Peter Moglia: It used to be if you were like a one-trick pony, it was an acquisition and then you shut it down. I mean, a good example is company called ICOS in the Seattle area was bought by — they developed Cialis, they were bought by Lilly, and they completely shut down. But with the rise of platform technologies, a lot of the M&A, were super beneficial to the growth of our clusters. Companies realized that these teams that they were buying — or these companies were much more valuable than just the pipeline, but the teams were extremely important. So there were a number of companies. I mean I remember when I was in Seattle, a company got bought by Gilead It was a — it was called Corus Pharma. They were a 5000-square-foot tenant.
And right after that, the Gilead approached us, and we ended up doing a huge over 100000-square-foot deal with them so that they could expand the capabilities of the team. So as Joel said, it ebbs and flows. But I think if you look at the fact that, I think about 75 — or in certain years, about 75% of products that have hit the market have started from external innovation that end up on — in pharma’s hands, it’s pretty telling that, that is a long-lasting strategy to cone the biotech world, to buy the companies and to keep the teams in place because they generally have platforms and other products behind their initial ones. So I think the general trend in recent years has been to keep them in place and to expand. That would be my…
Joel Marcus: Yes. Hallie, any final comments on that question?
Hallie Kuhn: Just to say that every acquisition is going to be very unique in terms of the types of products being acquired, the talent base that comes along with it, the market that it’s in. And so we very much are acutely aware of kind of the one-off nature of every acquisition. And ultimately, for acquisitions where they may tuck it into the company, we see a net positive in the ecosystem. If it’s a small company that does get folded in, those executives go on to create 1 more or multiple companies after that. So we’ve had some great examples in the past of a company gets acquired and then that CEO goes on to build a bigger and even larger company. So altogether, it’s a net positive for the ecosystem, I would say no matter what the outcome is.
And a great example in Seattle, as Peter mentioned, another great 1 is Celgene’s acquisition of Juno and then the acquisition by Bristol-Myers, that’s really one of their most critical advanced cell therapy outpost. So again, it’s almost case by case, Rich.
Tom Catherwood: Great. I really appreciate the thoughts there. Maybe sticking with Pfizer, we did notice that in New York, 219 East 42nd Street moved from future developments to intermediate developments. If memory serves me, I think there was a 6-year sale leaseback on that asset. What are your current plans, if any, on that building in a potential project?
Joel Marcus: Yes. So that building, which we acquired had a leaseback to Pfizer. Remember, it’s an office building for Pfizer, but it unique in New York, very few buildings have the bones to be converted to lab. They are moving to Hudson Yards, as you know, and their lease is up, I think, out about 2 years or so. But we do have some internally generated demand for that from our current client base, and so we’re moving that along.
Operator: The next question comes from Michael Carroll of RBC Capital Markets. Please go ahead.
Michael Carroll: I know demand for fully built-out lab product is pretty high. But have you noticed any difference in the level of demand you’re tracking in your development pipeline where tenants do need to invest a significant amount of cash outlays to build out that space? I mean has that dropped off noticeably over the past 6 to 12 months given the disruption in the capital markets?
Joel Marcus: Yes. Peter, you could comment generally to upside.
Peter Moglia: Yes. one of the reasons the sublease market has stayed in check even when there’s been some disruptions to companies is the fact that — and as we’ve talked about for now almost 2 years, the high cost of construction has just created a much more expensive proposition when you have to build out lab space. The news, though, is that there’s just not a lot of sublease space to satisfy all the demand. So deals where the tenants have to invest space, such as our development and redevelopment deals do continue to go. But I mean, there — if you’re a Board and your company wants to expand and they can go into 25,000 to 35,000 square feet of existing space, even though it might be in a different building and even the different neighborhood, they’re going to consider that today just given the costs.
We’re still doing fine in our leasing of our development and redevelopment portfolio. But there is a sentiment that if there’s an existing available space just try to grab it.
Michael Carroll: Okay. Dean, do you know if you’re like competitors on the development pipeline? I mean, is that where the drop-off in demand is coming from is that first-generation type space?
Dean Shigenaga: Well, I think that the reason that others aren’t as successful just because they don’t have our brand. I mean it’s — we’ve talked about it for years and years. And there’s a lot to be said about the operational excellence we bring, the management of the facilities to the design of the facilities. I think — to the extent that there’s projects out there that are pausing even after they’ve gone vertical or remain vacant, it’s a number of things. One is that the location isn’t comparable to ours; two, they’ve underwritten very high rents because they need to, their basis isn’t very good; and three, they don’t have a reputation to manage these critical infrastructure building. So I would say that, that’s really the reason behind a lot of the competitive buildings not…
Joel Marcus: And major overruns on budgets, I can think of 1 project in Boston where a client went there because we didn’t have exactly the space that they needed, and then they came back to us when the developer had a huge overrun on costs. So that goes on all the time.
Michael Carroll: Okay. And then just last 1 for me. I was looking at your current tenant roster versus the prior quarter, and it looks like Maxar Technologies dropped off the list. I mean is that a fair read? Am I looking at that correctly? And can you give us a sense of what happens there?
Joel Marcus: Yes. That is a project that we own where they’re rotating out of that, and that will be a future development project — redevelopment and development.
Operator: Yes. Our next question comes from David Rogers of Robert W. Baird. Please go ahead.
Dave Rogers: Maybe this is for Dean. But I wanted to talk about the leasing spread. When you excluded the 2 leases in the quarter, obviously, very strong performance for the company overall. Curious about the guide for this year, which you gave in December, reaffirmed last night. But at the 11% to 16%, I think you had said that there was some incremental component of that that was non-life science maybe. But can you give us a sense of kind of that 11% to 16%. Is that more a function of kind of market rents may be slowing down? Or is that just a function of kind of more different leases that have been added to that pool?
Dean Shigenaga: Dave, its Dean here. Lab rents remain healthy as you can tell from leasing statistics in the fourth quarter. Hard to really look out well as you go out into the future, and lab rents are trending well, as we noted from our results. There is a slight mix at play in ’23 with certain expirations coming up and certain leasing activity we expect to accomplish, call it, non-lab product. But that product is a small percentage of the portfolio. Rental rates overall, even when you blend it all together, will remain very strong.
