BXP, Inc. (BXP) September 15, 2026 Conference Transcript

Good afternoon, everyone. Welcome to Bank of America's 2026 Global Real Estate Conference. I'm Yana Gallen, B of A's Office REIT Analyst, and we're thrilled to have with us BXP's Chairman and CEO, Owen Thomas, President Doug Lindy, CFO and Treasurer Mike LaBelle, and SVP Finance and Capital Markets, James Magaldi. I'll turn it over to Owen for opening remarks, and then we can jump into Q&A.

Great. Yana, thank you for having us. And a couple opening things from me, which will suggest to you what our priorities are. A year ago this month, we had our investor day and we outlined three execution priorities for the company, leasing space, selling assets, and advancing our developments. And I just want to give a little bit of a report. I want to give Leasing, the first two quarters of this year, we leased 3 million square feet of space. This quarter, we're at about 950 so far, so that's going very well. Our occupancy at the end of the second quarter was 88.4%, and we gave you a target or a goal of 89% for year-end 26, so we're well on our way. And all of our major markets are very strong in terms of leasing, and they're all improved over where they were a year ago, and we have a high degree of confidence in our continued success in leasing, giving our strong pipeline. Sales, we're also doing great. We have closed $1.3 billion in sales. We have $200 million of additional sales under contract. One of those deals, which is about half of the $200 million, we think is going to close this week. So if all that gets done, we'll be at $1.5 billion. We have another $400 million that's in the market. Our goal, as you might recall, for a three-year period of time ending last September was $1.9 billion. So we're well on our way to accomplishing our goals. And as a reminder, a significant component of our asset sales are land and apartments that we're selling at low cap rates. And so the sales activity is less dilutive than selling office buildings at higher cap rates. And then lastly, we've had a lot of excitement and success in our development pipeline. We have in the pipeline right now about 3.5 million square feet and about 3.2 billion of BXP investment. This is reasonably consistent to levels that we carried even before COVID. We announced recently the delivery of 290 Binney Street in Cambridge, which is 100% leased to AstraZeneca. This is a very large project that we sold a 45% interest in. We delivered that project at an 8.9% development yield on cost, which is very high because of our execution, the savings we accomplished in the development, and also the sell-down that we did. We have a major project going here in New York, as you know, 343 Madison's, $2 billion. If you walk by the site, you'll see steel coming out of the ground. There's a couple of tower cranes up. We're now 56% leased. We launched this spec 13 months ago, and we have a letter of intent with another firm to take the bottom five floors, and if we get that done, we'll be at 70% pre-leased after only 13 or 14 months. We also signed a 320,000-square-foot lease with Boston Dynamics on an empty building that we had in Waltham, Mass., so we've added that to the development pipeline. Boston Dynamics is a hard tech company, so this is a great win for us. We have two buildings, one of which is under construction in D.C. and one we've committed to do. And by the way, these are back-ended developments. We're not buying sites and taking risks. We're pre-leasing these developments before we even buy the real estate. And we have a third one that is well along, although we haven't announced it yet. So anyway, if we continue down this path and we continue to have this success, we think we will accomplish our ultimate goals, which are to grow our FFO per share, reduce our leverage, all of which we think will be positive for our share value.

Great, thank you. You know, maybe jumping into the leasing, the $950,000 quarter to date, super impressive. Maybe if you could walk us through, you know, any latest leasing color across the region. Sure.

So when we had our call at the end of the second quarter in July, we said we had 1.3 million square feet of quote-unquote active leases under negotiation. So that number as of today is 1.8 million square feet. Of that 1.8, 950, as Owen said, has been executed. To break those numbers down a little bit more, about 400,000 square feet of that 1.8 is vacant space. When we lease vacant space, it all has flowed through to the bottom line, and that's where we gained from an occupancy perspective. About 250,000 square feet of that 1.8 is 26 and 27 expirations. So that's the renewal conversations that we're having. 170,000 square feet is part of the 343. So we've executed our third lease at 343, which was a two-floor transaction in the lower stack of the building. That's 55,000 square feet. And as Owen said, we have another 120,000 square foot client that is looking at another portion of that lower stack of the building. So that means the rest of the space are deals that we're doing on leases that are 28, 29, and up out to 2030, early renewals or takedowns of space that are known expirations. As an example, Owen said we're doing these two transactions in Washington, D.C. The first one is a building called 725 12th Street. That building is anchored by McDermott Schulte. McDermott Schulte is moving out of a building that we own called 500 North Capital. We have now backfilled 100% of the space that they are moving out of with Google, who's going to be moving into that building for 220,000 square feet as soon as they move out. We're actually getting them to move out of a few floors early, and then they're going to be moving into the rest of that space in 2028 when McDermott moves out of that space. So most of our activity on a going forward basis are going to be leases associated with 2028, 29, and 30. From an overall perspective, Midtown is so tight for us that we have very little left to do in our existing portfolio. In our Midtown East portfolio, we have a floor at 510 Madison, which I believe you all visited yesterday, where we've leased a tremendous amount of space. And we have a floor at 599 Lex. We have no space at the General Motors building. We have no space at 601 Lex. We have no space at 399 Park until CV Star moves out when they relocate over to 343 at the beginning of 2029. In San Francisco, we've been highly successful leasing our space at 680 Folsom Street, where we had almost 300,000 square feet of availability at the beginning of 2025 there rents are starting to accelerate like they are in manhattan so everyone talks about the quote-unquote frothiness of the park avenue sub market where you know rents are increasing at significant rates as an example we were leasing space at five to madison at the top of the building at 125 a square foot a year ago now we're asking 175 to 200 a square foot that kind of an increase. At 680 Folsom Street, we were doing transactions in the mid-60s a year ago, and now we're doing transactions in the mid-80s. So that's a market that has a 25% availability rate still. And yet that sub-market has gotten strong enough where we as an organization have been able to start to push on the economics. We are also starting our first round, believe it or not, of lease rollover at Salesforce Tower. So the building was leased up between 2014 and 2016, and we have a 2027 and a 2028 expiration. In both of those cases, we expect a hash ending rate versus the new rate to be 30 to 50% higher. So we're going to have a roll up of between 30 and 50%. And then finally, in our Boston and our DC portfolios, in Northern Virginia, we are, almost 98% occupied and leased. And we are now working on 28 and 29 expirations. We have one available floor coming due in 2027 in a portfolio of about 4 million square feet. And in Boston, we are doing all-time high rents in our back bay portfolio at 200 Clarence Street and 888 Boylston Street in the Prudential Tower, where again, we are virtually fully leased. And so it's a very strong picture across the entire portfolio.

That's great. And maybe if you could just give us some context, given that today you're talking about the 28, 29, 2030 renewals, you know, how common is that? Or, you know, relatively when do tenants, you know, previous to this tightness in the market approach you?

Yeah. So I would say larger organizations that consider new space, So built-to-suits typically come out to the market three-plus years before their expirations. I would say there is a little bit more urgency right now with tenants that are a little bit smaller than those who would be looking for built-to-suits. So these are tenants who are caught 100,000 square feet, plus or minus. And there is no question that the lack of new product in a market like Boston or a market like San Francisco and the lack of availability of big blocks in all of our markets is encouraging our clients to be more aggressive about timing. And so, and we are, you know, we encourage them to ask for proposals and we will try and make deals. And yes, we have a hard time figuring out what rents might be in 2030, but we figure it out. And we look at, you know, where new development costs are. We look at, you know, potential increases on an annualized basis. And we try and come to a, you know, a good outcome for us and for our clients. And, you know, obviously there's risk associated with doing nothing. And so we, you know, we factor all that in as we make these decisions.

Can I ask that? Would you set the rent now?

Yes, we've fixed the rent today.

There are markets that are pretty tight as well, and they are in Asia, and they're agreeing to set a rent for 2032.

Yeah, we are doing that. I mean, in fact, we have one example right now with a 75,000 square foot tenant who has a lease expiration in 2032 that asks for a 10-year renewal proposal today, starting in 2032.

One thing I would add to what Doug said, when he talks about the pipeline, there's always a lot of focus, obviously, on what's been signed that is either unleashed or in near-term expirations, which makes sense because that has real near-term impact on FFO and occupancy. But one of the reasons why we have such low rollover in 26 and 27 is because we've been doing early renewals in prior years. You know, for example, Mass Financial at 111 Huntington and Ropes and Gray at the Prudential Center. So even though that's in our leasing statistics and it doesn't have necessarily a real near-term impact, it helps us keep these rollovers low and helps us, you know, push the occupancy of the portfolio on a near-term basis.

Great. You know, maybe jumping to the San Francisco market and the AI-driven momentum we've seen this year, I'm curious, you know, how much demand you're seeing directly from AI versus more traditional tech and how much activity is the growth in AI also generating for more demand from finance, law and professional services?

So it's a hard question to answer because it's unclear to us what is traditional tech and what is AI at this point, because everyone is sort of saying they are in the AI business, if you will. What I would say is that we are doing some leasing, not a lot, to direct AI organizations. And that has been at 680 Folsom Street and actually in Manhattan at 360 Park Avenue South. And now we're starting to see some of that come to Embarcadero Center, which is a great opportunity for us in terms of improving our occupancy there. We've also had what I would refer to as some spillover. So what do I mean by that? So we did a transaction with Dropbox. I don't consider Dropbox a quote-unquote AI company, but maybe they do today. And the reason they were looking for space is because OpenAI took their space in another building. And so Dropbox needed to find a new home, and they came to us to do that. So there's that kind of activity in the market as well. So the expanding large language models are basically resulting in the movement of other organizations in that marketplace. In a market like New York, there is no question that the AI infrastructure build-out is impacting law firms and financial services firms, and some of their growth has to be around all the transaction volume there. That's really not going on in San Francisco, per se. I'm sure there is some legal work that is being done by some of these firms with a San Francisco presence, but the bulk of those employees on the law firm and the financial services firm are all New York-centric in terms of their locations. And interestingly, San Francisco is really now a tech-dominated market, meaning once upon a time, San Francisco was considered to be the financial center of the western part of the United States. all the banks are gone. And anybody in the long only asset management business has moved to another location. I mean, there are a few, you know, unusual companies like Dodge and Cox were there. But, you know, for example, the pod shops, some of whom may be in this room, the presence that they have in San Francisco compared to the presence they have in New York City is minuscule. And I just think that the San Francisco employment market has just focused much more on technology. And so what we're seeing today is a much more granular tenant in the market demand profile. Lots and lots of smaller VC-backed or friends and family-backed companies that are growing at rapid rates. And the thing that is distinguishing us from our perspective, what's this sort of cycle in technology versus others, is just this rapid revenue growth that these companies are having. If you look, sort of backtrack for software companies and how long it took them to get to, call it $100 million of revenue, compared to these new companies, it's exponentially different today. I mean, it's taking them one to two years versus 10 years to get there. And so the revenue model associated with what is going on is a very different picture. And quite frankly, it gives us some confidence. And James, at the end of the table, sort of is our chief underwriter. And as he thinks about, you know, how do I think about underwriting these credits, I mean, he gets a lot of confidence in what their revenue generation potential is.

James, how do you underwrite these tenants?

You had to say that. I mean, look, I think it's, it's, there's, you have to understand that there's, there's a difference in AI companies that we're doing business with. Some of them are application type companies that have a product that they're actually selling. Bank of America, I'm sure it probably uses some of those products from companies like Rogo that create these pitch books for your clients so that's a company that has revenues and we can actually get in and look at their financials and understand them from a more traditional sense I would say that we do a significant amount of business as Owen had mentioned we've done a deal with with Boston Dynamics and suburban Boston and Waltham that is a you know a hard tech technology company they are backed by kia and hyundai so from a credit perspective there's somebody standing behind that that business line and it's a very different type of business line it's not necessarily application it's hard tech we've done deals with major defense you know subcontractors are in drone technology and this is not the pilot drones this is you know, this is new wave AI technology as it relates to military applications, which we are all very much acutely aware of globally. If it's a smaller startup application, we're looking at their bank account, we're getting a big security deposit. So those are the things that we have to evaluate when we make decisions regarding entering into long-term financial commitments with our clients.

Thank you. And, you know, spec suites are becoming more popular with speed to occupancy becoming an important criteria for many tenants. How much are you leaning into this across the portfolio?

We are we are full bore plowing ahead with spec to those suites, particularly in San Francisco, because we've been so successful. So we started with one spec suite, a floor at 680 Folsom Street and we've leased all of the floors but one and we have a proposal today to lease that last floor with an organization that looked at our spec suite and said we want that and so we're about to do that and Embarcadero Center we're actually doing six full floors full floors not spec suites but full floors the first one was completed last two weeks ago and we signed a letter of intent on Friday with an AI company to take the entire floor we're doing a variety of different configurations. We have the law firm, professional services firm build-out, which is stacked with perimeter offices and a few conference rooms. We have more open office floors, which is like the one that we just got an LOI on. And then we are also doing some smaller spaces. Where we have built space, we have leased the space. And so it's been a very successful strategy. And it also is economically advantageous because one of the friction points is time to getting to yes on the space and then building it out. And if it's already built, once that lease is signed, revenue commences and the tenant moves in, and the whole free rent component becomes a much less important part of the equation. And so economically, it costs us less in terms of downtime and capital to build a floor. And we're also building floors that we have designed that we believe are somewhat credit risk prone in terms of our ability to, if we have a credit problem, provide another organization with that suite that will work for them as well, as opposed to a bespoke kind of an environment where people are choosing colors that may be very unique or they're building out unusual office configurations or different kinds of kind of conference rooms that are not necessarily quote unquote generic. And so it's a risk mitigation tool from a credit perspective as we think about it as well.

How do those spec suite build outs per square foot kind of compare to TIs for some of those more?

So we can build a suite in San Francisco, as an example, for somewhere between $160 and $220 a square foot. And if we're doing an 11-year deal in San Francisco, we're giving $185 to $220 a square foot. So the money that we're spending is about the same. the tenant unusually spends a lot more than that allowance so we can do it more efficiently but they tend to do these bespoke kinds of configurations and they hire architects who tend to have a different design aspiration and so that just costs money and so we we can be more efficient than our quote-unquote our tenants on their own and then maybe if we could just touch on kind of los angeles and seattle which have been you know a little bit weaker also much smaller markets for BXP, but 2Q earnings commentary was, you know, trending a little bit more positive.

You can just kind of talk through those.

Sure. So, and they're actually very different. So, in Seattle, at Madison Center, where we have available space, we have leased three vacant floors to AI companies over the last two quarters really quickly. We've built the floors and they've taken the space immediately on an as-is basis. And we also just did an early renewal, another one of these, call it, you know, 2028-29ers with the large law firm in the tenant, Davis Wright, who has over 100,000 square feet of space. So I would say Seattle is continuing to perform as it has in the past, which is it's behind San Francisco, but it tends to have the same kind of organizations looking for space. And if you've read about it, OpenAI and Anthropic have done a new beachhead expansion in the Seattle market in downtown Seattle, a.k.a. not Bellevue. And then Bellevue itself has really recovered quickly, again, with a lot of technology companies who may or may not consider themselves AI companies. West LA is, from a demand perspective, challenged. There are more tenants in the market, but it's all musical chairs. There is no growth at the moment in the West LA marketplace. You have movement from tenants that are moving from different parts of what we refer to as the mosaic of L.A. into Century City. That's the predominant place where activity is. And then you have a smattering of consumer products companies and other what you would refer to as media tech companies. Some of them are in the gaming. Some of them are in the actual media content creation business that are out looking for space. None of them have a sense of urgency, but they are in the market looking. and there's, but there's not much in the way of growth in that marketplace.

Chris, any, oh, go ahead.

So incredibly causative perspective, except maybe you've asked LA comments. What are the weaknesses in the portfolio?

So we've put out a trajectory of gaining 200 basis points in 2026 and 200 basis points in 2027, which sort of gets us into the 91% range. as Owen sort of suggested, we're likely to be above 200 basis points for 2026. The next opportunity that we have in terms of occupancy gain is really coming from San So we have a decent amount of available space at the bases of Embarker to Server 1, 2, and 3, and we have about 150,000 square feet of available space in Mountain View, and there is a lot of activity on that portion of space. That's close to a million square feet, which is 250 basis points of potential additional occupancy. Once we get through that, the next sort of logical place for there to be upside is in our urban Boston portfolio with urban edge portfolio, which is really our suburban portfolio in Boston, where we have a couple hundred thousand square feet of availability. And then in northern New Jersey in our Princeton portfolio, the difference between those two markets and everything else is that the rental rate structure is much lower. And so the contribution from those will be less. So if the rents in San Francisco are $80 to $100 a square foot, and in that view, they're $70 to $80 a square foot, they're $40 to $50 a square foot in suburban Boston, and they're $35 to $40 a square foot in the Princeton market. So it's half the contribution. After that, the problems, if you want to call it, that we would describe are we have a block of space in Brooklyn, New York, that we can't seem to move at a place called Dock 72. We have rollover exposure coming in a building in West L.A. that Hulu currently occupies in a place called Colorado Center. And then we have a pending lease expiration in 2028 at Safeco Plaza with Liberty Mutual. that's what I would sort of refer to as the sort of the problem areas. In all of our projections, in all of our conversations, we have taken into account that portfolio as being the last thing that we're going to ultimately see a recovery on. So everything that you hear about from us ignores the contribution from those assets. And it's why what we're saying is our stabilized occupancy for the portfolio somewhere between 93 and 94% because we're acknowledging that we have those other assets that are going to take a long time to see a recovery. I mean, you know, we may have different plans for those assets.

One other thing I would add to what Doug said is one of the themes that he touched on was that in general, the suburbs are weaker than the urban locations. And that is true, I would say, post-COVID with the work-from-home phenomena, because I think the return to office is a little bit different in the suburbs than it is in urban areas. So though we are working to lease our portfolio and have some great successes like the Boston Dynamics thing, we are changing our portfolio. So a lot of the sales that we've been doing have been suburban buildings because we want to reduce our exposure in suburbs. And second, Second, we haven't talked that much about this yet, but we have entitled thousands of multifamily or residential units in Lexington, Waltham, Weston, West Windsor Township, Fairfax County, Santa Monica. And in many of these cases, we are either tearing down office buildings or we have sites that we don't think are geared towards office development. and we're maximizing their value through residential development. So we are, as a firm, taking action to change our portfolio or to adjust it, you know, based on the impacts that we see in the marketplace.

Maybe following up on that capital recycling and the progress you've made on the disposition plan for the year, you know, being so active in the market, can you talk a little bit about the buyer profiles out there, the interest levels and pricing?

Yeah, so our sales are in three buckets. So it's land and it's apartments and it's office, primarily suburban, although some urban. So just quickly to touch on that. So in the land, we found different uses and users, industrial development, a city bought one of our sites. But the most important value creation exercise that we have done is going to communities that need housing and getting them to entitle housing that in many cases they had not done in a very, very, very long time. And as a result, we have residential entitlements that are extremely valuable in the market. And generally what we do when we get those is if it's a for sale product, we will sell the land to a home builder. That market, we have robust auctions and we're getting good prices. And if we can make the numbers work, we'll hold on to the multifamily land, bring in a financial partner for 80 percent of the capital. We'll basically contribute the land. And in many cases, we actually take out money as well, and then we have a 20% interest, we get the development fee, and then we build a building. So the residential sales are the most accretive to the firm, and we want to do more and more and more of those. The pacing mechanism is our ability to get entitlements and go through the process and bring those projects to market. But you're going to see us continue to do that. Second is selling multifamily. So we have built apartments. Historically, we actually, we own 100% of these projects. More recently, we've been using outside capital. So we had over 2,000 units that we owned 100%. And we held on to those because with interest rates going up, the cap rates went into the fives. And we were growing our NOI on these projects at 3% or greater. But in the last year, cap rates came back down. And so we ended up selling three of our large apartment complexes at 4.5%, 4.6% cap rates, which we think, particularly now with higher interest rates, was excellent execution. And given our look-through cap rate, that's also an accretive disposition for the firm. So I would say that market continues to be strong. We have a couple of additional assets that we could test the market on in the next year. So coming lastly to the office, look, I think the office sale market, there are not a tremendous number of what I'd call premier workplaces that have been selling in the market. And most of the buyers are not traditional institutional investors in real estate. They are, or at least a core investors in real estate. There are opportunity funds, family offices. A lot of it is driven by higher yield expectations, you know, buildings that are in lease up, buying buildings at large discounts to replacement cost, and achieving higher IRR. There is not a very strong or we haven't seen what I'd call kind of core institutional bid, at least for the buildings that have come into the marketplace.

Thank you. And, you know, maybe turning to your development to 343 Madison. Great to hear about all the leasing progress. Curious kind of, yeah, and the construction loan, maybe just kind of an update on kind of the next milestones you're looking to achieve there.

Yeah, well, so probably the most important thing right now is we want to sign this lease and get to 70% lease. So then that'll leave us two floors in the base and five floors in the tower. And we have a number of clients that are circling those two floors in the base already. So I'm not even worried. I'm not concerned about those. And then the tower floors, you asked earlier about, you know, a time that clients consider leasing space. Well, this doesn't deliver until 29. And so those floors are about 22,000 feet and they probably, we'll probably get the most value for them by doing them individually. And I think the rents continue to go up in New York. So we're not in a big hurry, at least those at the moment. And we think, you know, we think we're going to exceed our budgets for the rents. We're already exceeding the budget that we put forward for the building in the base. So we certainly should exceed it in the tower. So we have very high rent expectations for that. And then the second priority is the recapitalization.

And James, you might talk about what's going on there with the equity side yeah sure so we have been conducting I would say a very selective process for some time we've been very particular about what we think the appropriate price is meaning we've added tremendous value with 343 Madison both from a development perspective we're underway under construction we're going vertical with the steel we're largely de-risked from a pre-leasing perspective. As Owen and Doug have commented, we're hopeful to be 70% pre-lease over the near term. And we're close to closing on an equity sale of 10% of the equity in the deal at terms that are favorable to us with a partner that is like-minded in terms of long-term investment strategy and thesis. So there's potential there that we could upsize with that partner prior to the end of 2026, potentially 15 to 20% of the equity in the deal. And then beyond that, we'll see. I don't think that we're under a tremendous amount of pressure to move that forward, but we could potentially sell a proverbial C round at a different price point at some point in the future in 2027, up to 40% of the equity in 343.

How much of a discount do you have to take for selling it now versus selling it today open when it's 100% leased?

I don't really think we're taking a discount. We're actually getting a price that we think is reflective of the fact that we've added value to the project based on those things. It's, again, largely de-risked from a leasing and a development perspective.

You're suggesting discount from the exit value. Yeah, yeah. So So I would think about it this way. Our basis, which is the A round, is about an eight yield. We're raising capital today at about a seven yield, maybe seven and a quarter. And I think when it's completed, and there's debates about this, but I think it's five and a half to six. So you think your building is inferior to one Vanderbilt? No, we don't. Well, it is different. It's not of the same scale. You know, Gwen Vanderbilt is probably twice as big from a square footage perspective. The location is, I think, identical. Arguably, maybe better because it's not on 42nd Street.

And the debt, you know, they've got low rate debt for quite a while on that asset that has value to it. It was part of the computation.

And it's fee. For me? We're ground lease.

Maybe can you touch on the, you know, joint venture built to suit opportunities you mentioned on the second quarter call? Provide some more details there.

So we are, we're doing a built to suit for two law firms at 725 12th Street. We're doing a built to suit for another law firm at 2100 M Street. And then this third transaction, which is also in Washington, D.C., would be another distressed piece of real estate. that has been taken back by a pension fund. And that pension fund has said to us, geez, we saw what you all did with finding a client and buying these other pieces of real estate. Could you do this here? And we said, yeah, we probably can. And we actually have procured the tenant and we are negotiating a joint venture. And so if both of those things continue on, we'll have a third. This one, however, will have a third party capital partner. We are also in the market as we speak for equity for 725 12th Street, because we actually have a fourth one of these that we've been approached by the client. So these are all brand-oriented transactions. Law firms in Washington, D.C. are calling our team and saying, can you build us a building? And we will pay replacement cost rents. And oh, by the way, replacement cost rents in Washington, D.C. are two plus X times the rents that you can achieve and receive in an existing high quality but not new building. So you can lease space in Washington, D.C. in a very good building for $45 to $55 a square foot triple net. And we are going to be generating rents that are well in excess of $100 a square foot on a triple net basis for all of these new developments because we need an eight plus percent cash on cash return and interest rates are now a little bit higher and so the cost of capital has gone up and so all of that figures into what our cost basis will be and therefore you know what that's what we need and these these organizations keep coming to us and saying can you do this for us and you know we have a capacity issue and if we can find third party joint venture capital for that we will do that we are also as Owen said about to start two more residential projects. One of them is in Weston, Massachusetts, where we have a 280-unit development that has been permitted. And the second is in Santa Monica, where we have 380 units. And both of those, we are now in the market looking for third-party JV capital. Just as a refresher, we did a transaction with PGM a few years ago, and we've done two transactions now with Northwestern Mutuals, where they are the 80% partner and we're the 20% partner. So this is kind of our approach to building these residential stick frame multifamily units.

Yeah, I think I would just put a fine point on what Doug said, this Washington DC opportunity. I mean, this doesn't happen in real estate. I mean, a development, a development firm usually has to go take a lot of risk to do a project. You have to buy a site, you have to get it entitled, you have to spend money on it. And then you have to, in some cases, you have to build a building and before you even get a tenant and in this case what's going on now given there's so little capital and that's going into development there's so so many fewer people doing it we're actually we have clients coming to us asking us to build them a building and then we don't even have to commit any capital for the project until we know we have a signed lease that's extraordinary and and in yeah yeah and just one thing on each of these cases we don't even have a drawing for a building right these tenants are saying to us we trust you that you will design a class a office building with a floor plate that will work for us but we're prepared to

sign a lease and commit to going in there without seeing any of that okay maybe quickly on refinancing headwinds and bounds so sure i mean we've talked about a lot of the positive things that are going on we talked about um occupancy growth of 400 basis points which will have a lot of growth to it You know, mark to market because the rents are growing in our markets. So I think that's going to become a bigger factor for us on a positive side. And then the development delivering is going to be positive. But we do have interest rates that are much higher than they have been. So we do have refinancing that we need to do. And to kind of moderate that, we're coming up with various strategies. Last year, we did a convertible note execution to refinance a bond that was coming due. And we were actually able to reduce the debt coupon by doing that. That convertible note was about a 2% coupon with a up 40% on the strike price. So that's an available structure for us. This year, what we did is we had a billion-dollar loan coming due, unsecured bond coming due. We're paying it off in October. We decided to do a $700 million refinance in the unsecured bond market because we've got excess liquidity from asset sales and from retained cash flow. that we utilize to do that. So that reduced our debt, reducing the leverage, which is something we want to do over a period of time. Next year, we have two kind of major refinancings to deal with. One is a secured mortgage on the General Motors building. As Doug described, the General Motors building is 100% leased. It's in great condition to do a long-term CMBS loan in the SASB marketplace. That SASB marketplace has improved over the last 18 months. We've been out in the market pricing it. We can't refinance it until next year. It expires in June of next year. But we believe that based upon current index, we could do a 10-year financing somewhere in the 6% range. The current gap interest rate on it is in the mid threes. So that's a headwind for us. It's about 250 basis points. Our share of that debt is $1.4 billion. So that is something that we're going to have to swallow and will be a headwind to the tailwinds that we have on the occupancy side. And the other one we have is a $750 million unsecured bond comes due in December of next year. We can pay it off 90 days early. And that's at six and three quarters. So that actually may go the other way. Because right now we could issue 10 year unsecured bonds at kind of 630 or so. So we'll see, you know, what we do with that. And we have ready access to all of the debt markets, you know, to handle our refinancings. And again, we anticipate reducing our debt modestly. And as our income grows from the occupancy growth from the developments coming online, we expect that our leverage is going to come down from the high sevens into kind of the seven range, it could even get into the low to mid sixes, although we'll probably have new investments, right, that we'll want to do over the next few years that will kind of make it go the other way. But I think keeping it in around the seven to seven and a half range is a good place for us.

I wish we had more time. Unfortunately, I have to go through three rapid fires. First question, if long-term rates stay higher for longer, which has the biggest impact on your sector's earnings? Higher refinancing costs, lower transaction activity, or less new supply? i think the financing costs refinancing yeah hey certainly hey over the next three years will third-party capital become a more important source of growth for public REITs than balance sheet capital yes and for your sector will 2027 same-story NOI growth be higher the same or lower than 26 we haven't given forecasts yet sector not else oh sector oh higher yeah thank Thank you very much. Thank you.

No worries.