Douglas Linde: So, I’m not going to get into conjecture on where WeWork is going to decide their — they have their productive units. And where they do it or where they don’t. As Mike said, at the moment, they have stopped paying rent on two of our locations, which are at Madison Center in Seattle, and Dock 72 in Brooklyn. And we have three other locations with them which are in San Francisco. So that’s the universe, and the decision as to what they are going to do, I think, is going to take some time. And they’re going to have to figure it out. And then we’re going to have the decisions to make as to whether or not we’re comfortable with whatever they propose to us. And or taking the space back. So, I think that it’s impossible for me to tell you where they’re going to exit and where they’re not going to exit. Mike, you can talk about security.
Michael LaBelle: Yeah. I think on — I mean you’re correct on the security deposit because we said that before, that we have about eight months of security. And if the tenant defaults, we try to — we sent out a lease termination. We execute that lease termination with the client. And if there’s a security deposit, we get that, and we booked that all on the day that we get it. If the client is going to stay in the space for another 90 days or six months. We might have to amortize that over that period of time. The one thing I would add is that in the fourth quarter termination income guidance, there’s two pieces to the termination income. One is, determination income we’re going to be collecting that I described. But also at Madison Center in Seattle, their lease is way below market.
So, there’s what is called a fair value adjustment to the rent. And in order to take that off our balance sheet, we book that as income. So, about half of that termination income is this fair value that’s kind of a noncash concept. And the concept is that once we get that space back either at termination or at natural maturity, we will be able to re-lease that space at a higher market rent. So, hopefully, we will be able to do that.
Operator: Thank you. And I show our next question, comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.
Steve Sakwa: Yeah, thanks. I just wanted to circle back, Owen, on the distressed opportunities. I guess I’m just trying to get a sense from you as to kind of where you would need to peg stabilized yields in order to deploy new BXP capital given your trading 10 times cash flow and north of an 8% implied cap rate. And then just from a market perspective, could any of those opportunities take you to any new markets like, say, a San Diego or Austin to be, in addition to the existing markets?
Owen Thomas: I’ll answer the second first and come back to your first question, Steve. So, we don’t think we need to go to any new markets. We have a very significant footprint in our six core cities. And, in fact, one of the things that’s going on now, which we have been talking about for several years is that the vacancy rates in certain areas of the Southeast and Southwest are actually higher than many of our core markets because of all the new development that’s going on. So, we don’t see a need or reason to expand outside of our footprint. Going back to your question about returns, we’re going to focus on the premier segment of the market. And, so I think it’s likely that the types of assets that we’ll get involved in are un-stabilized.
So, I’m not sure that the way to look at it is cap rate, but the way to look at it is total return. And I think that the total return requirement on a particular acquisition that we would look at would be, pushing double-digit returns.
Operator: Thank you. And I show our next question, comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.
Caitlin Burrows: Hi, good morning. Earlier, you guys talked about how you’re opting to repay the $700 million of unsecured debt with mortgages collateralized by Cambridge properties at SOFR plus 225. So, what did you consider when opting for secured floating rate debt beyond just price? Was it price mixed with kind of BXP mix of debt or anything else? And I guess, in that decision, you were considering 10-year bonds. So, what pricing do you think you could issue a 10-year bond at today? Thanks.
Michael LaBelle: Yeah. So, this is Mike. Look, we evaluated all the different markets when we decide how we’re going to do a refinancing, and the credit spreads in the secured markets for very high-quality assets with long lease terms, we found is better than what the credit spread we can get from the bond market. So, our bond spreads right now for 10 years is about 285 for five years, it’s probably 270-kind of area. So we’re saving a lot in credit spread. The other opportunity, I think, we have is we’re doing a floating rate deal. We haven’t fixed it. We do have the opportunity to fix it via swap. And we’re going to evaluate when and if we do that. As we kind of look at what’s going on with interest rates over the next period of months.
And if it becomes evident that SOFR is going to be dropping significantly by the FED in 2024 and 2025, we may keep the floating. If we see an opportunity to fix it because there’s some sort of dislocation between the swap markets, we may fix that for a period of time. So I think it provides some flexibility that way. And it’s also a floating rate mortgage is prepayable. So if the market gets better for long-term debt two years from now, we can prepay this into a long-term fixed rate deal at that time. So, it does have some advantages that we looked at when we decided to do this bank financing.
Operator: Thank you. And I show our next question, comes from the line of Upal Rana from KeyBanc. Please go ahead.
Upal Rana: Great, thank you. Doug, you went through some of the supply and sublease space availability in your prepared remarks. Given the elevated levels of supply and some of these spacing your markets, potential tenants have a lot more to look at today. Do you have a sense of how much of the available space is in direct competition with your buildings? And even though some of them may not be premier buildings, your potential tenants may be looking at them. I’m trying to get a sense of why tenants maybe, deciding to choose between your building versus others in today’s environment? And if they’re being more price sensitive today versus, or it could be something else?
Douglas Linde: Yeah. So, this is what I refer to as one of the sort of layup questions that I’m going to allow our regional teams to answer, because I think that they will be more — they will be passionate about their responses. But in general, what I would tell you is not all space is the same. And there are many, many buildings that have either direct availability or sublet availability that are literally not part of the conversation. And so as you think about micro submarkets, getting down to a market like Park Avenue between 43rd Street and 59th Street. Or you’re talking about an asset in the CBD of Washington DC that has views and is in a premier building, you would be surprised at how small the universe of opportunities may be. So, why don’t I let Rod talk about the issues associated with the availability of chemicals [ph] that we’re really dealing with. And then I’ll let Brian talk about Boston. Rod?
