered land asset if we chose not to.
Thank you guys I'll jump back in the queue I really appreciate that the answering the transparency.
Yes, thanks, so much.
The next question is from Rich Anderson of <unk>. Please go ahead.
Hey, good morning, everyone.
So.
More on the West Cambridge deal Arent, you know kind of at.
At least for as you as you take down these sites and do your work Youre kind of also have to operate in office and industrial portfolio right. You don't want these things to collect dust is that.
Okay.
Shelled out to somebody or are you going to do that.
Yes, I can address that Richard most of the portfolio. Although it's eight separate parcels is property managed by groups that we already work with and that happened property managing these campuses already so there's not a ton of execution risk. It's obviously not our business to these two industrial or office tenants, but the intent is that.
As leases mature at these various campuses, we would not EBIT seek to renew leases. So we don't have an expectation that we're going to operate these industrial or flex office buildings over the long term.
Okay.
So are they going to be kind of tear downs or office conversions in the case that our office assets or a combination.
Yes, it's a mix rich there are a couple of buildings in the portfolio that we do not intend to tear down like the medical office building.
East to an affiliate of Beth Israel. That's just one example.
There is a lab building in the portfolio that is leased to an affiliate of flagship we don't have any intention of carrying that down.
But virtually all of the flex office and industrial over the next couple of years, the expectation would be that we share goes down and rebuild something much different.
Yes, rich one of the things you have to keep in mind is yes.
<unk>.
Pull together these individual transactions.
To varying degrees there was significant FBR and some of the smaller parcels that were underutilized.
Yes.
Sure.
Right and the way that it set up can be transferred to other parcels within that master development, thereby increasing the density substantially and increasing the value of the greater whole assemblage that we've put together versus the individual pieces. So that was a critical item.
Okay, Great and then my second question just quickly you call that will be a flow business and I get that singles and doubles, but I would think some of that flow would also come in the form of development with your with your health system partners.
Do you see that becoming an increasingly part of your of your development pipeline in the future or is it really going to be primarily in an acquisitions game. Thanks.
Rich good point in life Science, just just based on the reality of the business. There is so much ownership.
The three major markets between Alexandria in Biomed and us that the acquisition market is not nearly as strong, whereas our relationship acquisition business with hospitals and health institutions.
Quite a bit stronger so we have opportunity to grow accretively, there as well, but clerics and Justin <unk> been able to put together some quite strong development programs that do end up yielding.
Low to mid sevens, or sometimes even a little bit better and so that is quite accretive and these are on campus.
Developments that are oftentimes anchor leased and quite profitable and Tom maybe you could give some insight into.
How you see the growth of that business and the sustainability of that business for US I think we can have pretty decent growth in that area for the.
Foreseeable future, we're working with HCA on a number of projects Tom mentioned two of them on the call to <unk> one in Savannah, Georgia, one in brand in Florida that we're pretty far along with them on.
We're also in discussions with them on two or three others in other parts of the country and we're always speaking with our other health system partners.
We potentially will have some deals with some of our bigger partners in the next probably in the next year, but we're not far enough along with those to really announce it.
Okay. Good enough. Thanks.
Thanks Rich.
The next question is from Juan Sanabria of BMO capital markets. Please go ahead.
Hi, good morning, and thanks for the time.
Just curious on.
Yields today are cap rates, where do you see cap rates.
A stabilized basis across.
The Mlps and life science cluster markets you're focused on.
Yes, I can try to address that Scott here in life science for the markets that we're in which is almost entirely the big three.
Class a product is probably in the 4% range, maybe a little bit higher but it's in that range in any of that especially if you can acquire a controlling interest versus just selling.
Non controlling interest even though is as we've seen those trade in the low fours.
Some of those buildings have mark to market built into them.
But often times thats pretty far into the future. So it's probably still a pretty realistic.
Right, that's probably down 50 basis points at least over the past 12 months given the strength in the marketplace and just the number of capital sources looking to invest and build a presence in life Science and then in medical office I mean, similar forces given the interest in the sector.
But the cap rates there for quality product they are probably in the mid fours to mid fives. So a broader range because there's just more variability in the building.
Building by building in terms of who the tenants are on campus versus off campus.
But it's hard to find really high quality buildings that fit our criteria for anything more than a five cap in todays market TJ anything you'd add now it's pretty much spot on.
And then just on the West Cambridge acquisition, you talk to.
Our LOE for aircraft for yield, but just trying to think through from a modeling perspective.
How to think about that from an NOI perspective, and if you could help US bridge the mechanics for Cabot to enter acquire whats assumed to get to the <unk> yield.
Yeah, Hey, Ron it's Pete here and it's a good question and we recognize that you need to disclose.
<unk> yield as opposed to a cap rate, but given the unique nature of this portfolio, which is a combination of stabilized property been covered land. We thought in <unk> yield was most appropriate so investor than yourselves on the research side to better understand the year one impact if you refer to page five.
Hi.
Our investor deck. It provides details on each transaction.
So of the eight assets and $625 million purchase price.
Three of the assets, we categorized as a lie with a total purchase price of $187 million that turn off at 725, Concord and 25 Spinelli.
The Concord Avenue campus, which we do categorize as cover land and which we acquired for $180 million that asset is currently 100% leased to Raytheon for six more years. So the stabilized asset plus the Concord Avenue, Capex, which together totaled around.
$370 million.
Blended year, one GAAP cap rate fell from an NOI of GAAP NOI perspective is approximately a 5% yield across all of those so the balance of the portfolio, which we call <unk>.
Land.
She is around $255 million, we will capitalize interest on those assets at approximately 3%. That's our current weighted average debt interest rate and since we started this effort about six months ago to assemble all of these asset.
We're well underway on our internal and external design team and we're working towards entitlement planning.
Ultimate design of this campus over time, so we're capitalizing interest on those already.
Add all that up I know that a lot, but I want to make sure you have all the pieces.
$370 million at a five cap.
And then it's around $255 million at 3% capitalized interest with blends to afford to maybe I'll turn it over to Tom If you want to add anything to that.
I'll comment I'll make just so there's no confusion on the call. If we've got a covered land play that is also producing.
Rental income.
The cap interest ends up being recorded in accordance with.
GAAP as we're required to do.
But the income that's thrown off from those leases is treated as what's called ancillary income and reduces the basis of the assets. So theres not a doubling up of income you probably know that but I just didn't want to have any confusion on that.
Thank you guys.
Thank you.
The next question is from Nick <unk> of Scotiabank. Please go ahead.
Thanks, So I guess in terms of the.
The recent developments star advantage and.
Even thinking about the future.
The opportunity here.
I guess, how should we think about how you guys are underwriting those new.
Developments today, I mean, I know you do have that range of 6% to 8% you gave on the development page, but some of the rins, particularly when you're talking about with <unk>. It sounds like the recent development there at Cambridge Discovery Park is actually going to be over eight yield. So just trying to understand kind of where you guys have shaken out in terms of.
Development yields being underwritten since rents are growing so much.
Yes, Hey, Scott here I think you'll note was correct for South San Francisco for class a rents today, particularly for that location.
You are probably in the low to mid eighties.
Obviously, we're benefiting from our low land basis in that project.
So keep that in mind, but the all in cost given our land basis today for vantage phase one is in the 1100 to 1100 $50 per foot range.
And the simple math on that is that it's a mid sevens return on cost.
We'll end up getting a similar return on Nexus it looks like we're having really solid leasing momentum that we announced that project earlier. This year, we were projecting more of a mid to high sixes return it looks like we'll do quite a bit better than that and then west Cambridge. It is a bit more expensive to build.
They're not dramatically so but the all in cost.
For our underwriting is somewhere in the $3500 per foot range.
And I say range, because it's still a little unclear exactly how much we'll be able to build and that will obviously impact our land prices but.
Decent estimate would be $3500 per foot in west, Cambridge, If you were building today.
Given our land costs and then obviously, we just announced.
Last night, we signed leases at $99 per foot on average within walking distance of that site. So the simple math on that one is a mid 7% return on cost as well.
And Tom you wanted to add something.
Okay, great. Thanks, and just one other question on <unk>.
South San Francisco I mean, any update you can provide on when you think that potential upsell owning.
Densification there could be addressed by the city.
Yes, Scott do you want to jump in.
Sure.
One.
The city is working through the general plan update and I think the current target is mid next year to complete that.
And is that just is that the thought process there is similar.
Similar to what you've talked about before in terms of is it a is it a.
Potential doubling of <unk>.
Is that right.
Potentially yes, it depends on location and where we are.
Each individual project is located as you could.
Further away from the train station and the transit there.
The decrease a little bit, but I think we look at our projects.
We expect those to fall in that range.
Okay, great. Thanks, everyone.
And then just to follow up on the question. The first question that you asked I think it's probably.
Worthwhile to repeat something that Brinker said give us just a little bit more context, because I think it was an important question. When you talked about new supply in these two markets and how do we think about how they make money.
And Brinker mentioned, the third 300 Bucks a foot in West, Cambridge, 100, Bucks a foot to developed inclusive of land in San Francisco West, Cambridge $100 rents.
South San Francisco $85 rents producing something in the mid Sevens. Those are obviously returns that are higher than what somebody would achieve in the market today, if they bought land at market, which we've seen a solid 30% to 50% increase in high quality land as far as.
Pricing, bringing those spreads down if one was to do a market transaction today, if you could find the high quality land, probably more back to that 150 to 200 basis points spread in the mid sevens against our cost of capital.
If that helps.
A solid 300 plus basis points spread.
And four and a quarter cap type assets do the math on that on the NAV accretion and on the earnings accretion, it's quite substantial and im not trying to speak to.
Returns that will be years down the road, but when you think in terms of the value of having locked up some of the best land and some of the best Submarkets in the world. It really is going to allow us to be in a position, where we're aware of new supply like everybody is but if you've got if our land locations are in and some of the heart.
<unk> markets and the ecosystems with the greatest energy.
We do think we'll get far more than our fair share of that leasing and thats going to be a profitable outcome for us for years to come I think if we were starting from scratch.
We would have been absolutely impossible time replicating.
That potential outcome. So I think I think is a very strategic point that you've raised.
Alright, I appreciate it Tom.
Thanks, Nick.
The next question is from Steve Sochua of Evercore ISI. Please go ahead.
Thanks, Yeah, a lot of the questions have been asked but I just wanted to get your thoughts on sort of the spec versus pre lease build to suit in the life Science and I realized Tom you know you talked about.
7 million feet $10 billion, how do we sort of think about just sort of the metering out of that over the next even say five years and.
It sounds like demand is great today, everybody is getting in the life science.
But just what are your thoughts on kind of a broad dollars per year over the next say five years.
Yes, Steve it.
If we roll back a half a dozen years, we were spending on just on pure development I'm not talking <unk> about $100 million a year in.
And development that has ramped up.
Easily in the 400 plus range at this point.
We'd see that ramping up further to probably $600 million, a year and maybe overtime higher.
But one of the things that we do pay a lot of attention to is that the demand supply work that we're doing.
So that we can we can time it appropriately we look at pre leasing we look at funding risk being very clear on where our funding is going to come from him and Pete Scott has done a lot of work on that.
Got internal work toward glad to shared NAREIT as to how we think about that but I would see that ramping up.
I think it's realistic Steve.
We're not going to be sitting at 99% occupancy at South San Francisco Forever that just won't happen.
So youre going to have some Jimmy.
Diminution of of occupancy over time and that would be natural. So then it comes down to.
Is that is the land locations that we have that we'll be providing our new product class a product is that going to be highly sought after which we think it will be.
And if some of it if you haven't if you return to a little bit more toward a normal vacancy is its still profitable and we've got so much cushion in our numbers, but the answer is yes, it would still be profitable very profitable.
So those are things, we're paying a lot of attention to we spend a lot of time with our board over the last couple of board meetings going through the risks how we mitigate those risks and why we're comfortable that this is a very sound play the other the other thing I would point out is even though we're talking about $600 million year of development it could be seven or 800 at some point.
900, or it could drop back down to three or $400 million, it's not like we've got a gun to our head as far as timing.
Putting that product out so pre leasing demand and supply are something that we're working on a monthly basis to have our thumb on the pulse of what's going on in the market.
Great Thanks and.
I know the CCR fees are pretty small.
Piece of the business, but I'm just curious what you can sort of comment on as it relates to just labor, how that's either impacting or maybe not impacting.
Those assets and kind of what are your expectations for.
Labor costs, moving forward and the impact on margins.
Yes, I can.
With that one Steve can we have little exposure to that business, it's about 8% to 10% of our NOI, so not huge but big enough to talk about for sure. We have the big concentration in Florida, which we think is a good thing.
It's primarily an independent living business. So most of the economics and <unk> are driven through the entry fee. Unfortunately, the contracts. They are really strong so that the fundamental demand for that business is good and the underlying profit center, which is the independent living is strong as well, but definitely we had headwinds on labor.
<unk>.
In the third quarter in particular, so we had a pretty significant increase in expenses. If you just look sequentially, we were up almost $5 million, that's about 5% sequentially.
And most of that was driven by labor.
Now there is a labor shortage nationwide, but in Florida, it's particularly acute and then on the health care side, it's been particularly meaningful so we don't see that changing overnight at the same time, it's unlikely to last indefinitely. So for sure how the short term impact on margin, we haven't had to reduce it.
Emissions in some cases.
So it impacted revenue as well, but we do see that improving.
But it's going to take some time.
Year, plus process, where I think it will slowly decline to more normalized levels.
Great. Thanks, that's it for me.
Thanks, Steve.
Our next question is from Nick Joseph of Citi. Please go ahead.
Could you talk about the GAAP yield.
Yield our NOI yield on the acquisition, what's the cash yield for the West Cambridge Assembly deal.
Yes, I mean, it's probably about 100 basis point less from a.
GAAP perspective, when you back out some of the mark to market on rents and things like that so that's probably the best guidance I can give you it will depend upon each individual asset but.
That's about 100 basis points less.
Yes, it's kind of in the mid to high twos, Nick would be the pure cash NOI yield.
And if you got to recognize that some of the some of the leases that we picked up were were.
Were far below market at this point and we're glad to have that in place while we're doing all the entitlement work and getting ready.
To do the expansion Densification that we're interested in doing but.
If some of that space was released at much much higher rates.
Thanks, and then just looking at the map in the presentation can you walk through kind of what else is existing that you don't own the sub market and Thats fair any competitive life science supply already there.
Yes on.
On the map that's in the Investor pitch, you're looking north at the top of the page and we obviously have.
The east and west side of that page pretty well covered all the way from Concord Avenue, which is what gives you direct access to route all the way up to the NVCA Red line and Theres quite a bit in between.
Primarily lab today, there is some flex office as well, but its two primary owners.
If their names are all that relevant but both companies that we have good relationships with so to say it's passed but overtime, we can expand this footprint.
Okay. It looks like it's Bilerman just to just come back on.
Understanding cash versus GAAP.
Sounds like going in on a cash basis.
You are saying high twos on the totality of the $630 million of initial investment.
And then obviously from a GAAP perspective, youre going to capitalize but not count the income from those covered land plays.
And so is it basically just a push on a cash basis at least initially.
Until you actually start development and be able to earn higher yields.
Yes, I think Thats right, Michael Peter here.
Think about it being able to acquire all of that and from a cash perspective have it be essentially.
Neutral or a push we looked at that as something that was quite attractive.
When you think about the actual <unk> accretion as we go into next year, we are funding that as well where that capacity. So that's one thing to just mentioned there.
So there actually is a little bit of accretion as you think about earnings from this year as we head into next year.
And Michael I'm going to add something.
I think youre aware of this.
I don't know Paul the lesser listeners are tuned into this but keep in mind that cap interest is always an unusual thing it is.
It's kind of a quasi cash noncash thing.
GAAP has you take cap interest into GAAP.
Net income you do pay the cash out.
Sure.
One of the things that you have to keep in mind is that when you have interest expense that you're paying while some things under development. It is deemed to be a direct cost of development.
Reason is is because it's been.
It's been determined over the many many years that you could have avoided that interest expense. If you hadn't made that acquisition to develop that asset.
So under GAAP. It is treated as a cash item and its truck rig world. The cap interest ends up being included in <unk>. I think you know that but I just want to make sure that there aren't listeners that.
That didn't catch that nuance.
Yes, I think Thats and Thats, where I was trying to get out the difference between lining up our GAAP versus cash accretion and obviously as a risk.
This transaction has a fair amount of future development in at least Youre getting from income to be able to offset the cash interest that you are paying.
Because you are borrowing to do the transaction.
But the initial yield on the totality of that $625 million as you said it was high twos mid twos, just from a cash basis again.
Yes, and the highest you got them.
Hi, guys.
And then when would when is the first sort of large capital outlay to start future development next year should we expect how much capital.
Our capital will be pushed towards this project.
No.
I would like to be able to answer that for you, but I'd be making predictions that could change because it's so dictated by <unk>.
Supply and demand and timing of entitlement, which we're going to be working very closely with the city of Cambridge.
Other thing I would point out is.
If you were to go to the other math that we've shown in the deck that we provided on page seven.
You'll see that.
On that page, you'll see the sure Youll see the Cove peak Oyster Point's Nexus vantage point Graham.
On the shore, we have very significant development opportunity and thats vacant land space that we're able to pick up of Fairpoint in towers and that substantial.
And vantage, that's an enormous piece of land that we're going to be developing out Nexus we've got <unk>.
Very strong traction not quite enough to have announced it on this call, but as far as lease up of that space, which inspired us to <unk>.
Kickoff, the vantage project and point Graham, we're going to be having a few of those buildings that are coming due at the end of 2022 on the leases. Thank goodness. So we can start taking advantage of that huge densification opportunity asset by asset when that thing was built that up at a <unk> way back in the day.
And that likely goes to why won't fill the number out but something much much higher so when you start looking at.
We have opportunities in San Diego as well, our Sorrento Mesa. So when you start looking at what we have in West, Cambridge, We Havent, South San Francisco Web and Sorrento Mesa, we have to look at pre leasing we have to look at demand and supply we have to look at where we have tenants that are.
Seeking to grow that need space sooner too.
We are able to.
The sequence as we take as we move each of these projects forward and how quickly I do think Michael to your point, we're going to get the entitlement work done as quickly as we can a lot of the SaaS work done and move forward with with West, Cambridge, Thats, not something thats going to set out there for a long period of time.
But we may have some other projects that have more immediacy in their ability to meet the demands of our tenants and the demands of our non tenants in those particular markets. So I don't know the answer to that yet.
But you can be sure over the next few years that we'll have clearer and clearer answers as the markets the markets play out.
Right.
Helpful. Tom.
Tom just one last one for you in terms of.
As I think about these transactions and how much of the call has been focused on life Science then.
The significant amount of growth opportunity now have embedded within the company given all the land plays and development opportunities.
Medical office, obviously, as you said singles and doubles, you've historically said M&A.
M&A is not your cup of tea for a whole host of reasons.
That still the case or are you sort of thinking about balancing out the portfolio.
To add more <unk>, just given how much life science, you now have potential to add over the next.
Yes.
I think Michael we're going to continue to have MLP growth.
Through our relationship.
Investing primarily with our hospital relationships and obviously the deep.
Infrastructure scale reputation et cetera, So I don't think its going to be difficult for us to have annual accretive growth transaction by transaction and Mlps I think it will lose pace.
So the life science business naturally over time, we're okay with that.
But over time as.
All of these businesses go in cycles, and there may be a period of time, where MLB looks more attractive than and we get even more aggressive on that side.
But to your point.
We do see using our relationships are off market transactions to hit singles and doubles and.
And as far as doing something very significant that could change kind of the.
The landscape of what our portfolio looks like.
Fill rest assured we're not going to do that at this point never saying never who knows what the conditions look like in the future, but that's where we stand today.
Right because youre your relationships can also extend the capital relationships right. So if you were presented with some sort of opportunity you can go look for the best structure capital partner rather than just your relationships.
On the health system side.
So something could work.
I guess the perspective of.
Doesn't sound like you're highly attracted to wanting to go out on the spectrum right now on <unk>.
Make a big push given your views of life science, and maybe where the MLP business.
I'm just trying to understand the appetite if something was available how aggressive you'd want to be at this juncture. If you can get the right partners and the right.
Structure and things like that.
I'd go back to never say never because obviously at some point.
The economics can be so attractive.
That one can't ignore that but in today's environment for the opportunity in front of US I think our I think our better players and life Science, and then continued slow steady accretive growth in mlps.
But it's always nice to have the optionality with really two big businesses and then one much much smaller business as the oil go through cycles to available to have some growth in each and pivot as market conditions change. So you can see that happen at some point in the future, but we're not seeing it right now.
So you are saying there is a chance okay have a good day.
There is a chance im saying I wouldn't think there's a chance at this point in time.
Never is a long time.
Have a good one.
Alright. Thanks. The next question is from Jordan Sadler of Keybanc capital markets. Please go ahead.
Thank you.
Good morning out there I wanted to just follow up on Michael's question, but with a little bit of a different angle and I'm kind of curious.
Could you parse the relative returns.
Return hurdles.
You are looking at for Mlps versus Lifesize.
Yes, it was totally Kim.
Could you answer yes, it can be that we spend a lot of time on that.
The exact question Jordan.
Today, <unk> high quality, probably come in at 50 to 100 basis points higher cap rate. So the initial yield there is a little bit more capex drag on and will be in general probably in the 20% range just on average Capex total capex as a percentage of NOI, obviously, some billings youll be higher lower but thats. It.
Average across the portfolio and we've had two five type percent growth for a decade or more.
So the economics of that business are pretty straightforward and when we compare that to life science, if youre starting at a forecast just as an example in today's market high quality buildings that would fit within our strategy and portfolio. The contractual escalators in that business tend to be in the 3% to three 5% range, depending on which market you're in.
South San Francisco being at the high end, Boston, and San Diego would be more than 3% range. So the escalator is higher.
Just the contractual growth with lower Capex. So just.
In theory, obviously that would.
Lead to a lower initial cap rate, which is exactly what you see what is really turbocharged. The life science returns over the past decade of course is the dramatic escalation in rents.
They are up at least 10% arguably closer to 20% over the past 12 months.
In our three core markets, which has obviously helped our.
Mark to market across the portfolio that today is in the 20% range. That's on a $500 million base. So that's a lot of upside to capture as leases roll over the next decade.
Or so.
So.
Combined all of that you start with a lower yield in my science, but obviously a much higher growth rate.
Today, you would probably come out to a higher IRR realistically in life science.
But we're not assuming that rents are going to grow at 10% to 20% forever in my science, We think it's a great business. We think we have great locations, great team and a really strong market position.
But its probably not realistic to think that rents grow at 10% forever. So we do still like the stability of that and we'll be business, but we don't think automobiles are created equal. So we're pretty careful about exactly what we put into the portfolio and I think that is something that.
Can you compare the different companies you will increasingly see that play out in the returns from that business.
Can you give us a sense of what you are underwriting in terms of rent escalation over sort of like a 510 year period.
In life Science, because I think we know what it is and it will be as you referenced.
Yes over the last decade, it's been more in the 5% to 7% range across our three markets. So that's the the 10 year.
History, obviously, it's been even stronger over the past couple of years. There is a fair amount of new supply coming into the marketplace. So that could potentially weigh on rent growth at the same time, the escalation and demand is equally off the charts. We thought 2020 was a strong year for venture capital and Ipos.
On an annualized basis. It looks like 2021 is going to be 50% higher than 2020, and all of that capital leads to more real estate demand. Obviously it varies by company, but our math is that on average every million dollars of VC, an IPO that gets raised translates to about 400 square feet of.
Fuel space, so $100 million raises another 40000 feet space, obviously, some tenants will need more some less but on average that's.
That's a pretty significant amount of real estate, that's needed to meet the growing demand and given the success that <unk> had there obviously have equally enormous success raising their next funds, which will fund the next round of growth on top of those.
NIAID funded which just continues to grow and Thats really the first.
Yes.
Wave of capital in the pipeline that over the next five to 10 years all of that NIH funding, it's really basic science will start turning into the next clinic.
Clinical candidate that is really the sweet spot for our business Tommy's Asia.
I think you covered a couple of things I would add when you look at the last three years, we've been following very closely.
NIH D C SCO.
Chip funding, which helps drive.
Life Science, it's quadrupled in the last decade in the last three years, it's up 50%.
Obviously driving a lot of.
Funding to do lab work.
We've seen.
20% growth in supply during this time as.
As far as space.
Vacancy has obviously fallen to practically zero and most of these are the big three markets in the better locations. So not surprised that you've seen rent growth that has been in the 5% to 7% CAGR range, you've seen land rise rapidly and price along with labor and construction costs.
Which will put some pressure on the spreads that these are developed at unless you already own the land on it right. So we do think that that is probably our great opportunity within this is this massive land holding.
So I think that's just an add on to the comments that brick are made that are probably important.
Okay, and then just lastly, a follow up Tom you.
You did sort of frame up $10 billion 10 to 12 years.
But it sounds like Youre still interested in adding capacity in places like San Diego, and maybe even incrementally and with Cambridge or Submarkets could you see yourselves.
Launching are starting.
Upwards of $1 billion, a year life Science development.
Jordan.
Over time, certainly we could.
But that what it would take place over time, it's not like we're going to make some massive leap on one year and create a whole bunch of dilution year over year that youre not going to see a bump it up to $1 billion next year thereafter.
But it's a very fair point, if we continue seeing this kind of demand in that.
Just look at what took place with the pandemic and vaccines CRISPR technologies and all these cancer treatments.
Large molecule LIBOR organism drugs that are curing diseases that you simply used to die from <unk>.
That kind of demand is going to continue fueling we believe.
This continued growth in the biotech companies and with that Theres going to be a lot of demand for space and to be able to have these these new startups, especially and then grow within these the hottest biotech markets, where all the energy all the.
All the scientific talent DC et cetera are located.
Is this just that theres, a big opportunity, it's almost hard to measure.
So could it get bigger I think it probably will get bigger over time.
Maybe we're going to keep an optic close eye on supply and demand and funding and everything else to make sure that we don't get over our skis, but there's certainly that possibility.
Thank you.
Yes. Thank you.
The next question is from Steven Valiquette of Barclays. Please go ahead.
Great. Thanks, Hello, everybody.
So just a question here on measurable sensitive and life science, which I know wasn't really talked about that much just given the strength in your life science portfolio with leased occupancy in the high Ninety's.
I'm just curious when we do hear about traditional office Reits.
Talking about measurable sense is still only in the 20% 50% range across major markets like San Fran in Boston you have any.
Data points, you could share just on the percent physical occupancy.
Employees in person within your life Science office space or do you not even focus on that because of the.
Strong supply demand characteristics.
Yeah, Steve just to make sure I understand the question Youre talking about utilization.
So occupancy, yes, exactly yes, it varies by market.
On average today, we're probably in the 60% range.
San Diego is probably at the higher end of that San Francisco because of the politics. There is probably more at the lower end with Boston somewhere in the middle, but it's ramping up pretty significantly.
Most of the scientists have been working on site throughout.
With more of the back office still working from home, but that's starting to change I know we're back in the office today. So that's good.
And we're starting to hear that more of our tenants are doing the same so the amenity centers our backup in the onsite dining is back open. So obviously there is more and more reasons to come back to the office and we are starting to see that happen.
Got it okay. One other real quick follow up analysis has been talked about a lot on this call already but just.
Now with your current land bank of $7 million plus.
Feed obviously positive when thinking about future growth and when we hear about one of the largest.
Public traditional office REIT companies, highlighting their $5 million with land bank dedicated specifically to life science out of there are $17 million total.
Land Bank just curious on your latest thoughts on competition from just sort of traditional office REIT.
Competitors and also just attempts at converting.
Traditional office space to life science that kind of just the latest temperature on that as well. Thanks.
Steven it.
Certainly there could be some competition from that.
We don't believe that it's generally going to be the main.
Main and main locations for life Science.
Repeat everything I, just said about that.
And why the biotechs want to grow with the experienced landlords that have deep clusters, the deep experience.
Certainly there'll be more competition.
Obviously, you can't have occupancy rates that set of 90, 899% forever. There will be competition. So then it comes down to who is able to provide the deliveries that create the purpose built <unk>.
Experienced purpose built product within the campuses in the areas that have the energy.
That the biotech startups in the biotech companies that are growing want to build their businesses and we think that we're going to get far more than our fair share of that type of business. So I'm not discounting that there'll be some new competition. There will of course, if you have 99% occupancy in our markets Dolby competition, but we think we're well suited to be able to.
To do well in that environment.
Yes, Okay alright. Thanks.
Thanks, Dave.
The next question is from Michael Carroll of RBC capital markets. Please go ahead.
Yeah. Thanks, Tom I know you've been mainly focused on the three largest life science cluster markets, but given the attractive backdrop, maybe the difficulty to find land in some of these markets I mean does it make sense to kind of look at some some new clusters is that something that you're starting to look at right now given the given the long the stronger trends over time.
I think I think it makes tons of sense for somebody else to go do.
I think.
If we didn't have such a massive.
Competitive.
High barrier to entry position in these three major markets, maybe we'd be looking at that too because I would imagine we could scrape another 50 basis points of yield, but it takes a long time to create a vibrant cluster that has the ecosystem of the scientists the venture capital to critical mass of land all the different things that we.
Talked about.
So from where we sit right now that's not to play that we're seeking to make but I'm quite sure others as well.
Okay, and then can you talk a little bit about your strategy in San Diego I know you have a small acquisition you announced I guess today.
I guess when could you start that development project I guess when does that lease expire and then off of that is there are other sites in San Diego that Youre looking at so I think we're kind of we're starting to run low on your land bank in that market.
Yeah, Mike doors, I might ask you to jump in and I'm happy to add anything.
Sure. Thanks, Scott yet with respect to the act the acquisition, we just announced realistically you've got the design and permitting period that we've spent a lot of next year going through so it's probably more of a mid 'twenty three.
Type of start and in terms of.
Longer term land bank in San Diego, We'd certainly you're certainly looking for <unk>.
For opportunities too.
Two to refill that pipeline so to speak.
Scott do you have anything else.
Maybe I'll just reinforce that our footprint in San Diego is really concentrated in Torrey pines and Sorrento Mesa. So those are.
Key targets, where we can build on our existing footprint, we've had almost too much success on the development front 540000 seats, it's already pre leased in some cases before we even started construction. So we have been hard at work.
Try to find the next leg of growth for Mike and his team in San Diego. So hopefully this one that we announced yesterday is just the first step in doing more in that market, which really has been.
Excessively strong demand.
And then just last one for me real quick on the recent San Diego acquisition is that a scrape and a ground up development and how big of a project can you put on that site.
Yes that one is scrape and redevelop as Mike said, that's probably a 2023 types of that by the time leases mature and we seek entitlements, but.
We're doing some other things in and around that site.
Probably ends up being a fairly material.
<unk> that hopefully will have more to talk about in the coming quarters.
Okay, great. Thank you.
Thanks, Mike.
Next question is from Josh <unk> line of Bank of America. Please go ahead.
Yeah, Hey, good morning, everyone.
Just want to ask.
The labor issue.
Maybe broaden that out from the earlier question.
How are you thinking about it as far as impacting G&A going forward and then any any potential impact on life science of Mlps.
Yes, Josh very fair question.
Every decent sized company in the country is talking about this one certainly from a personnel perspective, one has to look at the fact that there's been inflation there are labor market pressures and so I would imagine us and every other REIT that's thinking hard about it is there's going to be taken into account.
It's something we've been working on.
And our <unk> business.
It affects more so the sniff beds, probably as you know <unk> have a certain number of sniff beds to have the full continuum of care and provide those types of guarantees to the residents.
We have had more contract labor than average by a long shot and that that created higher expense load, which weighed a little bit on our same store growth.
Which was to be expected and Thats, a short term item for us.
It did cause us to pullback in a few assets on the admissions and sniff beds, because obviously is.
You are no longer making money on filling the beds you get to go back and revisit whether you leave a few beds empty for a period of time.
But we consider that to be a short term issue and one that will resolve but those are the types of things that we're looking at on the labor front, but it's a real problem.
Labor costs in senior housing in general have been rising pretty dramatically. So then you've got you've got occupancy. The one has to keep an eye on but also.
You can't spend revenue you can spend NOI at the end of the day. So one has to look to what is the NOI and what's the same store growth and those are things that we're tracking very carefully.
Okay.
About maybe internally on the G&A front.
Or are you seeing more pressure there.
Were in the prior years.
Well, yes, there's more pressure because.
Theres been a and exited from the exit exited from the labor market in part.
Across various different functions, you have had some inflation and wages.
Cross the country.
Sure.
And everybody to listen to this call have been reading about this in the Wall Street Journal, New York times or whatever on a weekly basis. So that's no secret. So we're putting a lot of time on making sure that we have.
Approach is appropriately and that we have a fair response to our team on this front and that applies to senior housing as well in <unk>.
You have to pay people appropriately for the conditions in the cost of living has gone up.
The labor pool has shrunk some and that's going to have some impact. So that's just a reality of doing business and those are the things that we're dialing into what we're forecasting there's nothing unique to our business, but I think we and everybody else are dealing with that issue right now.
Got it.
Thank you Josh.
The next question is from John Pawlowski of Green Street. Please go ahead.
Thanks for keeping the call going Tom just a follow up to one remark you had on land values, increasing 30% to 50% what timeframe were you referring to.
First of all John Hello, and welcome aboard too.
Health.
Hello, <unk> peak in the health care REIT.
As far as the time period Brinker I think we're talking over the last probably 2020 months or something like that since Covid began.
You saw.
A lot of demand coming during that period of time for this land.
<unk> market started to slowdown.
Theres a synopsis of lot of interest and we saw that kind of inflation and Atlanta. So specific John you could have one particular location, where the land values might have gone up 10% you could have another but they've gone up well over 50%. So it depends on the location and the particular transaction.
Okay understood and I appreciate the welcome to the sector, maybe a final question Scott on the entitlement risk for West, Cambridge assemblage, what percentage of parcels that are already entitled for whatever the future kind of dream would be and what percent of sites you still need to work through.
Yes, seeking entitlements on all sites.
Certainly we could build lab today on any of the individual parcels, but not at the density that we would seek so we will be undertaking a pretty comprehensive plan with the city, which we think will be advantageous in that given our scale, we have the ability to help deliver things to the city.
One off owners wouldn't be able to accomplish.
In addition to the fact that with so many different parcels. We can move square footage around just as an example is the city of Cambridge once a multifamily to be included obviously, we wouldnt do that but we could partner with somebody who's really good at delivering something like that and we can place things like multifamily or parking or move streets in a way that would help us.
City accomplish its objective as well and Thats, just something that a single owner simply Couldnt do.
Okay.
Are there any other regulatory hurdles that are making you hold your breath that might need you to pivot to plan several years from now.
Nothing unusual I mean, it's I mean, it's the city of Cambridge.
So that's one of the benefits of doing this once you actually develop the site, it's not an easy place to build but we've actually been delivering a lot of development in some pretty high barrier markets for quite a while with good success. So nothing unusual here John John One other thing I'd add is.
The city of Cambridge, as Scott goals as well the labeled it.
Envision alewife.
And they are late 2019 blueprint so they have aggressive goals of their own and I can assure you we're going to we're going to try to help them achieve those goals.
Okay, great well, thank you for that.
Thank you.
The next question is from Mike Mueller of Jpmorgan. Please go ahead.
Yes, Hi, just a quick one on I guess towards Cambridge covered land plays.
How quickly can you get to the real estate. Once you have projects that are ready to go I think you mentioned Raytheon won one building with six year lease, but what about the others.
Yes, there is some parcels where the room.
Remaining lease maturity is more in the one to two year range, which actually coincides pretty well with the entitlement time periods. So that's probably the fastest possible timeline to start construction anywhere.
And is six years the outside.
No I mean, we would view this as a decade plus opportunity depending on supply and demand it could come quicker.
That Raytheon is at the high end. So if you're just focused on the outstanding leases driving the timing then yes that would be outside.
Yes, that's what I was looking for okay that was it thank you.
Thanks.
This concludes our question and answer session I would now like to turn the conference back over to Tom Herzog for closing remarks.
Okay, well, thank you Kate and thanks for everybody for joining our call today.
Appreciate as always your continued interest.
I think we will be meeting with many of you at NAREIT.
And we look forward to that so good luck with the rest of your earning seasons and we will talk to you soon bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.