Q2 2023 Paramount Group Inc Earnings Call
Good day, ladies and gentlemen.
Thank you for standing by backing to the Paramount Group second quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
Please note that this conference call is being recorded today August one 2023.
I'll turn the call over to Tom Hennessy, Vice President of business development and Investor Relations.
Thank you operator, and good morning, everyone before we begin I would like to point, everyone to our second quarter 2023 earnings release, and supplemental information, which we released yesterday.
Both can be found under the heading financial results in the investors section of the Paramount Group website at Www Dot P. G. R E Dot com.
Some of our comments will be forward looking statements with the meaning of the federal securities laws.
Forward looking statements, which are usually identified by the use of the words, such as will expect should or other similar phrases are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Therefore, you should exercise caution in interpreting and relying on them.
We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2023 earnings release, and our supplemental information.
Hosting the call today, we have Mr. Albert Baylor Chairman, Chief Executive Officer, and President of the company.
Wilbur pays Chief operating Officer, Chief Financial Officer, and Treasurer, and Peter Brindley Executive Vice President head of real estate.
Management will provide some opening remarks, and then we will open the call to questions with that I will turn the call over to Albert.
Thank you John and thank you all for joining us today.
Yesterday, we reported core <unk> of 18 cents per share, which is a penny ahead of consensus estimates.
Our second quarter financial and operating metrics were impacted by the much talked about first Republic lease at one front.
Street, and the SBB Securities lease its 13 or one sixth Avenue.
<unk> will cover the impact of these items on our operating results and guidance, let me spend a few minutes recapping those transactions.
As you all know first Republic was our largest tenant at least over 460000 square feet at one front Street.
They represented approximately six 4% of our annualized rent.
Equated to about $43 million annually.
On May 1st first Republic was shut down and the FDIC was appointed receiver.
Shortly thereafter, JP Morgan Chase, a quiet substantially all of the assets and assumed certain obligations of first Republic.
J P. Morgan at 60 days to decide whether or not to assume or reject our lease.
We didn't just sit back and wait for the outcome.
Right from the onset we begin discussions and negotiations with J P. Morgan.
That effort, which culminated at the end of June resulted in what we believe was a terrific outcome, especially considering what could have been.
When all set and done JP Morgan ended up.
Retaining about 75% of the space that was leased to first Republic and that too at the same economic terms.
The 25% they surrender essentially represented space that wasn't being utilized in over 75% of the space surrendered had been sublease to several tenants.
We immediately engaged with the shop tenants and converted them to direct leases.
All in all we were able to retain over 94% of the occupancy.
And about 88% of rental revenue.
The outcome is not only a testament to the desirability of the quality of the asset, but also our proactive and on management style.
We are delighted to welcome J P Morgan to the Paramount portfolio.
We look forward to working with them in the future as they figure out their long term space needs post the integration of the first Republic platform.
In addition to the failure of first Republic also affected albeit to a lesser extent by the failure of Silicon Valley Bank.
Our attendance at 31 six Avenue bus S V B securities.
Subsidiary of S. We'd be financial group, the parent company of Silicon Valley Bank.
SB financial group filed for bankruptcy and rather than wait for the outcome of that bankruptcy proceeding we choose to engage directly with the entity that was going to acquire the assets of SB securities.
The original lease was for 109000 square feet.
The new lease with the acquiring entity is also about 109000 square feet, although I should point out that about 41000 square feet is leased on short term basis.
Both yes, we'd be at J P Morgan deals, but being negotiated simultaneously.
One was executed on June 28, and the other one on June 30th.
Needless to say I'm extremely proud of our team's efforts here and this would not have been possible without their hard work and dedication.
Turning to our operating businesses.
Our New York portfolio continues to be steady and improving occupancy was up 30 basis points to 90.5%.
Notwithstanding the reduced leasing velocity in the market during the second quarter, we are experiencing an increase in inquiries and tours.
Utilization figures have been consistently improving as more and more businesses are mandating returns to the office.
But we continue with the blocking and tackling our primary focus in New York is to fill our existing large block vacancy at 13 O. One sixth Avenue and the upcoming coming availability at 31, West 50 <unk> Street.
To that end, we're in the final stages of finalizing our 30000 square foot amenity Center at 31 six Avenue.
The amenity center, which will be at the base of 13 O one little feature.
A double height atrium, providing ample natural light into the main lounge area.
And elevated food and beverage offering and catering service.
Grab N go cafe.
Our wellness studio a game room, and a large training room.
And a 200 plus person auditorium.
The amenity center at 31 will be available to all tenants at the Paramount campus. The reception from the brokerage community and the existing and prospective tenants alike ethylene stupendous.
We look forward to sharing more with you in the coming months.
While our San Francisco portfolio continues to lag that of New York The streets of San Francisco have become more vibrant in recent months.
And utilization figures have been consistently rising.
Recent data suggest there is an increase in demand.
Driven by AI companies.
Many of those are searching for larger blocks of space in excess of 50000 square feet.
Turning to the transaction market active.
Activity remained subdued due to elevated interest rates volatile equity markets and wider bid ask spreads.
To date, there have been very few quality assets coming to market.
However, there has been some recent activity is showing signs of optimism and supporting our view that for the most part the underlying value of class a trophy real estate remains intact.
Well that is certainly not reflected in the current public market stock prices up office suites, including ours, we run our business with a long term mindset.
Our strategy of investing in class, a and trophy buildings and coastal gateway markets is one that has stood the test of time.
It will again.
With that I will turn the call to Peter.
Thanks, Albert and good morning during the second quarter, we leased approximately 72000 square feet.
Our second quarter leasing activity was weighted towards New York with approximately 60000 square feet leased driven largely by the continued expansion of Wilson Sonsini at 31, West 50, <unk> Street, and a full floor lease at 903rd Avenue.
We continue to navigate challenging market conditions in both New York and San Francisco. This period of uncertainty has caused many companies to exercise caution when making long term real estate decisions in general much of the recent activity has been lease exploration driven as those tenants that do not need to make in them.
Mediate decision or in many cases choosing to hold off for the time being.
The result of these headwinds has been reduced leasing velocity and our two markets and negative absorption year to date as reflected in the broader market statistics, we remain squarely focused on executing on our business plan and delivering exceptional services throughout our high quality portfolio companies.
Companies and our two markets are increasingly prioritizing the highest quality assets with stable ownership equipped with not only the operational know how we're running a class a building, but also the financial wherewithal to deliver on the financial commitments made as part of a lease transaction.
This trend is causing a reduction in competitive supply in our two markets, which are newer to our benefit as evidenced by the fact that we captured the second largest new lease in Midtown.
And the largest new direct lease in San Francisco in 2023.
We are increasingly encouraged by the utilization figures in our own portfolio and expect the return to work trend to result in increased leasing activity as sentiment improves.
At quarter end, our same store portfolio wide leased occupancy rate at share was 89, 6% down 20 basis points from last quarter and down 180 basis points year over year.
As we look ahead, our remaining lease explorations are manageable with three 2% or approximately 252000 square feet at share expiring by yearend.
Turning to our markets Midtown second quarter leasing activity of approximately $2 5 million square feet, excluding renewables was flat quarter over quarter, but 27% below the five year quarterly average availability in Midtown remains elevated at 18, 5%, but absorption was slightly positive during the <unk>.
Quarter as they were limited space additions.
We are encouraged by the increasing level of interest in our availabilities at 13 O. One Avenue of the Americas and 31, West 50, <unk> Street and will aim to build on the success, we have had at both properties.
Our New York portfolio is currently 95% leased on a same store basis at share up 30 basis points quarter over quarter and down 150 basis points year over year, largely as a result of the known lease exploration with credit.
I recall at 13 O One avenue of the Americas.
During the second quarter, we leased 59800 square feet at a weighted average term of 11.3 years with an initial rent of approximately $74 per square foot.
Our overall lease expiration profile in New York is manageable with 1.5% or approximately 86100 square feet at share expiring by yearend.
Shifting our focus to San Francisco leasing activity remains muted. However, we are encouraged particularly given San Francisco remains a hotbed for Premier Tech talent with high growth potential San.
San Francisco based companies have raised a robust $25 billion in venture capital through the first half of the year.
Venture backed companies, particularly AI have contributed to increased tenant demand in San Francisco, which is currently $4 7 million square feet up 23, 5% quarter over quarter and up 34% since year end 2022.
The average historical tenant demand in San Francisco is approximately 7 million square feet.
Leading San Francisco based companies continue to announce their return to office plan, which has resulted in improved utilization figures in our own portfolio a key ingredient for increased leasing activity.
Despite San Francisco's elevated availability rate the market for premier assets remains tight and economics remained strong, particularly for view space and trophy assets.
At quarter end, our San Francisco portfolio was 87, 2% leased on a same store basis at share down 150 basis points quarter over quarter down 260 basis points year over year, driven by the impact of the first Republic resolution.
Looking ahead, our San Francisco portfolio has seven 8% or approximately 166000 square feet at share expiring by year end.
The majority of our 2023 lease role will occur at market Center, where ubers lease expired in July .
We look forward to building on our most recent success at market Center, where we signed the way my lease the largest new direct lease signed in San Francisco during the first half of the year.
We look forward to updating you on our progress.
With that summary, I will turn the call over to Wilbur, who will discuss the financial results.
Thank you Peter and good morning, everyone.
Yesterday, we reported core <unk> of <unk> 18 per share.
The current quarter results were impacted by noncash straight line write offs of six cents per share related to the agreements executed with J P. Morgan and S V B securities.
Most all of the analysts had reflected this adjustment India numbers as consensus estimates were at 17 cents per share.
The beat was driven primarily by lease termination income from a tenant at 16 33 Broadway a portion of which was recognized during the quarter and the remainder of which will be recognized in the third quarter.
More on that when I cover the building blocks to our revised guidance for the year.
Same store growth in the quarter as expected was down four 7% on a cash basis and 5% on a GAAP basis.
I'm mentally due to the non lease explorations in our New York portfolio.
As a reminder, we do not include the benefit of lease termination income in our same store numbers.
Looking at each of our businesses, our New York portfolio was down 95% on a cash basis and seven 4% on a GAAP basis, while our San Francisco portfolio was up six 3% on a cash basis and down <unk>.
2% on a GAAP basis.
During the second quarter, we completed 71847 square feet of leasing at a weighted average starting rent of $78.14 per square foot and for a weighted average lease term of 10 six years.
Mark to markets on 34514 square feet of second generation space was positive three 9% on a GAAP basis and negative three 1% on a cash basis.
Turning to our balance sheet, our liquidity position remains strong we ended the quarter with $483 million of cash and restricted cash at share, which is up $33 million from the start of the year, we have the full $750 million of undrawn capacity under our revolver.
Bringing our liquidity to over $1 2 billion.
Our outstanding debt at quarter end was $3 67 billion at a weighted average interest rate of 361% and a weighted average maturity of three six years.
87% of our debt is fixed and has a weighted average interest rate of three 6%.
The remaining 13% is floating and has a weighted average interest rate of 599%.
We have under $85 million of debt at share maturing in the fourth quarter of 2023, which represents our share of debt at 300 mission.
$478 million of chair maturing in 2020, full which primarily represents our share of debt at one market Plaza.
The debt markets for the office sector in general are very challenging not.
Not just in terms of the cost of debt.
But also in terms of the availability of debt capital.
We continue to explore all possibilities with lenders when dealing with an upcoming maturity and clearing short term extensions with existing lenders to the extent it makes economic sense.
As we have said before one of the underappreciated benefit of our capitalization structure is that all of our debt is secured and nonrecourse to our balance sheet.
Turning now to our 2023 guidance based on our second quarter results, which include the resolution of the JP Morgan and S. We'd be securities leases as well as our outlook for the remainder of the year, we have updated our core <unk> guidance to be between 84 and 88.
<unk> per share or <unk> 86 cents per share at the midpoint.
This is down six cents per share at the midpoint compared to our prior guidance.
Drivers of the six cents include the following noncash straight line rent receivable write offs aggregating six cents per share related to the terminated as we'd be securities lease and the surrender JP Morgan space, which has already been reflected in our second quarter results.
<unk> GAAP rental revenue in the second half of the year aggregating to <unk> per share related to the agreements entered into with JP Morgan and the entity acquiring SBB securities.
Partially offset by termination income of <unk> <unk> per share in connection with an 86000 square foot tenant lease termination at 16, 33 Broadway a portion of which has already been reflected in our second quarter results.
We have provided in our supplemental package a very straightforward reconciliation of the impact of these three transactions on the operating and financial assumptions underlying our guidance.
Bottom line is that our guidance is essentially unchanged from the prior quarter, except for the impact of these three transactions.
Lastly, while this does not have an impact on that therefore, we did record a $24 $7 million noncash impairment loss on our investment in 60 Wall Street, essentially taking a full write down of a 5% investment in the asset.
We together with our partners remain in discussions with the existing lender to modify and extend alone but have not yet reached a mutually agreeable long term solution.
With that operator, please open the lines for questions.
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First question comes from the line of Camille Fun with Bank of America. Please go ahead.
Good morning, Chris.
Wanted to start with the dividend reduction you made this quarter. While you do have some near term headwinds caused smoke well covered by your funds available for distribution. So.
Can you please elaborate a bit more on why 50% reduction versus you know 20 or 30% was appropriate.
Yeah.
Yeah.
Hi, This is Albert.
Taylor.
We think we.
We decided with the board every quarter, we discuss things with the board.
And we came to the conclusion that it would make more sense on the circumstance at the current market environment.
Cut the dividend the way we cut it.
And.
Yes.
Additional cash into the company for opportunities for potential.
Support and.
Paying down some debt, giving the company more flexibility that's being outsourced work.
In general.
And just to follow up on that any color on how you plan to use those additional proceeds.
Okay.
So again just to add to what Albert said, you know youre looking at the Fad payout ratio recognized that one that is a backward looking metric not a forward looking metric and so when you say it is well covered you're certainly right. It is well covered based on today, but as Albert said we're looked.
At our future plans, we're looking at the lease roll that's coming up we're looking at the the Ti dollars that we would need to spend and also trying to be mindful of our balance sheet and the environment that we are.
As far as.
I'm sorry can you repeat your second part of your question.
Just trying to understand like where does that extra cash flow.
Oh yeah.
So that's that's what I was referring to in terms of like the leasing costs and the tea is Albert referred to in his prepared remarks, the amenity center, which.
He is also underway. So we what we were looking at this holistically and trying to make sure we have ample liquidity for our capital.
Capital improvements for Ti dollars as well as a potential pay.
Pay downs of debt.
Got it.
And then can you talk about the market ability of market frontier just following the move out of it very later this month and it'll become one of the lowest occupied buildings within the portfolio.
So just curious knowing this has kind of been asking for more incentives and how's your leasing pipeline tracking that.
I can meet all of this is Peter Thanks for the question I would say that our pipeline has improved from the year end 2022, you heard in my remarks that San Francisco is leasing pipeline is up 30% relative to where it stood at the end of 'twenty, two which was at the time.
Very very low relative to historical averages we've seen that reflected in the market by way of increased tours, it's still not where we would like it to be and it's not nearly as far along as New York in terms of.
Inquiries, but 555 market to building your now referring to shows very well we of course announced the largest deal in San Francisco earlier, this year with Le Mo and I think that's been helpful. In terms of generating some momentum.
At this point in time, its still too early to give you much more than that by way of detail other than to say Big picture San Francisco is showing some additional signs of life. Most recently with an increase in the tenant pipeline.
And one more follow up on market center are there any other large leases coming up for well before the loan comes due in 2025.
[laughter].
Nothing of size market Center typically is a smaller floor plate building. It's 555 marketed the two building complex 555 market is way above that and so that's why you had a large but when you look at the portfolio and you look at our exploration profile you have a lot of smaller tenants in and out but not.
Major.
Our role at market Center equates to roughly 80% of our expertise over the balance of this year and when you look to 2024 for example, youre looking at roughly 109000 square feet of exploration. So so.
That is in addition to what Robert just now mentioned.
At 100% full.
Thank you for taking my questions.
Yeah.
Thank you next question comes from the line of Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks, Good morning, several of your peers in New York have noted that the pace of leasing activity to crop properties with kind of middle of the market rents has picked up recently I guess are you guys seeing the same in can you talk a little bit more about any changes in the number or signs of prospects you have for your larger.
<unk> in New York.
We've all been talking about flight to quality and there's no question that this market has been dominated that's been a very pronounced trend in our market. We are however, seeing tenants.
That have been pursuing.
Opportunities with rents call it in the 70% to $80 a foot range and so that I think.
Is on point I agree with that sentiment, we are seeing more of that as some tenants.
To elevate the quality of the real estate into a property owned by the likes of a Paramount and pay in the neighborhood of 70 or $80 per square foot I would say that our pipeline continues to increase I would say that over the last 45 to 60 days, we've seen an increase in tour activity.
One of my colleagues remarked that we had nine tours.
At the end of last week, which in one day, which was which was really very encouraging we've seen an increase in tour activity.
Dimension, our pipeline as being.
Increasingly improving we currently have leases in negotiation or proposals in advanced stages.
<unk>, approximately 300000 square feet and I would say that beyond that we're trading paper and working very hard to advance some of these opportunities and that pipeline is healthy as well I would say in excess of the 300000 square feet I, just now mentioned as it relates to advanced stage.
Activity. So we feel like things are certainly improving.
And accelerated in New York over and above San Francisco, but we're seeing improvement in both of our markets.
Great very helpful. Peter second question kind of similar and related I. Appreciate your thoughts on artificial intelligence in San Francisco I guess can you talk about the total magnitude of demand that you're seeing in the San Francisco market, that's driven by AI in particular, and whether you think that level of demand.
Will be enough to potentially start to turn the tide in and maybe create some somewhat of an inflection point in San Francisco.
So of the $4 7 million square feet.
The pipeline currently I would say roughly 20%.
<unk> is AI, if you will.
Some of that demand is lease expiration driven as you would expect I think quite honestly, we're seeing this all developed real time.
I think there's good reason for the excitement that you hear from us and others as it relates to what this means for San Francisco, but it's just too hard to say just yet what it means in terms of its contribution towards leasing activity going forward right. Now we know that it represents like I said roughly 20% of the pipeline of now described a couple of times and I think it will be interesting.
The balance of this year to see how this comes together we all know that these companies have been heavily funded as I mentioned venture capital through the first half of the year is really very strong.
AI companies are the recipients of this capital many of them are San Francisco based.
And we think that this is certainly a north of the benefit of San Francisco more broadly and we'll see how it develops in our own portfolio going forward.
Okay. Great Lastly for me can you talk a little bit more about the lease termination at 16 33, Wilbur I think you gave the science, which was helpful. But if you can tell us when you expect that lease or that space to be vacated.
Any anything about the profile of the tenant or color on their decision to leave would be helpful.
So maybe I'll take the first part of the question and then let Peter comment about the profile of the tenant.
We expect that tenant to be out in the fourth quarter, so call it towards the.
The middle of February if you will.
And essentially that termination income that we got and the guidance adjustment of two <unk> that we did.
Is net of the lost rent in the in the fourth quarter from that tenant. So in our guidance. Originally we had contemplated a patent would be paying.
And then in the portfolio for the full year. So the loss of contribution for one quarter offset the termination income that we will be receiving is what's reflected in the guidance.
As I said it was 86000 square feet, an $8 6 million square foot portfolio. That's the 1% reduction that we did in the guidance.
Because it is happening at the back end of the year and as you know by the time the tenant leaves we prep the space demolished white box.
We took a very realistic approach to understanding whether that there was a possibility of that getting leased this year and hence we made the adjustment in.
And Blaine I would only add that it's as simple as you know in our portfolio specifically some tenants have expressed interest in growing and others have decided that they just simply have too much space relative to what it is that they require in this this this this tenant unfortunately fell into.
The second bucket, where they just had too much space. The good news is that our largest building 16 33 Broadway is for all intensive purposes fully leased and so we are in touch with existing tenants in the building some of whom in the past have raised their hand, and inquired about additional space and so it remains to be seen what that ultimately yields that reach out but.
Suffice it to say, we've got a tremendous asset we're getting back floors that I think will be desirable and.
Unfortunately, we did incur the termination and so we move forward.
Peter very helpful 16th.
16, 33, remember is 99, 7% leased.
This exploration has a roughly 350 basis point impact on that occupancy so just to put it in perspective, even post this termination that's a 96.
Two plus percent leased asset.
Got it thank you guys.
Sure.
Thank you. Thank you next question comes from the line of Jay Pocket.
Evercore ISI. Please go ahead.
Hey, Thanks, good morning.
I was wondering if you could just provide a little bit more color on what some of those tenants in San Francisco are looking for in terms of geography in terms of space needs.
And then Peter to your point too about the.
The pipeline being up about 30% you mentioned, 20% of that is kind of AI juggernauts I would imagine is new demand, but what percentage of that is just from renewals being pulled forward as well.
Hard for me to quantify Jay the percentage of demand. If you will that is lease expiration driven or driven largely by renewals I do think it's a healthy percentage of it.
AI companies have been really all over the board in terms of the Submarkets they are considering.
We have seen them locate in the neighborhoods. If you will some of the neighborhood non CBD submarkets, but we also have seen them Turing and our assets as well some of the requirements have real infrastructure requirements and we become a magnet for those tenants that want to capitalize on a building that can deliver on those robust infrastructure requirements.
I I think we will have a heck of a lot more to say about the profile of AI demand and how it comes together in the coming quarters I think it's still early.
We all have read about the largest.
Users of space, if you will but I do think that they are proactively thinking about.
Setting themselves up in the right building currently and that's why we're having some conversations with them, but but I would say it's still early days on the AI front just yet.
Okay. That's helpful. Thank you Peter.
And then just another question as well on the exploration just wondering if there's any update on our 300 mission Street or just any of the upcoming debt maturity as well.
Sure Yes.
As I said this this is a very very challenging market for the office sector.
We are in the market and I said previously and we're exploring all patch in a boat with the with the new financing as well as existing lenders.
Venture to say most likely this could this would be in the in the extension bucket versus a full.
Refi bucket, if you will and so those discussions are fluid and ongoing I do expect a good result here.
But.
Even that those discussions are fluid.
Beyond beyond what I said, it would not be appropriate to comment.
Great. Thanks, I appreciate the color that's all for me.
Thank you.
Next question comes from the line of runners Camden with Morgan Stanley . Please go ahead.
Hey, Good morning, guys to me I'm on for Ronald Yeah. Just first question on the on the Jpmorgan lease. So yes, my understanding and J P. Morgan has the elite nearby one front Street.
If you guys could talk at all about <unk>.
J P. Morgan's long term plans or that space, if any insight there would be helpful.
Yeah.
Yeah.
Peter and I had a lot of discussions with JP Morgan and.
You know that.
Public had a campus type buildings in San Francisco.
Very early into it.
<unk> discussed it with them.
I think the outcome there.
Fantastic kudos to our team.
In San Francisco and bigger.
To treat but both are cheap because.
I know a couple of them.
The analyst thinks of the dogs are not great results for the quarter because it is much much worse.
At the moment.
Got it.
Out of that building. So I think we developed a nice relationship.
And I, it's too early to say where things for them.
And I don't want to be there.
Talking about safety.
More of a long time in San Francisco, but you can imagine by them.
Making this investment in person Republic, which was clearly a bank that.
And a lot of.
Very strong.
Okay.
The positive for them and they want to keep I think.
Strong foothold in San Francisco, and I think that speaks for that space and are either NII in front of them.
With them to make sure that they are.
Satisfied.
Got it and then 60 you guys talk about 60 Wall Street, a little bit on how you are in discussions with the lender you know what about 111 center any updates there and just how you're thinking about the tradeoffs between putting incremental capital and just continuing to fill out that loan sit there.
Sure I'll start with 111, Sarah 111 effectively was resolved.
On a short term basis last quarter, what we did there is we negotiated a cash flow loan essentially where paramount will not be putting any capital from its balance sheet into the asset.
And so the lender is is now funding all of the.
Stabilization cost for that asset.
<unk>.
We took the maturity out to 2020 for.
Any shortfalls in any monies funded by the lender will accrete to the existing principal balance of the loan and we will take a look at where we stand in 2024 other markets are and whether it makes sense for us to have another discussion and negotiation that but right now that's effectively an option for us.
We get to manage the asset we get the fees and.
We'll look to see how the market develops.
With respect to that asset.
In the case of 60 wall as you all know it's a redevelopment play there is a significant amount of capital that the joint venture is willing to invest in that asset to end.
But he has to make sense it has to make sense vis vis the the long.
Term and up to this point, we have not been able to get to terms with the lender on what I ask was and so the loan went into default.
And we basically disclose that as such.
We will accrue interest on the default rate, but recognize that we'll never get paid.
Until we reach a resolution or we handed back the keys. So the goal is to try to reach a resolution. So we can develop that asset into what we believe could be a world class opportunity downtown.
Got it thank you guys.
Okay.
Thank you Hugh.
Next question comes from the line of Dylan Lesinski.
<unk> Street. Please go ahead.
Hi, guys I appreciate the comments on debt markets remaining challenging for the office sector, but just curious when you guys had conversation with lenders and this is something that we've heard from brokers is that L. T V's aren't really being focused on given the uncertainty associated with what the V is but that year.
They're now in focus just curious sort of what that yields lenders are sort of targeting these days.
Look you're right.
Ltvs will always be an equation that people are struggling with the <unk> part of that equation.
I can tell you. It's just one metric net yield is and Idaho. There is other things that lenders are focused on people are focused on structure and in these in these loans because.
Lenders want to make sure that the landlord is invested.
Its footing.
Capital up in terms of reserves upfront and what have you. So there's not one item that's the hot button. It's a series of items that are being focused on.
Okay.
The color on that and then I think last quarter you guys.
You had mentioned that the market is possibly improving for making acquisitions. Just curious how you guys are thinking about thinking about that today.
I think it's still.
Quite differently.
Well it looks like the market.
Fine fine.
Yes.
Oh, the right value.
The company has done that.
You mentioned the.
The last call that before.
Yeah.
Hum.
Mhm.
The acquisition.
We see what's available.
We acquired them.
And Paul.
Hum.
I don't know.
Got it.
Yes.
That's it.
Uh huh.
And as.
As I said.
The new joint.
Okay.
It's similar to what we get done 60 and other broadly.
It's a very small amount of capital.
Through the acquisition.
Yes it.
It depends upon it.
Wanted to.
By that asset for a long time.
Cash flow.
So.
I think it might be still a little early.
Developing quarter by quarter I know you guys look at.
Quarter by quarter, we look a little bit longer terms.
I think yeah, the market might have to fly it.
Yeah.
Right right.
Right value in that.
The next couple of quarters or something.
Yeah.
Great. Thanks for the details guys.
Thank you. Thank you.
There are no further questions at this time I would like to turn the floor back over to Albert Behler for closing comments.
Thank you everyone for joining us here today.
We really look forward to providing an update on.
The continued progress.
I can report into our third quarter 2020 results. Thank.
Thank you and have a good day.
Right.
Goodbye.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time.
You for your participation.
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Yeah.
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