Ronald Kamdem: Just one quick one and a follow-up. Just on the asking the leasing question in a different way. So I thought the expectation before was for occupancy to potentially be down in the first quarter, first half. So it sounds like there was probably more leasing than expected. Maybe you could just comment on that. And I’d also love to hear sort of your comments on occupancy for the portfolio by market, specifically in the West Coast versus the East Coast. And a follow-up — yes, the quick follow-up was just on — there’s been a lot of sort of news about Salesforce in the market subleasing space. And I’m wondering how you guys are thinking about that. for Salesforce Tower? And if any other tenants potentially could be subleasing space?
Douglas Linde: Okay. So that’s about 8 questions and I’ll try and answer them really fast. So we lease 5.8 million square feet of space in 2022, and our expectations were for 3 million square feet in 2023, so a lot less. The first quarter, I think, was pretty consistent with what our expectations were for the year. So I don’t think that there are any sort of changes on a relative basis. Regarding occupancy, we’ve been pretty consistent with where we’ve basically been saying we think occupancy is expected to go down a little bit in 2023. I think we didn’t describe exactly when that’s going to occur. There will be some reduction in occupancy likely in the second quarter because we have some expirations. And then the 1.2 million square meter space that I described that we expect to get in service in ’23 is more towards the back end of the quarter or the back end of the year, so it will pick up again.
But net-net, we think our occupancy will be relatively flat to modestly higher as we enter the end of 2023, early 2024. With regard to Salesforce Tower, Salesforce.com has space on the sublet market. We’re not part of their conversations. They have not come to us and said, “Hey, we have a tenant that would like to do a long-term lease? And would you consider doing a stub or would you consider taking the space back. So I’m not aware of what their specifically is going on with their sublet. But I can tell you that they’re single location is likely to be at Salesforce Tower when they sort of get done with their “subleasing the space” because they’ve moved out of 350 Mission, and they have the majority of their space at 50 Fremont on the Sublomarket.
And they obviously, they pulled out of the other buildings that were going to go up in that neighborhood. So the thing that’s left is Salesforcetower.com.
Owen Thomas: I would just add, we have — Bob should comment on this. We have market inquiries relatively frequently for the Salesforce Tower, and it’s completely full. And one of the reasons Salesforce is putting floors in the tower on the market is because it’s actually the easiest space they have sublease given the attractiveness of the asset.
Robert Pester: Yes. I would just add, the building is 100% leased. It’s probably the most sought after building in San Francisco for space and we get multiple inquiries every month about people looking for space in the building.
Operator: And I show our next question comes from the line of Dylan Bazinsky from Green Street.
Dylan Bazinsky: Just curious how you guys are thinking about buybacks or potential buybacks in the current environment. Owen, you mentioned the 9% implied cap rate that the stock now trades at today. And I realize that obviously, office transaction markets are fairly illiquid. But if you guys were able to get dispositions to the finish line, would you guys view buybacks the potential use of that capital?
Owen Thomas: Well, we think that our stock represents a very uniquely interesting investment, particularly at this point in time. Most of the inquiries we’ve been getting recently, and that’s the reason why Mike and I spent so much time on it in our remarks is our access to capital and how are we dealing with upcoming debt maturities and things like that. So in this kind of environment, buybacks are not a priority for us. And we also — we have found interesting uses for the capital. We just put on our development pipeline this quarter. The 290 Binney Street development that’s 100% leased to AstraZeneca and also the 300 Binney Street asset conversion.
Operator: And I show our next question comes from the line of Tayo Okusanya from Credit Suisse.
Tayo Okusanya: Just a quick one on office to resi conversion. Again, a lot of these buildings don’t compete with your assets. So just curious how you guys think about that for movement? Is it something that you’re excited about? Do you think it helps BXP longer term? Or just because it’s not competitive product doesn’t really matter to you guys?
Owen Thomas: No, I would say it this way. I think it’s a very big trend that will unfold slowly. And the reason I think it’s a very big trend is because I think virtually everyone benefits from it. There’s too much out of — there’s too much obsolete office stock that something needs to happen with that stock. Number two, there is a shortage of housing in I think all the cities where we operate. Three, conversions would create more appraised value and more tax revenues for the cities that we operate in. And lastly, converting an existing building versus tearing it down and building something new creates much less embodied carbon. So I just think everything about conversion makes a ton of sense. The issue with it is — and the reason I say it’s going to unfold slowly is there are big challenges in doing it.
First of all, building has to be empty, and there’s not many office buildings that are fully empty, a lot of them are 50% empty or something like that. So that’s number one. Number two, physical characteristics are very important, particularly the Bay depths in the property, access to light and air is very important for residential. So very large floor plate buildings they’ll work as well. And then lastly, economics; most office buildings today are not appraised or valued at a level where a conversion is economic. But I think these forces will work themselves out over time. If you just take a very small percentage of the 733 million square feet of office in our markets and say it’s converted, that’s very material. And in terms of BXP, we don’t have any assets that are conversion candidates themselves.
But I do think it will represent an opportunity for us to do some residential development. And it’s a little bit different from a typical conversion that I think you’re asking me about, but this world gate investment, albeit small, that we just made is an example of us reusing a parking garage and taking a site that’s currently an empty office building and converting it into something more productive.
Douglas Linde: Yes. And this is Doug. I would just add that World Gate is sort of an illustrative example of what we think may happen in certain instances in certain cities where the buildings have no intrinsic value as a repositioned conversion, and therefore, the land is really where the value is, and it probably has a higher and better use as residential. And so there are buildings probably that will be taken down and the sites will be then readapted as residential sites even though they’re currently commercial office buildings.
