Douglas Emmett Inc (DEI) 2024 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett's quarterly earnings call. Today's call is being recorded. (Operator Instructions)

I would now like to turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett. Please go ahead.

Thank you. Joining us today on the call are Jordan Kaplan, our President and CEO; Kevin Crummy, 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. (Operator Instructions) I will now turn the call over to Jordan.

Good morning, and thank you for joining us. The recent fires in and around Los Angeles have been devastating, impacting many of our friends, partners, and coworkers. Douglas Emmett is supporting the city's recovery efforts with our personnel and expertise. Fortunately, none of our properties were damaged by the fires.

We've made significant progress on several key growth initiatives. In January, we purchased an office property and by-right residential development site at the corner of Wilshire and Westwood Boulevards. In Burbank, following the move out of Warner Bros., we have begun redevelopment of our 456,000-square-foot Studio Plaza office building to convert it into a multi-tenant property.

We are signing leases that will commence as common areas, and the related floors are completed. Our 712-unit Barrington Plaza residential property now has a permit to begin construction. As expected, our fourth quarter was adversely affected by the Warner Bros. departure.

Lower office occupancy and higher interest rates also negatively impacted 2024 revenues and FFO. However, we maintained stable office rental rates, good control over our operating expenses, and continue to produce strong performance across our residential assets.

Excluding the Warner Bros. move out, we achieved positive absorption during the second half of 2024, even with muted fourth-quarter leasing due to the holidays both falling mid-week. Looking ahead, our 2025 lease expirations are 25% lower than 2024's record high and well below our five-year average. We're also seeing a rebound in demand from larger office tenants.

Given these factors, I'm optimistic that we will achieve positive absorption during 2025. I am also excited that our ongoing development projects will provide strong long-term growth. Kevin can provide some details on our new development project.

Thanks, Jordan, and good morning, everyone. As Jordan mentioned, we formed a new joint venture to acquire a 17-story, 247,000-square-foot office building, and adjoining residential development site in Westwood. We estimate the JV's total investment, including acquisition, upgrades to the existing tower, and construction of the new residential building will be approximately $150 million to $200 million over a three- to four-year period, depending upon our final plan.

The new JV obtained a $61.8 million secured nonrecourse interest-only loan that matures in January 2030 and has a fixed rate of 6% until July 2027 and 6.25% thereafter. We manage and own a 30% interest in the new JV and expect to enjoy significant operating and leasing synergies due to the proximity of our other Westwood properties.

During December 2024, we also closed a $325 million loan for another of our joint ventures in which we own 20%. The loan replaced a $400 million loan that we paid down using cash on hand in that JV. The new debt matures in December 2028 and is secured by five office properties, with interest swapped at a fixed rate of 6.36% until January 2028.

With that, I will turn the call over to Stuart.

Thanks, Kevin. Good morning, everyone. For all of 2024, we signed 876 office leases, totaling a record 3.8 million square feet, for an average of 945,000 square feet per quarter. During the fourth quarter, we signed 204 office leases covering 796,000 square feet, including 242,000 square feet of new leases and 554,000 square feet of renewal leases.

New leasing demand from tenants over 10,000 square feet improved again in Q4 and is now back to our pre-pandemic average. The overall value of new leases we signed in the quarter increased by 4%, with cash spreads down 7%.

At an average of only $5.46 per square foot per year, our leasing costs during the fourth quarter remained well below the average for other office REITs in our benchmark group. Our residential portfolio remained essentially fully leased at 99.1% with good demand.

With that, I'll turn the call over to Peter to discuss our results.

Thanks, Stuart. Good morning, everyone. Reviewing our results compared to the fourth quarter of 2023, revenue decreased by 5.5% due to lower office occupancy, which, combined with higher interest expense, lowered FFO to $0.38 per share and AFFO to $58.7 million.

And same-property cash NOI decreased by 4.5% due to lower office revenues, partly offset by 6% multifamily growth and good expense control. At just under 5% of revenue, our G&A remains low relative to our benchmark group.

Turning to guidance, we expect our 2025 net income per common share diluted to be between negative $0.17 and negative $0.11 and our FFO per fully diluted share to be between $1.42 and $1.48. Our guidance includes the consolidation of our previously unconsolidated fund and the new joint venture that we just formed. However, we do not expect a significant contribution to FFO from the new joint venture during 2025, as we only own 30% and we expect NOI to be impacted by construction.

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.

(Operator Instructions) Alexander Goldfarb, Piper Sandler.

Hey, good morning. Morning out there, and certainly, thoughts and prayers with those affected in the communities.

Jordan, first question, I'm sure you can imagine, is we're reading a lot about some local politicians proposing or wanting to have rent freezes or eviction moratoriums. Just a sense of, on the ground, what you think the likelihood of any of these happening and how you think if CEQA and the Coastal Commission truly will stand down and allow the development to go on. Or if you think they're also going to be challenging some of the governor's emergency initiatives.

In terms of the rent freezes, I mean, I hope they don't do anything. I know it was like moved kind off the agenda for a while, snuck back on the agenda. I don't know what's going to happen with it. I'm hopeful from conversations that we don't have to face that again. It certainly hasn't been good for the production of rental housing.

In terms of the Coastal Commission and CEQA impacting the redevelopment of the Palisades, if you're talking about the Palisades for Coastal Commission for sure. I think the governor's order was extremely clear. And then he reissued a second order to make sure it was triply clear when the Coastal Commission came back and said, we still want to be involved.

And in terms of kind of the politics and the way the Coastal Commission is created, if what he wants is them not to be involved, they're not going to be involved. And he came on super strong. And by the way, the city also came on super strong. They want to fast track the reconstruction, and they're working pretty hard to make sure -- in their words and conversations I've had with them, to make sure they stay out of their own way. So I'm optimistic on that front.

Okay. And then the second question, Jordan, is you gave optimistic outlook that you'll see positive absorbing this year and that leasing is trending the right way. But when we look at the occupancy for the year, the guidance is 78% to 80%, which is basically -- I think we're 79% now. So how do we drive that average office occupancy which basically implies flat with your positive comments on absorption and leasing trends?

Well, I mean, office occupancy is a range, to be fair. But I will also say occupancy is people moving in. We're working on a lot of leasing. Leasing is -- has a lag time and especially if we're successful and we get positive absorption out of the year.

And you've seen this -- I know you've seen this in the past that when our leasing amps up, the spread between leased and occupied widens. And so I'm hopeful that we see positive absorption on leasing. And of course, that's always like a great sign for occupancy moving up or eventually moving up. But there's a real lag there all the time.

Thank you.

All righty.

Nick Yulico, Scotiabank.

Thanks. Following up on the leasing topic and guidance, is there a way you could give us a feeling for leasing volume assumed in guidance this year versus last year, flat, up, down, in order to get to the occupancy range that you're talking about?

So last year, at the end of the year, we saw a real slowdown, which a leading indicator for us is showing. So we saw it really slow down, I mean, like substantially below the amount of showings we would expect to have even in December, because of the way that kind of those two went -- there were two Wednesdays with holidays. So people seemed sort of blown out both weeks at the end.

But -- so it didn't even get to our average. And we're now seeing showings in January and going forward that are way above our average. And that's one, if not, there's others, of the reasons I'm just feeling. It's that combined with that we have, historically, very low move-outs or very low roll this year -- I should have said roll, not move-outs.

We have very low roll this year, which we typically expect to get about 70% up. So when you have a lower role and then you turn around and you go, I'm feeling good about showings and you're feeling good about the pipeline, then I'm going to be optimistic. And I'm telling you guys that I am.

Okay, thanks. And then, I guess, secondly, is just in terms of -- if you could just talk about how -- a little bit more about how January leasing is shaping up. I don't know how much January really makes or breaks a year or not.

But anything you could talk about in terms of -- if the fire has impacted -- whether it's sort of existing tenants thinking about space or leasing decisions that were kind of in the works with people, if there's been any impact so far on leasing?

I think it's very hard to tell whether the fire is going to have any impact. Quite frankly, I don't think it is. But there's not any data out there to figure that out yet.

And even if it does have a tiny impact -- and I couldn't even tell you it would be plus or minus -- the tide, the general positive tide that I just described, in terms of kind of our outlook and what's going on, I think would overwhelm it. So I don't think it would be meaningful anyway.

All right. Thanks. Appreciate it.

All right.

Steve Sakwa, Evercore.

Yeah. Thanks. Good morning. Jordan, I know you're probably loathe to talk about like cap rates on individual deals. But can you just help us kind of size up maybe what the economics look like for both kind of the office and the planned apartment at the new acquisition of 10,900, just so we can kind of help think about either stabilized yields, IRRs? How do we think about that investment?

So that's great that you know -- I mean, we've only been working together for, what, just almost our 20th year or something. So that's true. I hate cap rates. I don't think cap rates are particularly indicative other than the cap rate on a, like, at-market leased apartment building.

But I will -- because you asked, I will say -- with you knowing I really don't like cap rates as an indicator of anything -- that I think we're going in at a little over a 10% cap rate, and I expect when we're done with all our work to be over 10% cap rate.

And that -- just to be clear, that's on the -- that's just on the office component, or that's office and residential combined?

Well, going in couldn't be on anything, but the -- obviously, the office. And then coming out, that's combined.

Okay. And then moving up to the Warner Bros. building, just as we think about the money you're putting in, the $75 million to $100 million of CapEx redevelopment, I know Warner Bros., was paying kind of low 60s rent on that building. When you're done with the work, how do you think the new rents for the multi-tenant building will stack up to that prior rent?

I think that -- well, I will say -- so remember, they just moved out like a month or two ago. I think that we're very pleased with our leasing, and we're going to talk about individual deals. But we tried to describe in our prepared remarks that we're already leasing.

And what's now is like we got to get this work done and get the common areas done and get some of these floors done, so we can get these people in and paying. So I would say this; we feel very good about what's going on there.

Okay, thanks.

Okay, thanks, Steve.

Blaine Heck, Wells Fargo.

Great, thanks. Good morning out there. Just a follow-up on a couple of your answers, can you remind us what the lag is between leasing and occupancy that's typical in your portfolio?

And I guess, you mentioned 70% for retention. So just to confirm that's what you guys are expecting this year, especially given that we noticed you've got a lot of expirations in the Valley towards the end of the year. Are those a concern at all?

So we are expecting -- and I got to tell you, historically, with a lot of regularity experience, I think the real number is like 69-point-something. And that's very -- has historically, quarter to quarter, not a big deal. But it's very reliable over three, four quarters. So that's why we're expecting, and then I would expect it here.

And so that was your question on renewal. What was your other question?

Just the typical lag between leasing and occupancy.

So that number can range from 100 to like 350 basis points and even higher. I mean, if you're really leasing at a torrid pace, it gets up above 300. When things are extremely lackluster, it gets down. It can get down to 100. I would say if you just look at it like -- there's never a normal time in real estate. But anything you would call normal time maybe 150 basis points.

But I got to tell you, if you go back a few years when we were doing a ton of leasing -- I don't know if you remember going back -- but there was a time when like sort of COVID was over, but I know people weren't talking about recessions. We had a kind of a weird year there where we got positive again.

And I remember we got up to about 350, and everyone was saying, when are they going to move in? When are they going to move in? And I said, well, you just want to keep that 350 because it means we're just doing a lot of leasing. Because they were trying to like get to 350 back down. You don't want it to go down because those people move in, you want to have more people that are in that pipeline. But that seems to be the nature of it.

And, Blaine, if you're asking about timing on moving folks in after we've signed a lease, typically, it's very quickly, we can move folks in the quarter or within two quarters when they sign their lease. But of course, on Studio Plaza, we're building out multi-tenant quarters. And that kind of stuff, it's going to take longer.

Great. Very helpful.

(technical difficulty) question.

No, it's fine. That was helpful commentary from you, too, Jordan. And then just, secondly, on the acquisition, it looks like this is a new JV partner. If that's the case, can you tell us anything about that partner and their willingness to do more deals with you, and then whether QIA was considered as a partner and kind of their ongoing interest in investing with you? Thanks.

So we don't really like to talk about our JV partners. And to be perfectly frank, they don't -- they're not anxious to be in the press. If they want to say something themselves, they're always welcome to do it.

But we've been asked the question. I got to tell you, I think every quarter for now, four or five years, we've been asked whether our JV partners still had an interest in buying office, still had an interest in resi, how did this, that. And then I said, yeah, they definitely do.

And you can look at the fact of how much we got squeezed down on this deal to know how aggressively they do want to be in these deals. I mean, that money is out there. And I'm happy that we were able to do a deal and give those guys some way to have some participation. Because if you don't give them deals, you're going to lose their attention.

And I know, like, Kevin has been doing a good amount of traveling with Stuart and Griff. And they've been getting out and continuing saying those guys, we think we're going to be able to make deals, and now we're making them. So I'm super happy about that.

Thank you.

Jeff Spector, Bank of America.

Great, thank you. Jordan, a follow-up question on your comments around absorption. When we've met you in the past, you've talked about in a healthy -- I guess, if there's health positive absorption, you want to see one-third new. You want to see two to four 10,000 to 15,000-square-foot tenants.

Can you provide a bit more color on what you're seeing in the market that backs up your thoughts for '25, besides the fact that you have less roll? Thank you.

So we -- less roll makes a big difference, for sure. But we're just getting a lot of activity, as Stuart has said. And this is one of the questions he was going to answer. But we, again, saw last quarter a great return of the over-10,000-square-foot tenants and back to like at or above our norm, which has been what's been missing in terms of us achieving really the big goal, which is to get something in the 800,000s and to be one-third new.

And so we were really having trouble getting there with the one-third new because we need some of these larger guys that come back, and they've come back. And then add on to that, that as this year has launched out, I mean, we're just seeing -- we're just feeling much better about everything that's going on in terms of the actual lease activity, the showings, and all the rest of it. I mean, that's what caused me to write that in our prepared remarks.

Thank you. And I guess, could you talk a little bit more about that new demand, in particular, the larger tenants, what type of industries they are coming from or they're in, I should say? Thank you.

Yeah. We saw demand across the board. It wasn't concentrated in any particular industry. So we saw real estate -- we saw across-the-board kind of demand in Q4 for those larger tenants.

Thank you.

Michael Griffin, Citi.

Great, thanks. Maybe to expand a little bit on Jeff's question surrounding the large-tenant demand. I mean, in your summation, what has maybe changed in that tenant's mindset that makes them more confident to go out and sign leases?

Is it improved business confidence? Is it an updated outlook on the economy? I know that work from home was never really an issue with your tenant base. But maybe just kind of the why you're seeing those sort of tenants come back to the market.

I might -- I didn't know why they weren't back last year. I didn't really -- I know that many large tenants were taking sort of a posture of prepare to be in a like extreme recession or that's what's coming or whatever. And I'm sure that attitude has changed, and that's played some role.

But I got to tell you, I also watched our leasing group, our operating platform, and I will add our kind of development group, which we kind of maintained and actually oddly grew during this time. And a lot of people are kind of falling away from some of those things. And they've adjusted strategies. They've been -- figured out how to be and where to be aggressive in this market and how to get attention.

And I don't know whether it's us, it's everybody, it's them changing their attitude. But we are -- some of it is just -- I can see it in our platform. Because I saw when we were bidding against that other deal, what was going on and other people that were trying to come in the market because they might have thought that would be a good deal.

And I could see that we're now substantially more qualified to handle and take advantage of these opportunities, both from a leasing perspective in terms of even the -- our platforms even more robust now and from the perspective of having not only maintained but sort of built up our development platform.

I mean, this is rare. We're now taking on multiple development deals. And I know on that deal we just bid on, I don't think anyone was even realizing there was another development opportunity there. So I'm feeling really good about -- I mean, I feel great about it, not even just really good, about our growth stuff. And I wrote that in my prepared remarks, like we have a lot of growth things going on now.

No, that's helpful color. I can definitely gauge the excitement in your voice there. And then just maybe one follow-up on the 10900 Wilshire acquisition. Do you envision this as a big-tenant building? Would it be more of your bread-and-butter kind of tenants?

And anything you can comment on the upcoming rent roll or lease maturities, and whether or not there's a mark-to-market opportunity in the building?

That building uniquely has presented us with more than one extremely good option. And we need to -- before we talk more about it, we need to decide what direction we're going in. So we need to spend a little more time on that.

I feel that that building provides a lot of opportunity. But we've got to decide in which -- what direction we're going to go in, and we need to get that done in the next -- relatively soon. So I'm going to let that sit for a while.

Sounds good. Appreciate it. That's it for me.

Thanks.

Rich Anderson, Wedbush.

Thanks. Good morning. So a quarter or two ago, Jordan, you had mentioned on Warner Center, I hope it's not a single tenant. And now it's definitely not single tenant, it sounds like, based on the money you're spending.

What have you guys done to sort of gauge in the market to get you to the point where you're so committed to multi-tenant execution that you're spending that kind of money on it? Was there some work done on the ground to say, okay, we got some real opportunity here, but it's not going to be 450,000 square feet? Just curious what the process was.

So I think you're talking about Studio Plaza which is --

Excuse me (inaudible).

The tenant was -- the old tenant for Warner Bros.

You know what I mean.

So it would have been -- look, I'm not going to say just like all good developers and leasing guys. I mean, if a 450 -- if we were to have the problem of we're turning down a 450,000-foot tenant, I guess, maybe I don't know that we would have turned that down. I've never seen us do that.

But -- so I'm not sure that we had really the options the way you're describing it. I will say that we like that market a lot. Our comfort level is not with large tenants. We like the distributed risk of multi-tenant buildings. It's a great market. We did benefit from it being a single-tenant building or -- well, we had a decade in there when it wasn't. But in general, two out of the three decades, it was a single-tenant building.

And I'm pleased now to be -- obviously, nobody likes having their building vacate. But I'm pleased that we have an opportunity now to extremely derisk that building and lease it up. And like I said, we like what we're seeing on the lease-up. I mean, we like what's going on. So that's good.

Do you think you'll have some real concrete stuff to talk about in the quarter that quickly from a leasing perspective?

Well, I'm really telling you we're signing leases. But if you're saying to me, are we going to start like tracking it that way? No. But we're not going to take one building and start tracking it. But if you're asking me in terms of like having the building ready for those tenants to move in, we have actually given a bunch of info on that. And that work is going on.

I think we might even have some inventory and stuff on our website on that building. And you could see what it's going to look like going forward as has been seen by the people who we're leasing to and our prospects.

Okay. And then second question. Interest expense is projected to be up 15%-some-odd year over year. A lot of clear rationale behind that, swap expirations and so on.

I'm wondering if the environment is causing you to sort of change way in your approach to the balance sheet at any level? You're kind of exposed to quite a bit of variable rate debt, and that increases as time passes in 2025. Anything you can share with how you might manage this situation in the current macro environment?

So well, we've never been in love of variable rate debt. It's just that we -- you got to go variable when a loan is coming up, right? So we normally borrow seven years and fix it for five, and we expect to refinance. And because of the way the market has been, we've been stuck with stuff that's kind of during those two years has gone to floating. It's not that that's been a strategy.

And as you can see from the deals that we did, which Kevin described in his prepared remarks, those deals are fixed, right? They're both in the 6s. So I mean, we're willing to live with that. And as stuff comes up and we have the opportunity to make those changes with longer-term loan and those opportunities, and we're probably going to swap it or do fixed rate deals.

Okay, good enough. Thanks very much.

All right.

Anthony Paolone, JPMorgan.

Thanks. Maybe we'll stay on debt for a minute. If we look out to '26, I think you have about $1.3 billion coming due.

Any likelihood of addressing some of that earlier than next year, and is any of that in guidance? And also just anything we should be looking out for as we look out to that, whether it's a big increase in spreads or where some of that debt might reside at the asset level that we need to consider?

Well, we just announced two deals, so you have some comps on it, right? In terms of working on them, we definitely want to deal with them this year and are working on that.

But because of the way the market is, it's equally uncomfortable for us as everybody that we're having to walk down the line so far and deal with these loans when they're so much closer to the maturity. But the '26 debt we, at this time, are very focused on dealing with now and making deals and extending out. And we're -- for sure, we're definitely working on that.

So there's some of that in the interest rate guidance, I assume?

No, no, because we don't include in our guidance deals that aren't done. So when those deals are done, then that will go in there. But until they're done, we don't include like prospective or potential deals in the guidance.

Got it. Okay. And then just a follow-up. On 10900, you talked about how much you like the deal, and it's pretty unique. So should we think about that as a one-off? Or are you seeing capital markets thaw out there and deal pipeline starting to build more broadly?

Do you want to answer?

This is Kevin, Anthony. So we did see a number of larger tenant format buildings that traded last year. But that's not what we do. We're looking for multi-tenant assets that we can apply our operating platform to.

And so this was a great opportunity. It was a perfect fit. And I'm optimistic that there's going to be more of that in our markets over the coming year.

Okay, thanks.

John Kim, BMO Capital Markets.

Thank you. I could see why you wanted to disclose the 10% cap rate on 10900. But I wanted to ask about that. So on the office side, I think, Jordan, you mentioned that's the going-in cap rate, but you do have some options. So I was wondering if there was some maturities and maybe some upside to that 10% if you redevelop it?

And then on the multifamily, developing at a 10% yield, is that an affordable housing multifamily development, and that's the reason why you can get that attractive yield? I just wanted some more details, if you can provide it.

So I said above 10%. I didn't say 10%, just to be clear, in both instances. And the multifamily is not low income. It's [that] market.

So how are you able to get that? I mean, it's hard to develop above 6%, I think, in multifamily?

It's a function of everything surrounding the deal. It's rents in the area. It's a cost of build to building. It's price we paid and how that option was included in the deal. I said it on an earlier -- Kevin's remind me by writing on a piece of paper that it does not include -- there's no allocation to land. Because I'm telling you right now, we bought it with no building, and I just gave you the cap rate.

So there's no -- when I -- and you're assuming that we're building it for a 10% cap rate. But anyways, in what I told you is for the entire project. It's not just for the apartment building, not to say that it won't be a high cap rate.

But it's -- what I described earlier about kind of people's recognition of that opportunity with respect to this deal, I'm pretty sure we're the only ones that saw it because we have such a kind of robust development platform to begin with. And we know what's going on here, obviously.

And you know there's been some changes to state law that we're very familiar with. And I've been pointing out to you guys that there's locations along Wilshire that we own today and that now like it's a new world. Now you can by-right, build resi.

And with all that knowledge here and our development group and being able to understand cost and the fact that, literally -- I don't know -- blocks away in Brentwood, we just built a high rise. We just have a lot of information on this front. And so we were able to recognize the opportunity and be able to also add that in.

And there's -- it's very easy to do. And we paid a price that I think when we're bidding against everybody just contemplated that it was the building that's standing there today.

Congrats, it sounds great. Just wanted to follow up on your guidance. What is contemplated as far as capitalized interest, and how did capitalize interest end up last year? I think you were in an $8 million run rate in 2024.

Yeah. It's Peter. I mean, we don't give guidance specifically on capitalized interest. But you can assume that as we expand development, there will be a bit more of it. And yeah, I think that's all I have to say on that.

Can you remind us if Studio Plaza has secured that?

It does not.

Great, thank you.

Dylan Burzinski, Green Street.

Good afternoon, guys. Thanks for taking the question. Jordan, I just wanted to go back to your previous comment about having existing density within the operating portfolio today. I know you guys kind of alluded to it in the past, but can you kind of describe just how big of an opportunity set that is?

I told people that in the past?

You said thousands of units.

Okay. It's thousands of units.

And I mean, is there any sense for a lot of these to be near-term endeavors? Or are these sort of longer term in nature in terms of being able to actually get at that and start development process?

So I've been asked in the past like how rapidly are we going, because there was changes in state law and whatnot, how rapidly are we going to move in and build and continue building units because we're primary owner along Wilshire, where most of this is impacted by these changes.

And I had said in the past, I think our goal would be to do a deal in Hawaii and a deal in LA -- have two deals going at a time at any particular time. But the deals take a few years, and then you finish them and then you go to the next thing.

And you would say, well, wait a minute, you're already in like more than one deal here because we're doing Barrington complete redo. And now we also just took on another one. And as I said, I mean, I think it's a function of how strong our development group has become.

And maybe it is the case that we can take out more than one. But I'm not anxious to take on many -- more than two. We have two now, and it just takes a lot. We have three now. Do we have three now? Yeah. Okay. We have three now. Stuart is putting fingers of three. So yeah, we have a lot going on.

Great. And one more, if I may. You mentioned tenant activity over 10,000 square feet getting back to sort of pre-pandemic levels. Can you kind of just talk about what you guys think is sort of driving this renewed optimism amongst this cohort of tenants?

Well, as I -- so I think there's two kind of big things going on. Number one is, I do believe, larger tenants are doing a bit of an about-face. And they're no longer in a completely guarded position vis-a-vis like a dramatic recession that's going to come and beat the place up. And I think that shift is definitely making a difference.

But I'm going to tell you, I also see a difference in our penetration in the market and our teasing out tenants and getting access to tenants, and getting these that deals made. And it's hard for me to -- I don't know how to separate the two. But I can tell you, we got a lot more big tenant deals going on, but we've got a lot of people focused on it.

I mean, if you ask any -- we have 800 people. And if you go to any of them and go, what's going on at Douglas Emmett, they're going to go leasing, leasing, leasing. I mean, that's what's been going on. So if you say that long enough and hard enough and focused enough and strategic enough, you're going to do leasing. So -- and that's what's happening.

Great. Appreciate your comments.

Upal Rana, KeyBanc Capital Markets.

Great. Thanks for taking my question. The $335 million loan that matures in March and that you're currently in the process of negotiating an amendment and an extension on, what are the conversations have been there like? And what's the probability of the amendment finalizing by the due date?

I mean, I don't think I'm prepared to discuss that, anything that's going on there right now. I mean, obviously, you've already outlined what's going on, and that's probably the amount we're willing to discuss. So we don't like to discuss deals certainly in process. And we really actually announce them after they're gone and closed.

Okay, sure. And then my other question would be on the 10900 acquisition. You have about 40,000 square feet expiring this summer with some of it being sublet as well. What's your confidence that those tenants may resign? And have you had any preliminary conversations with those tenants prior to purchasing the asset, especially with your plans to upgrade the existing tower?

Well, I mean, we're in the market. We're obviously familiar with all the tenants. So I don't know that I can -- I mean, we're not going to talk about individual tenants. We kind of gave you -- we have a couple of paths we can follow, and we have to decide what path we're going to follow.

I'm not -- I don't want to give guidance on a building like for midterm. We kind of gave you where we are today and where we're confident we're headed. It has a lot going on. It has redevelopment. It has residential. It has a lot going on.

So we need to just play that out and make some better decisions about it or make some decisions about it. I'm sure it will be good.

Okay, thank you.

Jamie Feldman, Wells Fargo.

Great. Thanks for taking the question. Just thinking big picture about the impact of the wildfires. If you fast forward a couple of years here, what do you think is going to be most different about Los Angeles going forward? And then based on the conversations going on with rebuilding and planning, what are you most optimistic about? And what causes you the most concern about things moving forward?

So this morning, there is an article in New York Times about the Palisades. And it made a lot of projections about where the Palisades is headed in terms of the market, in terms of the people that are going to be there, and how the Palisades is going to change and the focus it's getting.

I read it and I thought that that outcome was -- that was probably a good a guess as anything. Because there's a lot of history around other communities that have been impacted by fire, which is devastating. I didn't spend a lot of time at the beginning of this thing. But you can't imagine how much time -- personally, the people here at Douglas Emmett, I personally can -- Stuart, Kevin -- Peter's not even back in his house.

I mean, what's going on now is I would have never imagined. But if you want to like very far forward and say like, where does this all go in the end, you look at what has happened in Malibu and other markets where fire has come through. You already know that the city is dedicated to making a bunch of extremely positive changes to that area in terms of where -- supportive of development, allowing development to be more rapid.

I know a lot of people are talking about [lot coming]. I know very few people are just saying I'm out of here. Actually, almost to a T people are either like how fast can I rebuild and then -- and they're also in the market for their neighbor's lot.

So I see that happening. And I think to myself, this has been horrible destruction. We're going to go through a rough few years, but it does give me optimism about where the Palisades is headed. And so we'll see.

Okay. Thank you for that. I know it's a difficult topic. And then I guess, just thinking about commercial real estate, we've heard about some high school leases in Santa Monica. Anything you think changes in terms of the demand profile for the different submarkets you're in or other submarkets that might be more interesting for you guys going forward as -- with the rebuild and changes?

Well, I know we're talking to some schools, too. I know there are some schools that have like kind of look for space because, of course, they want to stay open, right? I mean, -- and they have all the kids and that whole thing.

And I know that other schools that are -- were not damaged around Santa Monica -- I'm on the Board of one school in Culver City. I don't want to mention them. But I know they're now accommodating other schools' students and programs to try and help out. So I know that is all going on.

Putting that aside, I have to say again, I'm -- the actual Pacific Palisades area, they had one or two medical office buildings, medical with a little bit of a normal office. There was some other normal office. There are the schools, and there are businesses. But I'm not sure that that transplant in the size of our market is going to be the thing that like makes a big difference.

And as I said, the tide of just -- the kind of tide of leasing, I think, would overwhelm any of that. I know that I was asked earlier, I said like a lot of people just have been displaced. And they're renting houses that might not be as big as where they were before.

Work from home, to the small degree that it existed, might be much more difficult now. People want come in the office. Maybe they're renting a small place. They don't have an office or something until they build their house back.

I don't even think work from home is impacting us that much. So I'm not even -- I can't even say that I think that will make a big difference to leasing and especially against where I think the tide of leasing is going.

Okay. I would assume Santa Monica (multiple speakers)

(multiple speakers)

No, that's super helpful. I mean, I would assume Santa Monica would get the benefit from reconstruction-type architects, engineers. I mean, is that the closest?

Well, I think Santa Monica and Brentwood and Westwood, all these areas here, I think you will -- it's way too early for that to happen.

But if you're saying to me there's a lot of capital that's about to come into this place and when more capital comes in, that means they need more office space and there's going to be construction and activity here in a big way for quite a few years, yeah. I mean, that will incrementally, I'm sure, make a difference. But the difference isn't that a chance to get made yet. So we aren't seeing it yet.

Okay, all right. Thank you, and we send our best to your entire team.

Thanks.

Nick Yulico, Scotiabank.

Thanks. Just going back to 10900 Wilshire, not to beat a dead horse on this, but it looks to us that you bought the leasehold in that asset. You don't own the ground. So is that correct? And is that also why the cap rate yield expectation you're citing is higher than what some would expect?

No. We bought it in fee.

Okay, thank you.

We own the ground and the building. We own both. We own the whole thing.

Thank you.

All right.

This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks.

Okay. Well, thank you for joining us. I know this was a complicated release. And I appreciate that you guys spent the time to look it over and had a lot of good questions. And we will be speaking with you again in a quarter. Goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.