Rodney Diehl: Yeah. Hello everybody. So, there’s definitely sublease space, a lot of it as everybody knows, in San Francisco. And some of it is higher end space. In fact, that’s where a lot of the bigger deals over these last two years have actually happened. Some of them have been in our own buildings. 680 Folsom, for example, macys.com had roughly 240,000 feet available. And they leased all of it during the pandemic subleases. So, at the good space that has been out there has attracted some attention. But by and large, there’s so much more that is not high quality and has either got no term left on it or it’s got poor sponsorship with weak sublessors. So, those spaces are very difficult, and they’re not going to compete with. We’re not going to compete with them for sure. If tenant that’s interested in those types of spaces is not going to go to any premier building.
Bryan Koop: Yeah, I would echo the same thing. I just had a brokerage dinner last night and with tenant rep people. And each of them expressed the same issue, which was, for their top-end clients, premier clients, they’re having trouble with fewer locations to review. And it’s not only just the amount of locations that they think are appropriate and been a lack of desire to do a sublease. And most of our sublease space tends to be in lower floors in this market right now. There’s also the question of, for the first time I’m seeing tenant rep people really underwriting the landlord’s capability to fund TIs. And that hasn’t happened in a long time.
Operator: Thank you. And I show our next question, comes from the line of Dylan Burzinski from Green Street. Please go ahead.
Dylan Burzinski: Good morning, guys. And thanks for taking the question. I guess just going back to your comments on acquisition opportunities. Are there certain markets that you guys are looking at that you’re getting more excited about deploying capital in today’s environment?
Owen Thomas: The way we think about this is, we set, top down a parameter, which we have, which is our six markets. And in terms of specific investments, that is a bottoms-up process and a more opportunistic process. So, we’re open for business everywhere, and it just depends on the opportunity, and we want to allocate capital to the best opportunities. That all being said, as you’ve heard from our remarks and you see in our results. It’s easier to underwrite leasing activity in our East Coast markets, particularly in New York and Boston, than it is in our West Coast market. So, the assumptions that we would use in underwriting deals would obviously be more challenging on the West Coast given the market behavior.
Douglas Linde: Yeah. I just want to add one thing. And then maybe I’ll let Hilary comment on this, for New York, which is, there is no question that the overall amount of demand in the market in the — what I would refer to as sort of the Park Avenue District of New York, which is this area between, call it, 43rd Street and the 59th Street, Park Madison, Lexington, a little bit of Fifth Avenue is by far the strongest market from a demand perspective, we’re seeing in the country. There are still really, really challenged opportunities in that market that are going to have to get resolved relative to the capital structures that these buildings are currently operating under. And you are not going to be able to, in my opinion, replace the mortgages that were put on many of these buildings, including Bs and mezzanine capital and preferred equity to the same level, which means there’s going to be an equitization requirement.
And that’s going to potentially create opportunities, which, by the way, as both Owen and Mike said, that’s why we were able to acquire the General Motors Building in 2008. That’s why we were able to acquire 510 Madison Avenue. And Hilary, you may want to just sort of talk about what’s going on in Manhattan.
Hilary Spann: Sure. Thanks, Doug. So as Doug mentioned, there are a number of high-quality assets in really desirable submarkets, the Park Avenue corridor, really all the way up to where the General Motors Building is that, or underwater on their financing and are having difficulty rationalizing, putting capital into the buildings to support leasing opportunities. And so we’re really getting a lot of inbounds from the perspective of — clients know that we have a strong balance sheet. They know that we’re not over levered. They know that we can commit capital to leasing. So that’s interesting to our benefit. And we’re watching those situations where capital stacks are upside down, which may potentially present an opportunity for us.
But again, to the point that Owen and Doug have raised, we would only really be interested in the highest quality assets that are premier workplace is consistent with what we already own. I would tell you, there’s at least a handful of those situations in Midtown that we’re tracking.
Operator: Thank you. And I show our next question, comes from the line of Peter Abramowitz from Jefferies. Please go ahead.
Peter Abramowitz: Yes. Thank you. One or two of your peers have mentioned just potentially some pressure on operating margins going forward, as return to office mandates have more of an effect than more people are in the office. Just wondering if you could talk about that, potentially, how we should think about that for your portfolio moving forward?
Douglas Linde: I’m going to get to be sort of tongue in cheek. We don’t have any peers. We are who we are. And we operate our buildings in a very different way. And we’ve been operating our buildings with an expectation that our buildings are fully occupied for the last couple of years. So, return to work and increase occupancy, in my opinion, is going to have no impact on our margins. What will have an impact on our margins are, what I would refer to as the sort of atmospherics out there, which are, how will the labor rates associated with union contracts for janitorial work their way out? Will the insurance markets continue to be challenging relative to the number of weather-related events and how that’s impacting desirability of the insurers to provide insurance?
What will the municipalities do relative to their tax burden and valuations because valuations are clearly coming down, right? And so how will that be reflected in their desires to increase their rates. All of those things, I think, are going to have some degree of pressure on margins. They’re not going to have pressure on margins on an incremental basis. It’s going to be over a period of time because either our leases are triple net or there are growths with our operating base and that operating base is step based upon the existing lease. So, until you get the rollover, you don’t really have that impact on your overall flow. And in general, if you look back historically, over the past decade, my guess is that the margins for BXP are somewhere in the mid- to high 60s, and they haven’t really fluctuated very much.
So, I don’t think that is an issue.
Operator: Thank you. And I show our next question, comes from the line of Camille Bonnel from Bank of America. Please go ahead.
