Douglas Linde: So I would tell you that the D.C. market is the most — one of the most interesting markets from our perspective in the sense that there are more, what I would refer to as over finance buildings with institutional owners that are no longer interested in providing capital to those assets, which is manifesting itself in an inability for lease transactions to occur in those transactions. And Jake and his team are, I would say, highlighting our financial stability and the things that we are doing in our buildings. And there is no question that the lease transaction that he just pulled off with Finnegan Henderson was a direct result of the lack of opportunities for a large tenant to go to other existing buildings, the inability of any new construction to commence and BXP’s ability to both provide TI capital as well as figure out a way to reposition that building to be as close to a brand-new trophy building as you possibly can have.
And Jake, you might just sort of describe the choices that are out there and how the distress in the market is impacting our ability to transact.
Jake Stroman: Yes, sure. I can just — Doug, to that point, if we look at 901 New York Avenue as an example, in the last 30 months, we’ve done 140,000 square feet, plus or minus, of transactions at that asset. And we’ve had great activity. And I think a lot of that is because we’ve been incredibly responsive to the clients in the market. And I think people have been responsive to our sponsorship at the asset. So we feel really comfortable with the plus or minus 100,000 square feet of vacancy at the asset, given the repositioning program that we’re going to undergo. And so we’re really excited because these repositioned assets and investing this new capital into remonetizing the ground floor plane of the building and sort of really repositioning the lobby experiences, it really drives the activity of that asset, and it really becomes a new building in the market.
And so there are fewer and fewer of those opportunities available in downtown Washington. And ever since news of the transaction that Doug noted was completed, we’ve seen great activity already and continue to at 901. And it’s just representative of the fact that there aren’t a lot of great opportunities in Washington, D.C. that exist today for premier office or repositioned office.
Michael LaBelle: The one other thing I would add is the performance of Reston Town Center. I mean again, the majority of our portfolio in the Greater Washington areas and Reston Town Center. And Reston is 94% leased, and we’ve had positive absorption there. In this past quarter, we did a 60,000 square foot new lease with a technology company coming from another place into Reston Town Center. Again, because it is such high quality kind of a live work play kind of place, and these clients really, really value that. So we’re outperforming from a rental rate perspective, and we’re seeing positive absorption there.
Operator: Thank you. And I show our next question comes from the line of Peter Abramowitz from Jefferies. Please go ahead.
Peter Abramowitz: Thank you. I think Owen mentioned there’s an early termination option for part of the Snap extension at Santa Monica Business Park. Just curious how that’s kind of factoring into your conversations with the lender ahead of the loan maturity in 2025. And wondering just how to think around parameters for pricing as you start to have those conversations?
Douglas Linde: This is Doug. There is no termination option on the lease that we just signed. As part of the lease, we allowed them to terminate on 140,000 square feet at the end of 2024. The remaining 467,000 square feet is going out for 10 years starting in 2026 to 2036. So Mike can describe any conversations that we’ve had with the lender, but we’re very comfortable with the refinancing opportunity associated with that building and how that will play out, relative to both the new leasing that we hope to do as well as the potential purchase of the ground, which is — can occur in 2028.
Michael LaBelle: And Peter, the loan is with a syndicate of banks who are relationship banks of ours. It does expire in 2025. And I’m confident that those banks will be supportive of us, and we will likely extend that loan for, I would say, a bridge period that will get us through the purchase of the ground lease. And after the purchase of the ground lease, because it’s an above-market ground lease, there will be an improvement to the economics of the asset and we would probably do a longer-term refinancing after that or focus on a portion of the part that might be redeveloped, and then we could split it into a portion that is going to stay as is for a while in a portion where we might do a kind of mixed-use redevelopment.
Douglas Linde: And now that it’s effectively a wholly owned joint venture, we have no partner. We don’t need to use third-party financing. We can choose to use unsecured financing. So I mean there are lots of options.
Operator: Thank you. And I show our next question comes from the line of Dylan Burzinski from Green Street.
Dylan Burzinski: Hi, guys. Thanks for taking my question. I guess just appreciate the comments on potential acquisition opportunities in the future. But could you just talk about sort of how maybe your co-investment partners are viewing office today and sort of the return threshold needed for them to deploy capital to the sector?
Owen Thomas: Yeah. I think it’s a mix. As we’ve just described some partners that are trying to reallocate away from office. And — but there are others that are interested, they’re intrigued. I think they see the same opportunity that we do. You know that – you know there is the all of these negative sentiment about office is creeping into the premier workplace segment, which doesn’t deserve it, given all of the color that we just gave you on this call. And I think there are investors, who have capital that see that and are interested in co-investing with us. And so in terms of pricing, I think it’s to be determined. I think it depends a lot on the building, leasing status and what exactly the issues are. There’s no doubt that pricing has changed. And we demonstrated what some of those changes are with the deals we did last quarter.
Operator: Thank you. And I show our last question comes from the line of Floris Van Dijkum from Compass Point LLC. Please go ahead.
Floris Van Dijkum: Hi, good morning and thanks for taking my question. I guess following up on the last question a little bit, Owen, maybe I’d love to get your thoughts on cap rates, and what is happening in office? And when could we see, in your opinion, the stabilization of cap rates? It appears that clearly, the Santa Monica deal at a 9% cap rate, that would be probably 200 basis points north of where it was maybe 18, 24 months ago. Maybe talk specifically about your view on what’s happening to cap rates in some of your key markets like New York, San Francisco, Boston, D.C. or L.A. And what — and at what point would you — where do cap rates need to be for you to actually deploy more capital?
Owen Thomas: Floris, you’re asking a very good but unanswerable question, and I’ll explain why. We tried. I try every quarter to give all of you comparable market deals. So we all understand together what pricing is. And this quarter, I could not come up with one. The only one was the deal in West L.A., but it had a lease buyout, and I’m not sure it was per se, a comparable deal. We gave you some data on partner buyouts that we did. Each one of those deals have different facts. For example, the Santa Monica deal was an unlevered fee simple cap rate. Well, that’s got an assumption in there about Land Valley. So how accurate and how usable is that cap rate, I don’t know. But we did just give you 3 cap rates on deals in New York, West L.A. and Washington, D.C. on partners that we bought out.
