Blaine Heck: Great, thanks. Good morning. The fourth quarter seemed to be a slow leasing quarter in the overall market. U.S. BXP did relatively well compared to the market. But can you talk about whether you think you’ve seen a change in the level of demand or leasing activity thus far this year? And maybe more importantly, what do you think needs to change to get some of the tenants that have been reluctant to sign longer leases to meet those longer-term commitments.
Douglas Linde: So Blaine, I am — and I’ll let Owen make a comment as well. I hope that my comments were both honest and thoughtful regarding what I think we think the demand picture is, which is there is less overall demand in the market today due to the nature of the business economies changes. And we don’t think there’s going to be much of any positive absorption occurring. We think we will lease more space than our peers because we have premier work places that are geared towards the tenants that are in the market and then that are making decisions. And I don’t actually believe that the tenants that are looking for space are concerned about making long-term decisions. They are, in fact for the most part, making long-term decisions, and we are still doing longer-term leases in all of the leasing that we’ve been doing in the last couple of quarters, some of it hasn’t hit the lines yet in terms of our occupancy numbers.
But so, I can’t tell you how long the economy is going to be where it is, but as the economy recovers, traditionally jobs and/occupancy are second derivative events associated with that, and so it will be a period of time before tenants are “growing” again. But Owen, maybe you have some other ideas?
Owen Thomas: No, you covered it well.
Operator: Thank you. And I show our next question. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.
Alexander Goldfarb: Hey, good morning. Good morning. First as a comment, maybe Dock 72 would be good for resi conversion, if you’re taking suggestions from the cheap seats. A question for Ray, is in D.C., it’s good to see the politicians and including in Congress addressing the work from home endemic that’s with the federal employees. My question for you though is, how much does work from home for government workers really affect like Reston Town Center and the private office market? I would guess that one, GSA doesn’t really sign high-priced deals; two, just given what’s been going on I’m guessing more of the private investment market is focused on private companies or DoD or other security tenants who have to be in office. So just sort of curious your take on what’s going on in D.C. and how much we need government workers to come back for the market to flourish?
Raymond Ritchey: Well, first of all, Happy New Year, Alex. Thanks for the question. It’s living here in the district, it’s really kind of frustrating to see the federal workforce not fully engaged in the return to work. The real estate roundtable has been very effective in reaching out to Mayor Bowser and really stressing to her the importance for the federal workforce return not only just in terms of consumption of office space, but the social fabric of the city is completely deteriorating with the workers not coming and we’re also very concerned about the impact upon metro. Before the pandemic, there was almost 800,000 riders a day on the metro. Now there’s less than $300,000. And that will have an impact on the public transportation system here.
As it relates to Reston, specifically, we have a very large portion of our tenants who are engaged in government contracting support to the federal government. And the policy of the federal government not to return to work also is impacting occupancy in Reston. And while many of them have the requirement to be in the office because of the security nature of their work, it still impacts the more traditional office support tenants for the federal government contractors. So it’s impacting Reston from presidents of the retail, it impacts things like the fitness center and other support activities we have in the building. So even though we’re a diverse tenant base there, the lack of the federal government coming to work is still impactful. We’re really assisting to the leadership in the district, the importance for the federal government to return to their offices.
Operator: Thank you. And I show our next question comes from the line of Michael Griffin from Citi. Please go ahead.
Michael Griffin: Great, thanks. It seems like relative to your East Coast peers as West Coast markets continue to lag, I guess what sort of concern do you have for the long-term viability of a market like San Francisco? And if there were a bid, would you look to maybe allocate capital out of there? And then, Doug, one thing I wanted to clarify real quickly on your leasing comment. I think you said 39% of the leases this quarter came from renewals, some of which took the same amount of space versus some amount that downsized? What percentage of the same space versus downsized? Thank you.
Douglas Linde: So Michael, I don’t have all the data in front of me. When I actually looked at it the other day, in terms of the number of tenants, there were two or three tenants that downsized, but they were larger. I mean, the biggest example being, we had Zillow/Trulia, which renewed on two out of six floors at 535 Market Street, but there were one or two tenants like that. The majority in terms of the number of tenants that signed leases that did renewals actually were staying in basically the same number of square feet.
Owen Thomas: And then it’s Owen, to answer your question about West Coast and capital allocation, you are right. The West Coast is lagging from a return to office perspective and also from a leasing perspective, is driven by the fact that there’s a much higher percentage of technology users in those markets and those users are not using their office to the same extent that their industries are. And so far, they’ve led other industries in terms of layoffs, which impacts space use as we’ve described. Look, we’re going through a cycle and word cycle means it goes down and it comes back up. This has happened before. Every cycle is different, but they all look somewhat the same. And I’m convinced this is a cycle as well and we will have a recovery. And I think the technology industries, the institutions that exist in California are not going to go away, but we are going to have to work ourselves through the recovery that we see ahead.
Michael LaBelle: Michael, one thing I’d like to add is on the kind of tenants expanding versus contracting, we have done an analysis of the rent leases that commenced in 2022 for renewals. And we had about 4 million square feet of leases that commenced and we had actually those tenants expanded by 6% or almost 300,000 square feet. In the fourth quarter, it was a reduction of about 100,000 square feet, but overall, some expand, so contracting. Again, this is only tenants that renewed in our portfolio or they took on additional space before their lease came up. It doesn’t have doesn’t count tenants that either left our portfolio, and I don’t know what they did before that or they came into our portfolio and we don’t know what their size was before that. But that’s a signal that not every tenant is contracting. There are many tenants out there that are continuing to take more space.
Operator: Thank you. And I show our next question comes from the line of Rich Anderson from SMBC. Please go ahead.
Richard Anderson: Thanks. Good morning. If I could just play a little devil’s advocate on the premier office, excuse me, Premier Workspace Motif that you’re talking about here. In a deep recession type of environment, is it potentially an outcome where you could see a reversal of the trends that you’re seeing relative to conventional more cookie-cutter office, where people are looking for cheaper alternatives and maybe your premier office product becomes more vulnerable in a deep recession type of scenario. Is that something that has happened clearly, it’s happened in the past, but I mean what gives you comfort that won’t be an outcome for you this time around?
Owen Thomas: Yes. No, I certainly understand the logic of your question. I’d answer it simply that history has not shown that to be the case. Higher quality buildings have outperformed in recessions in the past. And I think this recession is different because of the work from home and the flexibility that technology is providing for workers. And therefore, I think this flight to quality and change of how we describe our business from office to premier workplace is more important. I think the market share that the premier workplaces are getting in this downturn is actually much higher than it has been in previous downturns. And it’s important when you look at our business to not look at the overall market statistics but to focus on the premier workplaces because that’s actually the market that we’re competing in.
Douglas Linde: And I would just add, Rich, that two things. One is most, I think, of the economists pundits would say if we hit a recession, we’re not going to go into a clinical deep recession. But if you had a deep recession, and we’ve had deep recessions in the past, typically, what has happened is there has been a compression in the pricing between Class A and Class B, meaning Class A has come down to a level that makes it so attractive that it squashes Class B demand. And people look at the relative opportunity set and jump at taking additional space in great buildings because there has been a dramatic reduction. We don’t believe we’re any going to see “deep recession” but that is what has historically happened.
Operator: Thank you. And I show our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead.
