Joel Marcus: Yeah. And remember, they’re a big cap company. So like big pharma, they have, kind of, dedicated legions of people doing things in traditional office, if you will, so it’s not a typical case.
Vikram Malhotra: That’s it. Thank you.
Peter Moglia: Yeah. Next question, operator.
Operator: The next question comes from Rich Anderson of Wedbush. Please go ahead.
Rich Anderson: Hey, thanks. Good afternoon. I just wanted to ask about the impairment and specifically, it’s behind you now, but as a function of taking on what may be called a creative approach to development in a different macro environment. And I’m curious if you can — we can expect to see more in the way of an impairment type of model in 2024 as you part ways with non-core assets? Is this something that we might see repeat itself as the year progresses?
Joel Marcus: Yes. Marc, do you want to comment on that?
Marc Binda: Yeah. Sure. Hi, Rich. Yeah, so under the accounting rules, these — you can — the common way where you could have an impairment is at the point where you designate an asset as held for sale. So as we get closer to potentially committing to certain sales, it’s definitely possible that we could have additional impairments. But it’s really hard to say at this point as we’re still refining our approach and which assets to sell. So hard to say at this point.
Rich Anderson: Okay. And then second question, on the $114 million of free rent burn that’s good in the sense that you’ve got new cash flow coming in, but it’s also free rent and it is what it is. It’s not necessarily a good thing. Where does that compare if you can quantify it to the past and how much of it is a reflection of the current difficult headwinds that are facing you? And how do you expect that free rent sort of exposure to trend on a go-forward basis?
Joel Marcus: Marc?
Marc Binda: Yes. Hi, Rich. So we did — yes, we had $114 million of free rent that will be burning off. I guess just to put that into perspective, we delivered $265 million of NOI this year, that’s annual NOI. And a lot of those leases are very long-term in nature. So it’s not a direct correlation one for one, but if you just do the simple math there, it’s less than less than half a year on what is generally on average, those types of leases are 10 years and longer. So I don’t think it’s something that we’re super concerned with. But to be fair, free rent has trickled up a little bit as we’ve seen.
Rich Anderson: But – just not glaringly higher or anything like that. over the past few years. Is that correct?
Marc Binda: I mean we published our free rent statistics, Rich. And I think it was about months 3 – 0.3 months per year of rent at the end of last year. And I think we’re at 0.6, so it’s ticked up a little bit this year, but still relatively modest compared to the length of leases.
Rich Anderson: Fair enough. Thank you.
Peter Moglia: Yes. Hi, Rich. It’s Peter. The great financial crisis, it was more like one. So we’re — it’s still pretty healthy considering the market dynamics.
Rich Anderson: Great. Thanks, Peter. Thanks, everyone.
Peter Moglia: Thank you, Rich.
Operator: The next question comes from Michael Griffin of Citi. Please go ahead.
Michael Griffin: Great. Thanks. I want to go back to the Cargo Therapeutics lease at 835 Industrial. Joel, I know you mentioned that it was something specific driving that, but was wondering if you can give any more color on what drove the decline in rents? Was it a function of cargo willing to take occupancy pretty quickly? Or are there more worries about supply and where rental rates are going?
Joel Marcus: Well, I think the key is — and it’s a good question, it’s one of those situations where you’re trying to find the right key to fit the right lock. You know, an exact amount of space that comes vacant that one would not have wanted to be vacant due to Atreca and finding the exact user of that space with literally very little downtime. And as I think Marc said, we had no TIs. So you don’t want to just let that kind of a tenant go into the market and choose from some assorted number of spaces that might be available now or in the future. And so you try to make the deal because it’s the perfect lock fitting — the perfect key fitting the right lock. And so that’s kind of the story.
Michael Griffin: Got you. That’s helpful. And then I was wondering if you could provide any additional color on the recent asset sales, the ones in Greater Boston and San Diego. It seems like they’re aggregated in the supplemental and given there — it seems like they’re kind of lowly occupied. I’d be curious if you can kind of give us pricing, particularly on the asset in Cambridge, maybe what a yield would be on a stabilized basis?
Joel Marcus : Yes. So Peter, do you want to give some commentary?
Peter Moglia : Yes. I mean that speculating on what the Cambridge asset would be on a stabilized basis, I’d just kind of point to where we’ve seen stabilized things in Boston trade ourselves in the low to mid-5s. With the Necco transaction we had a couple of quarters ago, Boston Properties last quarter did something in the high 5s, but it’s about two or three years from cash flowing. So I pointed to, in my commentary, a 5.3% cap rate in Torrey Pines for a building that’s fully leased long-term to a credit tenant but that tenant has decided not to move in. So I’ve said it before, we speculate that good, well-located assets with good credit and good lease term are going to be in the low 5s, the sub-5 cap rates are no longer with us due to rates. Hopefully, that’s helpful.
Michael Griffin: Yes. That’s it for me. I appreciate the time.
Joel Marcus: Yes. Thank you.
Operator: The next question comes from Jim Kammert of Evercore ISI. Please go ahead.
Jim Kammert : Thank you. Good afternoon. Thematically, in Alexandria’s experience, Hallie mentioned a lot of this positive M&A activity. Has that historically in your experience translated to a net incremental space demand across your portfolio? Meaning or is it more of a credit upgrade. I’m just trying to understand if the acquirers really tend to over time expand their lab footprint or they already have kind of underutilized space.
Joel Marcus: Yes. Hey, Jim, the way to think about that is every case is different. If it’s a smaller company with a specific product, it’s sometimes just bolted on and the space isn’t necessarily utilized and maybe subleased or terminated. But oftentimes, you find a strategic acquisition, and they could be on the larger medium or even smaller side, where companies, I can think of the Bristol-Myers, Juno in Seattle back a number of years ago, where BMS wanted really to get into the cell therapy issue and that led not only to the acquisition but a fairly big expansion. So if they’re buying, if it’s a strategic technology platform with multiple product shots on goal, usually, those end up with very, very good expansion results. If it’s a smaller bolt-on, sometimes those don’t. But everyone is honestly different.
