DRE
#<UNK>, I think we'll both chime in on this.
We look at every major portfolio that's out there, and most of the smaller ones and one-off deals ---+ if nothing else, just to be apprised of what's going in the market, what investor activity is, and what pricing expectations are.
So we are abreast of everything that's going on, and we have yet to see an opportunity that we think is available at a price that we could demonstrate value creation and really fits in our targeted growth portfolio.
For us, that's the West Coast and predominantly the Northeast, maybe South Florida.
We've got really dominant portfolios in most of the other cities.
So if we were going to stretch today, it would be in probably one of those three geographic areas.
And we haven't seen the right opportunity.
<UNK>, I'll let you add a little additional color.
I think everything <UNK> said is right on.
I think we still first, <UNK>, look at the quality of the property, and where the property is located, and is it a property we want to own ---+ regardless of what our capital cost is.
Just because we are trading as a nicer stock price today than we were six months ago doesn't make us want to go out and overpay for property.
So I think the quality of the property and where it is is still number one.
And you know, if we are trading at a nice size premium, it may help us justify stretching a little, but it's still got to be property we want.
No, I don't think we see anything out there right now that we like well enough to do that ---+ you know, as far as the large portfolios.
I'm not saying there won't be a one-off transaction here or there, but no large portfolios out there right now that we see.
Yes, sure, <UNK>.
It's always about timing.
And try as I may, I can't always get my clients to sign leases by quarter-end.
They just don't feel the same sense of urgency that <UNK> and I do.
But yes, we took a very close look.
And we assumed several of you would ask this very same question, because if you look at where we are midpoint, it would tell you we were pretty much in line with what we'd originally projected.
But we do have a very, very strong pipeline for the second half of the year.
It's very consistent with the business that we've been doing.
A lot of our existing clients in the areas of e-commerce and consumer products, some directly with them, some with 3PL providers ---+ and we've got a good mix all across the country.
So given that, we felt very comfortable raising the guidance on the development side.
So I think you can look forward to bigger numbers in the third quarter.
I will tell you, looking out beyond kind of the six-month horizon, we are still very optimistic.
Our clients are not showing any skittishness, any pullback.
Everything that's on track to get signed, I would say, in the foreseeable future, the next three or four months, is going full speed ahead.
And our clients are probably more engaged with us today about their future needs, whether it's in the forms of build-to-suits or taking speculative space, because the markets have gotten so tight.
So if you're an 800,000 foot user or a 1 million square foot user in a major market, you don't have nearly the number of options.
So we've gotten engaged with much more of our clients.
They've been much more forthcoming with what their needs and expectations are over the next 24 months.
And that has left us fairly optimistic as well.
Well, I think it's a couple of those things.
You know, if we all reflect back on where we were about seven months ago going into 2016, we were all talking about markets reaching equilibrium sometime in 2017.
We were anticipating that absorption was probably going to be in that closer to 180 million to 200 million square feet.
And I think all of us, our peers and you guys ---+ anybody that follows this sector ---+ has been very pleasantly surprised.
We are on track to be at or above absorption for the last ---+ the average for the last couple of years, if you just look at where we are for the first couple of quarters.
And then you pair with that how successful we've been leasing virtually all of these major spec projects that we've put.
We've leased a bunch of them right before they've even come in-service.
We've leased another few right as they have come in-service.
The one we have under contract to sell to a user here in Indianapolis ---+ that was probably in-service for about six or seven months, was probably the longest one we had on the shelf.
So I think, you know, given the confidence in our operating teams, our record high occupancy, and the state of the overall demand in the marketplace, we feel more comfortable accelerating a number of those spec projects.
Yes, and I would just reiterate what <UNK> said earlier too, ---+ that this quarter being almost entirely spec was just more timing than anything.
We have got some pretty good data points looking forward, with some good build-to-suits in the pipeline prospects.
So I think as you see us go forward, it will be still in that above 50% to 60% preleased range in total.
I'll try that, <UNK> <UNK>.
I think it's ---+ for the next 6 to 9 months, I think it's pretty sustainable.
I think I mentioned earlier about a fourth of our leases rolling in the next 18 months were what we consider to be those trough leases, and we're going to push rents really, really hard there.
They'll be in the ---+ some of those will be in the 25%, 30% range.
But I think overall we reported 19% this quarter; I think we were more like 14%, 15% the previous quarter.
I still think you'll see us in that mid- to upper teens on average for the next 3 to 6 months.
And I would add to that: if you just ---+ you know, if we all stood back we look at the macro numbers, today most of the brokerage and research firms are tracking somewhere between 165 million and maybe 180 million square feet of supply that's projected to come in-service over the course of the next year.
And we are on track to have another year of 240 million to 250 million-plus square feet of absorption.
So I think in the short-term, there's a higher probability that that overall vacancy goes down before it goes up again.
And I think if you see that macro trend, you're going to see us continue to have the leverage to continue to push rents.
Yes, <UNK> <UNK>, we don't like to get right up the day the lease rolls.
So when a lease renews, it's typically going to be 2 to 6 months before it comes up.
So you could be looking at pulling forward, call it, maybe six months of the next year's leases.
So that takes you from 10% to closer to 15%.
Okay, I'm not sure I followed that one, <UNK> <UNK>.
So are you quoting a number that we reported, or are you looking ---+.
Same-store NOI growth.
Well, I don't think we're assuming occupancies are flat.
We're assuming we're still going to drive occupancy.
Occupancy growth will slow, but we are not assuming flat occupancy.
So we believe that we will still grow occupancy in that pool of property for the next six months.
You couple that with the rent bumps, which ---+ we have about 2.25% rent bump.
You then add the, call it, 15% that you talked about rolling; then we can push rents up close to 20%.
And then the final factor is burn-off of free or reduced rent.
And all that together is what gets you up to that number.
Thanks.
Really at about the same run rate that we've had first half of the year.
Even though we are quoting a start number, we capitalize our interest based on the actual spend.
So a lot of the starts that we are quoting, the development spend won't happen until late this year, early next year.
So we're really looking at continuing at about the same run rate that we have for the first half of the year.
And then couple that, I would say also, with the fact that our overall average borrowing costs are going down.
So that actually lowers the amount of interest we capitalize a little bit as well.
Yes, I would tell you that ---+ you know, <UNK>, we've always ---+ are you talking about the new second-generation leases that backfilled, what that would have done ---+.
If you just isolated those deals, it would have improved it quite a bit.
In total I would tell you that the total new second-generation leasing this quarter, because it was easy, it was like an apples-to-apples comparison of the old tenant to the new tenant ---+ you know, in the past we've never quoted that number, because sometimes they don't take the same space and all that.
This quarter it happened to be pretty easy.
I would tell you, if we would have quoted that number, it would have actually been little bit better than our renewal.
Not a lot, but a little bit.
Yes, and I may have misled you, then, <UNK>.
It's not just development; it's leasing in general.
An example of that would be those four big backfill deals.
You know, they are in our occupancy number, because the leases are signed, but we're not collecting rent yet.
But we will start to collect rent on that in the third and fourth quarter.
So it's not just development that is causing that.
It's all the leasing we are doing, not just development.
But maybe to specifically answer your development question, the way we do same-property is we put properties in our same-property pool after they've been in-service for 24 full months.
So as you sit here today, the only development projects we have in our same-property pool would have to have been in-service on April 1 of 2014 so that you had two full years in there.
But I don't know if that answers your question or not.
I think that's right.
It's more timing than anything.
And then as I tried to mention in my opening remarks, in the second quarter, there were three or four individually small expensed true-up type items that hurt us this quarter.
And actually, if you went back previous year's quarter, we had a couple adjustments that were revenue related that helped that quarter.
So when you look at the two together, it distorts this quarter's NOI growth a little bit.
And FYI ---+ I think you've heard me say this a million times ---+ I don't like to look too much at just the quarterly number.
I like the 12-month number better, because it doesn't take one little item, and multiply it by four, and skew your result.
Well, Jamie, I think if you just look at our existing portfolio and the fact that we've been able to raise occupancy, net-net, there's a great deal of net absorption out there.
If you want to talk specifically about those build-to-suits, some are absolutely new deals where the client has not given up any space, some of which are consolidations of multiple spaces, where they are looking to gain some additional efficiencies.
They are generally adding additional space in there, because most of those clients are growing.
But as we did this quarter, we've been able to backfill space at very good rental rates.
So net-net there is probably a little bit of both.
But there's a lot of demand out there.
When you've got overall nationwide vacancy of 5.2% and you've got a lot of big users out there seeking new space, it's a good time for us in the industrial business.
Well, I'll take the last question first.
Yes, there's no shortage of people doing spec development.
I think what we are all very happy or pleased with is that demand continues to outpace supply by a pretty healthy margin.
To your first question, when we've got, I think, 18 of our 21 markets above 90%, and 12 above 95%, and a couple at 100%, we are in a position to start spec in virtually all of our markets.
We'll probably be a little bit more measured than that, particularly some of the markets like New Jersey, Pennsylvania, Southern California ---+ the high barrier markets, where it takes a little longer to entitle land and improve projects.
You probably can't reload quite as fast as you'd like.
And that's a burden we bear for being a little bit more cautious than perhaps some of the local developers, but it's worked for us very well so far.
So you'll continue to see us take a measured approach, do some speculative development in a number of these different markets.
We mix that in with our build-to-suit, and I think the pipeline will look very, very good in the second half of the year.
<UNK>, it was moved in the second quarter.
So it has moved out of our population, if you will, down in the held-for-sale.
So that did help occupancy in the second quarter.
And when you sell it in the third quarter, it will have no impact on occupancy, since it has already been taken out.
Yes.
<UNK>, it's not tough; it's expensive.
Most of our markets that we are active in, land prices have exceeded previous peaks of 2007/2008.
I think that's another reason why our strategy to be very, very prudent on our land inventory is paying off for us.
So I was asked ---+ oh, it was probably at NAREIT ---+ if, given where we were, were we going to go out and bulk up on land.
And we have continually advised our business guys: now is not the time to bulk up on land.
We'll buy what we need, put it in-service as quickly and efficiently as possible, and keep that land inventory at a very efficient level.
And we'll look to make some key buys somewhere down the road, when land prices return to a somewhat more normalized level.
No, there were two buildings, <UNK>.
We bought two buildings this quarter.
I think we quoted $51 million for the value of the industrial building that we effectively bought, using air quotes here, from Gramercy; and then about $16 million for a medical office building that we had actually had under contract for well over a year.
So there were two buildings in that $67 million in the supplemental.
Correct.
All right, thanks.
I'd like to thank everyone for joining the call today, and we look forward to reconvening during our third-quarter call, set for October 27.
Thanks again.
