This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. At this time, all participants are in a listen-only mode. After management's prepared remarks, you will receive instructions for participating in the question and answer session. If you require operator assistance, please press star then zero. I will now turn the conference over to Stuart McElhenney, Vice President of Investor Relations for Douglas Emmett.
spk03: Thank you. Joining us today on the call are Jordan Kaplan, our president and CEO, Kevin Crummey, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package at the investor relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today's call in the earnings package. During the course of this call, we will make forward looking statements. These forward looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations, and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the investor relations section of our website. When we reach the question and answer portion, in consideration of others, please limit yourself to one question and one follow-up.
spk10: I will now turn the call over to Jordan. Good morning, and thank you for joining us. In the third quarter, we leased over 1 million square feet of office space, including over 350,000 square feet of new leases. Tenant demand from our diverse industries was strong in each of our three regions. Moreover, we had our best quarter for new leasing to tenants over 10,000 square feet since late 2022, when recessionary fears surfaced. Overall, we achieved positive absorption of approximately 90,000 square feet and improved our portfolio leased rate by 50 basis points to 82%. Turning to our financial results, we achieved FFO of 43 cents per share. Based on our year-to-date results and our improved expectations for the fourth quarter, we're raising our full year guidance for FFO by 4 cents. Looking ahead, we are primarily focused on leasing up our office portfolio. We are seeing encouraging signs of increased tenant confidence overall, as well as good interest at Studio Plaza as it converts to a multi-tenant building. Leasing can be choppy quarter to quarter, and of course, there will be a drop in occupancy next quarter when Studio Plaza vacates. But I am encouraged by our lower than average lease expirations over the next five years. You can see the difference in the lease expiration chart in our earnings package. We are also focused on our repositioning projects, including Studio Plaza and Barrington Plaza, and hope to acquire a few high-quality assets at attractive prices during this part of the cycle. Now, I'll turn the call over to Kevin. Thanks, Jordan, and good morning, everyone. As Jordan mentioned, taking advantage of opportunities in the office market remains a key objective for us. The few recent transactions in our markets have so far been dominated by large tenant buildings, which are not our bread and butter. Larger tenants may mean fewer leasing transactions, but because of the concentration of risk and higher TIs, we prefer the stability of smaller high-end tenants. As a result, Our median lease size across our entire portfolio is only 2,400 square feet. In fact, out of our almost 2,700 office leases, we have only 28 leases over 40,000 square feet, and only one, which was recently renewed through 2037, over 100,000 square feet. In addition, 73% of that square footage covered by those 28 leases was signed after the start of the pandemic. While recent transactions have not fit within our discipline strategy, we are increasingly confident that there will be attractive opportunities in multi-tenant office buildings of vacancy, where we can leverage our operating platform to create value. Our company was founded in the early 90s, another period when office was an out of favor asset class. Our history, deep local knowledge, and unique operating platform give us the confidence to lean in at times like this. when others are overly cautious. With that, I will turn the call over to Stuart.
spk03: Thanks, Kevin. Good morning, everyone. As Jordan mentioned, we had a terrific leasing quarter. We signed 236 office leases covering over 1 million square feet, including 353,000 square feet of new leases and 650,000 square feet of renewal leases. This strong new leasing increased our portfolio lease rate by 50 basis points to 82%. The overall value of new leases we signed in the quarter increased by 0.4%, with cash spreads down 11.2%. Because of better leasing to tenants over 10,000 square feet, we saw a slight increase in our average leasing costs during the quarter, though they remain well below the average for other office REITs. Our residential portfolio remains essentially fully leased at 99.1%, with rents continuing to rise. With that, I'll turn the call over to Peter to discuss our results.
spk07: Thanks, Stuart. Good morning, everyone. Reviewing our results compared to the third quarter of 2023, revenue decreased by 1.8%, primarily due to lower office occupancy. FFO decreased by 3.8% to $0.43 per share, primarily as a result of lower office NOI. AFFO increased slightly to $68.8 million. And same property cash NOI decreased by 5.7% due to lower office NOI, partially offset by multifamily growth. At only 4% of revenue, our G&A remains very low relative to our benchmark group. Turning to guidance, based on our Q3 results and higher expectations for fourth quarter operations, we have increased guidance for our full year FFO by 4 cents to between $1.69 and $1.73 per share. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges, or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, in consideration of other participants, please limit your queries to one question and one follow-up. Thank you. At this time, we will pause momentarily to assemble our roster. The first question comes from Blaine Heck with Wells Fargo. Please go ahead.
spk13: Great, thanks. Good morning out there. You continue to carry a large cash balance despite paying $34 million to extend the maturity on one of your loans this quarter. I guess, can you just talk about uses for that cash? Are you expecting any more principal pay downs on upcoming maturities? Are you considering paying off any of the maturities or potentially just you know, earmarking the majority for investment and acquisitions or funding to spend on Barrington?
spk10: Well, you named a lot of the good things that it's there for. I mean, it's number one is it's obviously there to guard the company and have liquidity considering what we've come out of and we hopefully are moving out of. But, yeah, I mean, maybe there's some use for it with regard to debt, but I hope there's some good uses for it with regard to new acquisitions. I think we'll also have our partners involved in those, but then we also have part of that as our investment. So, I mean, it's for all those purposes. We have some relatively meaningful cash flow, you know, even following the dividend. And so we also use that. for kind of a lot of the slower paced stuff like construction, property repositionings and stuff like that.
spk13: All right, that's helpful, Jordan. And then it looked like tenant recoveries increased pretty significantly this quarter relative to the first half of the year. I know expenses were up as well, but maybe Peter just wanted to ask whether there was anything one time in nature in those recoveries past just normal seasonality.
spk07: Yeah, Blaine, it's mostly normal seasonality. You know, tenant recoveries vary from quarter to quarter based on when we bill estimates, when we put out reconciliations, and so on. So it tends not to be smooth over the course of the year.
spk13: Great. Thank you, guys.
spk06: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
spk14: Hey, morning out there. First, it looks like, obviously, Warner Brothers is going to fall out, I think, as you guys said, and there's going to be an occupancy drop in the fourth quarter, yet you're raising guidance. So can you just talk a little bit about what's going on? Is it sounds like there's better leasing coming and that the occupancy drop from Warner Brothers is going to be quickly offset, or just want to understand how we think about you know, earnings going up and yet occupancy coming down?
spk10: Well, I mean, we've been planning for Warner Brothers moving out for... Jordan? Oh, sorry, I lost you. I don't know why the thing just went to mute. And I said, like, the greatest thing while it was on mute, but I won't even be able to remember it. So let me go back to answering your question. So the Warner Brothers move out, we've known it's been coming for a very long time, obviously. But we've also been working super hard across leasing. The leasing group has been just killing it. I'm very pleased there. And controlling expenses and getting revenue in. And so we're really seeing improvement across everything. I mean, a little better on our GNA, better on our leasing, better on our expense controls. So it's really all the areas.
spk14: Okay. And then I guess following that on the leasing front, for the past few quarters, national big tenants have been a weak spot. It sounds like those are coming back. So as you sit here today looking out, do you now feel comfortable that all aspects of leasing are now in a good spot going forward? Or do you think that it's still going to be bumpy for the next few quarters?
spk10: Well, I mean, I've been so bad at predicting the quarters that are coming up. I could tell you this. Our activity is very good. And I'm really pleased to see the tenants over 10,000 square feet. That activity is good. And so that coming out of leasing is Like I said, couldn't be more pleased. All right. Now go to the other side, which is roll and rollouts. You look over the next five years, right, starting in 25, and it's down. I mean, it's less roll. It's lower. And I think what's going on now, because we've been reporting the terms of these leases, is that we're going a little bit over the more normalized pre-pandemic rates and the little bit longer leases. So All of those are tailwinds for us, right, in terms of kind of projecting out.
spk03: Yeah, one other thing, Alex, I'll just remind, I know I remind you guys a lot, but our leasing pipeline is extremely short. So we meet these small tenants and we can kind of quickly get them through our system. So that just means that we don't have a ton of visibility into 2025. Activity is very good right now. We still have a lot of work to do that can impact the fourth quarter.
spk14: Okay, and then just one more, if you don't mind. Jordan, just, you know, all these announcements out west, you know, Salesforce returned to office, Amazon returned to office. It reminded me that when I met you out, when they came to your office earlier in the year, you guys were suit and tie versus your traditional, you know, casual Southern Cal. So have to ask if you're following this return to office trend and are still suited up, or have you returned to the casual?
spk10: Hmm. Well, okay, so for starters, we returned to the office in summer of 2020, right? You can remember COVID, March, summer. I never felt that that program could work and keep a company healthy. So we've been in full five days a week since that time. So that's being in the office. And then at the beginning of this year, we went to suit and tie across the board, Ken's always been suit and tie, and Ken's reports have always been suit and tie. I probably was more of a criminal in this, and I was more casual. And I wanted to be really clear that there's nothing casual about what we're doing. I want to be clear about our cultural. It's a cultural move to make sure everyone came focused, ready to work hard, ready to work longer. I mean, this is a challenging economy, and I just wanted to be clear about that from a cultural perspective that, you know, our job here is to make money for our constituents and come dressed and ready to do that. And I think it's made a little bit of a difference. I'm wearing a suit and tie every day, every day.
spk14: Thank you.
spk10: Thanks.
spk06: The next question comes from Michael Griffin with Citi. Please go ahead.
spk12: Great, thanks. Maybe just some more color around sort of net absorption in the quarter. You've obviously talked positively about the leasing trends and demand, but was this due to maybe some of those larger leases you had been working on finally getting executed in this quarter? And then Jordan, maybe you can kind of give some insight into whether or not these larger leases, these signers have been more confident in signing leases and maybe what your expectations are in the quarters ahead.
spk03: Hey Michael, it's Stuart. Yeah. So, you know, really good volume, 236 leases. That's a lot of leasing. So we had good activity from our kind of core, smaller tenants. And then also, as Jordan said, and we've said, that over 10,000 category, which had been slower for us for the last couple years, came back and was better than it's been in a while. So pleased to see that. Honolulu was up. West LA was up. Valley was basically flat on the leasing. So we had good activity across the board. Jordan, if you want to speak to the pipeline of the larger tenants, I think we're still feeling good that that activity is there. and better than it's been the last couple of years.
spk10: Yeah. I mean, I've already said it. I can't say it enough. For, you know, better or worse, operations, that whole area that Ken oversees, leasing operations, I mean, this is Ken's and my fourth recession are running this place, and that is – That is what pulls us out of these things. I mean, I can play every game in the world on the capital markets and loans and this and that, but that is what pulls us out. And it's doing it. I mean, it's just a ton of detailed work, and that's what's going on here.
spk12: Thanks for that. Appreciate all the color there. And then maybe just going back to sort of opportunities you're seeing in the transaction market, it seems like been bigger deals that have mostly been out there now, but maybe nothing exactly in your wheelhouse. Can you give us a sense when you're underwriting prospective transactions, you know, maybe from a IRR or return of hurdle perspective, what are you getting to in order to make the math work on transactions?
spk10: Hi, it's Kevin. We're not really in an IRR world right now. And the reason I say that is because If there were anything we were gauging by right now, it's probably about the price per square foot and the basis that you're getting into, and then where we think we're going to stabilize those buildings on a return basis. We're targeting properties that have vacancy in them because we want to take advantage of our operating platform. Vacancy doesn't scare us. And we're not good at buying buildings that are stabilized because we can't add that value.
spk12: Great. That's it for me. Thanks for the time.
spk06: The next question comes from Jeff Spector with Bank of America. Please go ahead.
spk05: Great. Thank you. Appreciate the comments. And, Jordan, I guess my first question is on, you know, your comment around the, you know, leasing volume, new tenants, over 10,000 square feet. I know when we saw you in March at your office, that was a big emphasis. What's happened there and what gives you the confidence that that will continue into 25?
spk10: Well, I can't say that I have confidence that it will continue into 25. I can say that the kind of the short vision that we have around our pipeline today, that looks good. But what I can say about 25 and forward is what I said earlier, which is that our role is more forgiving. we're going back to a more typical kind of role that was before the pandemic with a little longer leases and less that we have to, as we approach each year, less that we have to deal with. And that makes a big difference in terms of getting positive absorption. So that's something we can see, right? Now, all we can do is feel the fact that at the moment, the pipeline's stronger. But as I said, that is a lot of people working extremely hard And it's the kind of, part of it's a reflection of the incredible dominance of our operating platform.
spk05: And what industries are driving this leasing? I know you have a lot of exposure to legal financial services, and that's been a big boost to New York City. What's happening in your key markets?
spk03: Yeah, it was really broad-based. We looked, you know, we have that great pie chart that shows the diversity of our industries with legal and financial services, entertainment, healthcare, and we saw good leasing kind of across the board from all our industries.
spk05: Thank you. Thanks.
spk06: The next question comes from Steve Sacqua with Evercore. Please go ahead.
spk01: Thanks. I'll probably be the dead horse here on the leasing front. Jordan, but it was great to see the 350,000 feet in the quarter. And I realized that there were a handful of large deals. I mean, do you feel like that level is sustainable or do you feel like that kind of just clicked on all cylinders this quarter and things might revert back a little bit? Because it seems like in order to really move occupancy higher, you probably need north of 300,000 feet per quarter of new deals to really sustainably move occupancy up and So I'm just curious, how many of those larger deals do you have in the pipeline to kind of pull forward each quarter?
spk10: As we sit right now, putting Studio Plaza to the side, because that's going to go out in the fourth quarter, right? So that would be hard to get positive absorption. As we sit right now, I've already told you what the role going forward looks good to us in terms of being able to achieve positive absorption. And I'm also telling you that I like the look of the pipeline right now. But really, to extrapolate that into a prediction of leasing next year or the next year, I mean, that would be extreme. I mean, right now we had a good quarter, which I think we actually foreshadowed for you guys a little bit on our last call. And then right now I'm saying I'd like to look at a pipeline right now. That's the amount I can say. I mean, you know, we'll see. We'll have more information on the next call, and then you'll hear some more.
spk01: Okay. And then follow-up, just anything on Barrington Plaza at this point that you can sort of talk about, whether it's the kind of insurance claim or just the overall redevelopment process and kind of where are you in starting that whole project and the timeline would be helpful. Thanks.
spk10: So we're down to, I think, never mind, maybe it's like 10% occupied. You know, we went through a battle in the courts. The judge gave us a very clear path for achieving this, which the city wants and everybody wants. So now we're following the path given to us by the judge. I hope that, you know, we're kind of through almost everything with regard to plans and all the rest of that and ready to, you know, we're on the, you know, five-yard line of pulling permits. So we need to get through this last bit of moving a couple of these last few people. And then I hope to start construction. And I think we will in 2025. But it's been a very long road. And with respect to the insurance, I mean, we have an extremely significant claim. And, you know, I think it's very – honest to say the two sides are in extreme disagreement right now but you know i guess that will also get resolved eventually over the next year or two okay great thanks for the comments thanks the next question comes from rich anderson with wedbush please go ahead thanks guys um so on the
spk04: The idea of sort of feeling confident in executing on external growth in the office space, you said this is your fourth recession. What gives you confidence that actual opportunities will materialize that fit? I mean, do you see a pipeline growing that is the small tenant variety, or are you confident that you're comfortable to act when that comes, but you don't necessarily see much on the horizon at the moment?
spk10: I think we see a pipeline growing of the type of buildings that we would like to buy.
spk04: Is there any reason why they're perhaps taking longer to come to market than those that you described that are of larger lease variety? Or is it just happenstance?
spk10: Well, the larger tenant deals... people brought to market because they were, you know, it was the only thing they could bring to market and they were getting very good price per foot. I mean, look, those larger tenant deals are trading for like 800, over a thousand bucks a foot. So they're kind of looking around the country and they're going, we can trade out of these things and, you know, stable cashflow for a long time. And they got very, very solid prices. I mean, you, you would go say they got prices that were, you know, it's, could have been a good price even before the pandemic. And so the people that had sort of leasing challenges and all those things, I think have been hanging out for a long time waiting to see if there's some kind of recovery, if they get saved and it just takes time for them to get worn out. Remember when you trade out of one of those buildings, it's not like stock. You trade out, you're unlikely to get back in. I mean, we're a very dominant player in these markets. But there are a couple other players that also have much less than us, but they also have portfolios that they're unlikely to do any significant trading on. So it takes a long time to make a decision to sell something like that because you don't say to yourself, let's get out of this now and we'll get back in later. You're probably not getting back in.
spk04: Okay. Okay. And then second question is just in terms of the year-over-year growth, obviously, with Studio Plaza coming down or coming out of the system, you know, that creates an earnings growth year over year headwind for you next year. Do you see any path to being able to produce positive FFO growth next year in light of that vacancy? If you moved quickly on it, could it potentially create enough cash flow for you to sort of break even from a growth perspective in 2025, or is that too much to ask at this point?
spk10: Well... It's definitely too much to ask me to give guidance on next year's FFO. That's for sure. But I will say this. While we're doing leasing and we're getting some positive absorption in the lease rate, I mean, especially a building like Studio Plaza, which I feel good about where we're headed and leasing there, we have to still, like, build up their space, have them move in, and start paying rent. So for that in particular, even with very good news around leasing, to have it flow all the way through to FFO, that takes some time. But putting that aside, I'm not giving any guidance about where we're headed next year, but we will in our next call be giving exact guidance.
spk04: Miss every shot you don't take. Thanks. Appreciate it.
spk06: That's fine. Thanks. The next question comes from Nick Ulico with Scotiabank. Please go ahead.
spk09: Thanks. Yeah, just going back to Studio Plaza, can you just explain how this is going to work in terms of the treatment of the building from a, you know, if you're taking it out of service, I don't know if you're, you know, capitalizing pieces of it now going forward, just how we should think about kind of the earnings impact there.
spk10: Okay, so I'm going to leave the real technical stuff to Peter, and maybe you can talk to him after this. Or you can talk now, Peter. But I will say that we are really repositioning that building, and I'm talking about across the board, approach, common areas, lobbies, everything to be a multi-tenant building. So that's a very big move vis-a-vis that building. And then at the same time, we're leasing. And we're trying to fit, we're showing them what we're doing. We're actually doing it, trying to fit the leasing in. So there's a lot, there's just a lot going on there that's in process. I don't know if you want to talk about that.
spk07: I mean, probably, you know, obviously the biggest impact is you lose the NOI from Warner Brothers and then you have to build it back up as you move tenants in. And as Jordan said earlier, you know, that process is going to take some time. I mean, obviously we're going to try to keep the day-to-day expenses as low as possible, and we'll probably capitalize some of the ongoing costs until we lease it up fully.
spk09: Okay, great. Thanks. And then the second question is just on the swaps, latest thinking there for the maturities this year and next year, whether you're going to replace those or just deal with some floating rate debt exposure. Thanks.
spk10: Well, we need long, you know, the stuff that's coming up in this year and in the next two years, you know, there's no reason to swap it. It doesn't do anything. You need some longer-term debt to be in a position to swap. And so we're working on that and getting into that position.
spk06: Was there a follow-up, sir?
spk09: No, that's good. Thanks.
spk06: The next question. The next question comes from John Kim with BMO Capital Markets. Please go ahead.
spk08: Good morning. I actually have questions on disclosure. So this quarter was very unusual. You had the large Warner Brothers discovery expiration at the quarter end. It didn't show up in your occupancy. It does show up in your short-term lease leases. But assuming that's consistent with how you've done it in the past, how should we think about that short-term lease bucket? Like, how much of that short-term lease bucket are actual vacancies that have occurred at quarter end?
spk03: Hey, John, it's Stuart. Yeah, so we, I'm sorry there's been any confusion around the Warner Brothers. Their lease went through 930, so they're, you know, they're still in occupancy as of 930, and we could have been maybe more clear that their vacancy started on 10-1. So, but our long-term policy in regards to that short-term bucket is that leases that expire on the last day of the quarter like that move into that short-term bucket, kind of signaling that they're almost over. So, you know, they are in the occupancy number as of 9-30, and we moved them into that short-term bucket.
spk08: And do you have an estimate, like, on that short-term lease bucket, what percentage of those are actual vacancies versus...
spk03: No, I don't have an estimate. I can look at that after the call. I mean, this happens every quarter. You guys just don't notice it because typically our leases are small, but any leases that expire on that last day of the quarter would be in that bucket. I can go back and look and see what kind of percentage that is.
spk08: Okay. And then we noticed on page 13 of your supplement, you eliminated the sub-market occupancy and rents. It's now kind of consolidated into regions. But I'm wondering why you made that decision. Was it for competitive purposes or just too much of a distraction for investors?
spk03: The latter. I mean, we've felt for some time and been saying for some time that because our individual submarkets, that that data can be impacted even by a single lease and those markets are pretty small, that the confusion and the kind of the time spent focusing on small changes of outweighed the benefits of disclosing those markets so we think about it internally along those three region lines and we thought that was a better way to present it okay thank you the next question comes from peter abramowitz with jeffries please go ahead
spk02: Yes, thank you for the time. Just wonder if we can get your latest thoughts and sort of how things feel on the ground in terms of leasing from the entertainment industry. Just curious if things are picking up anymore given the challenges of the last year and a half or two years or so.
spk03: Yeah, when we looked at the Q3 stats, entertainment was kind of there in a typical pace of represented, you know, kind of as they'd normally be in our portfolio. I know if you go back a ways that entertainment got a little slow there, but I think it's been more normalized recently.
spk02: Okay. And then I noticed there's nothing particularly chunky next year, but you do have about 120,000 square feet in total with UCLA, I believe, next year. So just curious from your early conversations. sort of where they stand on those renewals and your thoughts on kind of the chances of keeping them in the same space.
spk03: Yeah, UCLA has a number of leases with us. So if you look at that 120,000 feet, it's a lot of smaller leases. And they don't act like a large tenant. They act like a bunch of different small tenants. So they can be making different decisions on all those spaces. Literally, they've expanded with us in the same quarter they've given back space in other buildings. You said it right. There's nothing chunky coming up. We have pretty normal role. And actually, as Jordan has mentioned, you know, lower role going forward. But we don't have any, you know, no prediction yet from UCLA on how that's all going to shake out.
spk06: The next question comes from Dylan Brzezinski with Green Street. Please go ahead.
spk11: Good afternoon, guys. Thanks for taking the question. I guess just good to hear the comments on leasing picking up and then the pipeline potentially being strong. I mean, I guess is there certain submarkets where you're seeing outside strength in activity or is it pretty broad-based across the portfolio today?
spk03: Yeah, it was good broad-based activity across the three regions. Nothing that stood out as unusual, but we were happy to see good tenant mix and good region mix in the leasing this quarter.
spk11: And then maybe just one on, in terms of, you know, acquisition opportunities, obviously things are still tough out there in order to, you know, put, put capital work today, but I guess just, just looking at your guys is JV funds platform. I mean, is there any appetite, you know, for, for your current partners to, to sell interest to you guys, or is that sort of a, a non-starter today? They're, they're buyers.
spk10: They're full-on buyers.
spk11: Great. Thanks, guys.
spk06: The next question comes from Upal Rana with KeyBank. Please go ahead.
spk00: Thanks. This is Gabby on for Upal. It appears multifamily is performing better than anticipated. So are you able to provide some color on what's driving that? And then you've touched on this in past quarters, but do you see any potential opportunities for any more office to residential conversions where it would make sense to pursue?
spk10: I don't know what to say about the multifamily. Our multifamily has been it's just such a strong performer all the time, and it's continued to be a strong performer. So nothing about its performance has surprised me. We have incredible long-term CAGR on that portfolio in terms of growth. In terms of the conversions, you know, you really need a proper mix of very high residential rates, low office rates, low value for the buildings, and And it worked in Hawaii, no doubt about it. That worked in Hawaii. But the markets we're in, we're in pretty strong office markets. I mean, I know right now people aren't happy about what's going on in the office world, but we're in pretty strong office markets. They don't really get any new competition from new supply. We have a lot of really strong industries driving demand. So values... hold up quite well, and rents hold up quite well, making it extremely difficult to justify spending the, whatever it is, $500 a foot or $600 a foot on top of whatever you think the value of the building is today to convert it. You have to get extraordinary residential rates. I mean, there are circumstances that could occur to try and make that happen, but it's just really rare. We had that circumstance in Hawaii. We had very... very strong residential and very weak office. And then once we took that building out, even office rents went way up, and they're still moving at a good clip because another lady is doing it with two other – another developer is doing it with two other buildings. But I don't think that's – I think that's going to be more rare here in the marks that we're in here in L.A.,
spk00: Okay, that's helpful. That's it for me. Thank you for the time.
spk06: Thanks. This concludes our question and answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.
spk10: Well, thank you all for joining us, and we look forward to speaking with you again next quarter. Goodbye.
spk06: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer