UDR Inc (UDR) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the UDR third quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Tuesday, November 4th, 2008. I would now like to turn the conversation over to Mr. Larry Thede, Vice President of Investor Relations. Please go ahead.

Thank you, and thanks to all of you for joining us for our third quarter financial results conference call. Our third quarter press release and our supplemental disclosure package were distributed yesterday and posted to our website. In the supplement, we have reconciled all of non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. We will begin the call with management comments and then open the call to your questions. I'd like to note that statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met.

A discussion of risks and risk factors are detailed in yesterday's press release, and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Before I turn the call over to Tom, let me mention that we are hosting a Los Angeles property tour on November 18, the day prior to the NAREIT conference. You can find the sign up form on the Investor Relations tab of our website, and please call me if you have questions. And I'll now turn the call over to our President and CEO, Tom Toomey.

Thank you, Larry, and thank you again for joining us today to discuss our third quarter results and our tactics during these volatile times. Joining me on the call is Mark Wallis, Warren Troupe, David Messenger and Jerry Davis. Today is a very important day as we finally arrive at the conclusion of the election and begin to answer the question of what policies are going to be implemented over the next four years. And for those who are a little less intense and cannot bear the media coverage of the election tonight, the movie Get Smart comes out on DVD. Overall, the third quarter was a good quarter.

Our operations performed on plan in spite of a deteriorating fundamentals. We raised over 300 million in equity and debt, and recently renegotiated 2010 maturing credit facility extending the maturity of the 2018 increasing the size the at a blended rate of 4.8%. This proves that even in a volatile market, capital is available for well-capitalized companies who can move quickly. We completed the deployment of our exchange fund with the acquisition of five communities for 286 million. We also completed over 1,000 homes, or nearly $200 million in development and redevelopment. And lastly, we finalized the special dividend at 132 million to be paid in January 2009. On the subject of the economy, it is very easy to be caught up in the minute by minute data. But I might suggest a couple of key points. Yes, the capital markets are volatile; but with unprecedented action taken by the government and the potential for more to come on so many fronts, we have to keep in mind that these actions will take sometime to change the course of our economy. But they will change the course. The recession, they all come and they all pass.

No segment of the economy will escape; and over the last 60 years, we have endured ten recessions and they have lasted anywhere from eight to 16 months each. When our management team backs up and looks at today's economic environment, we realize we cannot predict what will happen, but we can prepare. And while it might be easy to sit back and let the recession and capital markets run their course, we have been adjusting our tactics to ensure we manage the capital markets and recessions to prepare UDR to take advantage of the inevitable opportunities. Let me turn the call over to Jerry Davis and the rest of the team to discuss specific areas.

Thanks, Tom. Good afternoon, everyone. While or third quarter operating results of 3.4% revenue growth and 6.6% expense growth were not as strong as previous quarters, they are what we expected and what we previously communicated they would be. Revenues continue to moderate in our market as economies worsens, and expenses were up quite a bit this quarter compared to very low comparisons in third quarter of 2007. That being said, if you look at year to date numbers, our revenue has increased 4.1%, expenses are up 1.7%, and NOI has grown by 5.3%. I would like to point out that we do see further deceleration in revenue growth in the fourth quarter, and we once again will be challenged in expense growth due to very low comparisons in the fourth quarter of 2007. These are related to low insurance expense, as well as favorable real estate tax adjustments we took in the fourth quarter of 2007.

When you look at our revenue growth in the third quarter of 3.4%, it is important to realize that Florida, which makes up 17% of our same store NOI, experienced a 1.5% revenue decline. If you throw out Florida's results, like I'm sure Al Gore wishes he could have done eight years ago, our revenue growth was 4.7%. Our strongest markets continue to be in Northern California, where job growth has been 1.1% to date, and new supply has been limited. While we have felt a softening in Southern California, we continue to feel that our superior locations at the right price point have enabled to us continue to outperform the market in Orange County. Our coastal locations west of the 405 Freeway continue to be where people want to live in Orange County. I'd like to remind everyone that the average Orange County occupancies have historically not fallen below 93%. Prior to moving to Denver a year ago, I ran this portfolio for UDR. I can tell from you personal experience that besides superior locations at the right price point and a very seasoned operating team running those properties, we have continued to invest in these properties both on their exteriors and interiors. With the average property in Orange County being over 30 years old -- and that's not just us, that's the entire inventory of the county -- and most of the product being privately owned, we are confident that our properties are in better condition than our competition and we will continue to outperform the market as we have over the past four years. Finally, Florida continues to suffer from an over supply of housing, both apartments as well as single-family.

While we have begun to see some encouraging signs recently in Tampa, we are concerned about future job losses that could hit all of the Florida markets. Occupancy or same store communities for the third quarter, was 95.1%. That's ten basis points higher than last year. 13 of our 22 markets were the same or higher than last year. Also on our occupancy report that we produce weekly, last week our same store communities were still at 95.1% physically occupied, which is flat with the same week last year. Now to the expense side. We reported growth this quarter of 6.6%. This increase was primarily caused by an increase in insurance expense of 59%. Because we self insure up to a cap, we can experience quarterly swings in our insurance experience based on our loss experience. Last year in the third quarter, we had very low losses, while this quarter we had several fires as well as some claims from Hurricane Fay in Florida. I would like to point out that on a year to date basis our insurance expense is actually down 27%.

Insurance makes up only 7% of our total expenses. During the quarter, the remaining expense categories were up a combined 3.8%. Marketing costs continues to do decline as we see more and more traffic and ultimately leasing and movements coming from Internet sources. In September, we saw 55% of our move-ins originate through the Internet. This is up from 43% last September. Our website, udr.com, is on pace to have 1.6 million unique visitors this year. This is roughly double what it was in 2007. We have continued to work hard to make it easier for our customers to find us and do business with us, both through udr.com, as well as our mobile sites, through social networking sites such as MySpace, and more recently on our iPhone enhanced website. Now looking to turnover. Our resident turnover is flat for both the year and the quarter. For the quarter, it was 67.2%. And year to date, it stand at 60.2%.

Also, move outs to home purchases have continued to go down. In the third quarter, it was 13.1%. That compares to 15.5% in last year's third quarter. The average rent of a UDR apartment is roughly 59% of the mortgage payment on an average entry level home. Now looking to the future, we know we are facing a recession. That being said, I'd like to point out a few things. First, our properties are well located in markets where the difference -- the price difference between renting and owning remains wide. Secondly, we have a very experienced operating team running our properties. Each of our area Vice Presidents has well over 20 years of experience. They have operated through challenging economic cycles and they know how to adjust their strategies.

Third, we have focused much of our technology efforts on the front end of our business. We have the best website in the industry, and we are constantly working to find new ways to drive more traffic to udr.com. Finally, we have and will continue to invest in our real estate. Over the next year, we expect to see private owners who control over 75% of the national apartment supply starve their properties of capital. We believe this will enable us to better hold on to our existing residents, as well as attract new customers. In closing, I'd like to thank my fellow associates for all of their dedication to making UDR a top performer in the REIT group. Now I would like to turn the call over to Mark.

Thanks, Gary. I'm going to cover our strategy of strengthening the portfolio, which involves acquisitions, dispositions, development and redevelopment. If you have the earnings supplement in front of you, attachments eight through ten cover the data I'm going to be talking about. First, I'll discuss the acquisitions that were closed in the third quarter. We successfully completed our acquisitions that we had targeted to deploy the (inaudible) exchange funds that were generated from the $1.7 billion sale that was closed this past month. We added homes in San Jose, Mercer Island in Austin -- these are markets that are still showing decent rent growth and have traditionally showed long-term job growth with their employment based on strong tech companies and state government. We also closed on presale assets in Phoenix and Tampa. These were contracted for over two years ago. These development presales were structured in such a way that we were able to utilize them in a temporary exchange, but without having to spend new additional funds in that exchange.

In addition, you'll note we were able to purchase a fully entitled development site near downtown Los Angeles. This is a future development. We're currently making tweak to the unit designs and will commence construction only upon successfully arranging construction financing. Second, I want to speak to our development pipeline. Please note that we've reorganized attachments eight through eleven in order to give a better and hopefully clearer picture of the development activity. Mark Caldwell, who heads our development in Dallas, and I have experienced several downturns in the market, and those downturns have made a significant impact on development including the severe S&L banking crisis that occurred in the late 80s and early 90s. While there are differences in that downturn compared to this one, that experience taught us to keep your development pipeline as scalable as possible. What does that mean? First, have centralized control of your development activities. Don't build up a big overhead in decentralized markets.

This makes it very easy to stop building in a particular market and takes away the temptation to keep building in a market to cover overhead in that city and keep the office open. Our strategy at UDR has been to keep our development activities concentrated in our Dallas office. And really, with today's technology and construction management software, we can very effectively manage development from our central Dallas location. This gives us more flexibility to right size our development efforts. Second, warehouse as much of your land inventory as possible. You'll note on attachment ten that we have 139.6 million invested in sites that can be converted to 1.1 billion of future development when the lending markets are available and the market turns up. In the interim, we clip the coupons on the existing lease revenue on these sites.

For example, I will just point out some at Mission Bay is a 323 home community, it's well located in San Diego, has views of the bay; but it's an old structure that eventually will be torn down and replaced with a new lead certified building that will contain 504 homes. Currently, it's yielding us over 9% on our investment. We will harvest the value from the increased density when the timing is right, but we are under no pressure to start today. Third, even though the long-term fundamentals look good, right size your portfolio to the construction money that is available in the market. Our active pipeline today amounts to $342 million and will require only $20 million of equity dollars funded by UDR. If we obtain financing for the three deals listed on attachment ten of the development subject to financing, that will increase the active pipeline to 610 million with only an additional 8 million of equity funding required from UDR. We believe that a 400 to $600 million pipeline is financed and delivering primarily into late 2010, and 2011 is properly sized for the market and our enterprise.

This pipeline could have been much larger, but we have chosen to scale back to this level and we'll be able to easily scale back up as the markets recover. Fourth, don't become myopic and assume a recession will last forever. Development is a long-term strategy and requires looking beyond the current one to two-year window. The year 2011 is stacking up to be one of the -- looks to be one of the best years in recent history for the multi-family industry, and here's the reasons why I think that. First, supply is relatively in check today and multi-family construction starts are plummeting. It looks like annual levels that should go beyond 200,000 homes annually next year, and then that's really a historic low. Second, demographics are in our favor. Our major markets still have population growth, and the [echo bloomer] ranks are swelling in 2010 and 2011.

Third, jobs which are now in decline but with the stimulus that has been put into the worldwide economy, most expect a dramatic job growth recovery beginning in 2010 and possibly in full swing by 2011. So supply not meeting demand, favorable demographics, potential dramatic job growth, 2011 should be a very good year in which we will be delivering new competitive multi-family developments. Let me just wrap up my portion by saying that our portfolio is stronger with the successful $1.7 billion sale and the completion of our 1031 acquisitions that added new product in core market locations. We will continue to add new product through an appropriately sized and financed development and redevelopment program. Now I'll turn the call over to Dave.

Thanks, Mark. During the third quarter, we took a number of practical steps to strengthen our balance sheet. Our primary objective, given the current market conditions, is to ensure that we have sufficient capital to meet our obligations through 2010 and beyond. In addition, we want to maintain sufficient flexibility to take advantage of market opportunities. Let me summarize our recent activities. In July, we repurchased 400,000 shares of our common stock as part of our previously announced stock repurchase program. As we move further into the quarter, the market and our stock price experienced unprecedented level of volatility. We have taken advantage of that volatility to capitalize on certain market opportunities.

For example, in August and September, we repurchased 27 million of our medium term notes for a gain of $2.5 million. And we also repurchased 969,000 shares of our Series G preferred stock at a yield of 8.1% at a 16% discount to par. In October, we issued 8 million shares of common stock at a price of 24 and a quarter per share, at almost 27% premium to yesterday's close, and we raised $194 million. On November 28, we are scheduled to close on an expanded Fannie Mae credit facility. This facility will replace our current $139 million facility that matures in 2010. The new facility will have an expanded commitment of up to 300 million and a maturity of 2018. Warren will provide some additional details on this facility momentarily. Next, our debt maturity schedule and how we are addressing it today. With the closing of the Fannie Mae facility, our current cash balance and receivable proceeds from the $200 million note in mid 2009, we expect to be able to satisfy all of our debt maturities in 2009 without having to draw on our $600 million revolver. During 2010, we have $550 million coming due.

With our new Fannie Mae facility, we've move 139 million from 2010 to 2018. Now we have 411 million due in 2010. Based on (inaudible) will be further reduced to 360 million if certain extensions are elected. With 360 million due in 2010, I need to put that number in some perspective. During the last 45 days and the next 30, our team will have raised in excess of $600 million in capital in what many consider to be the toughest capital markets we've seen in decades. That being said, we have an eighteen-month start on satisfying the 2010 maturities. We are executing extensions where available and reviewing current market disparities. We continue to monitor the markets for opportunistic issuing new debt; and if those opportunities do not arise, we can fully fund the 2010 maturities on our revolver. We have demonstrated an ability to execute these transactions in spite difficult market.

To date this year, we've closed on sector's largest sales transaction and completed the sector's largest equity offering. As market volatility continues, we intend to continue to execute and continue to take advantage of these market disruptions. Now let me turn to guidance. As a result of these turbulent times, we've had to recalibrate our earnings expectations for the balance of the year. As you know, we do not publish quarterly guidance, as we continue to operate the Company with a long-term view knowing that from time to time that will impact short-term results. Since our last guidance update, the world has changed significantly. Today's annual guidance change is based on three key factors. One, slower than expected revenue growth at the end of third quarter and starter of the fourth and expense growth at the hight end of the range that accounts for approximately $0.02. Seconds, we have lower than expected contributions from our JV partners and slower than planned lease ups, which also accounts for $0.02. And third, dilution from our recent equity offering and the impact of lower returns on cash holdings due to our very conservative approach accounts for the final $0.02.

Accordingly, we have adjusted our full year FFO guidance to a range of $1.45 to $1.47 per diluted share. We believe these short term impacts to FFO will position us for success in this turbulent environment and support value creation over the long-term. Now I will turn the call over to Warren.

Thanks, Dave. On October 20th, we signed a letter of commitment for a new $300 million facility with Fannie Mae which will mature in 2018. The new facility is being initially collateralized with six multi-family assets that will provide for initial loan advance with a commitment of approximately 224 million. UDR has spread locked 154.8 million of the committment at a blended rate of 4.3%. And this also raise locked 70 million of commitment at a rate of 5.85% for an over blended rate of 4.8%. Proceeds from the loan will be used to pay off an existing $139 million Fannie Mae facility that matures in April 2010, and the remaining proceeds will be retained to fund future capital needs of the Company. We expect to close the new Fannie Mae facility by November 28, 2008. Secondly, let me address the special dividend.

As Tom said, we previously announced that it resulted in capital gains arising from property dispositions in 2008 that we expect to declare a special dividend. The amount of the special dividend is expected to be $132 million, and the Company expects to pay the special dividend in conjunction with the Company's record dividend for the quarter ended December 31, 2008. The special dividend will be payable in cash or a combination of shares of common stock and cash. We expect to formally declare the special dividend and set the record date later this month, and it is anticipated that a special dividend and the record dividend for the quarter ended December 31 will both be paid on January 29. Thank you.

With that, operator, we will open up the call to questions. Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS). Our first question comes from the line of Michael Bilerman with Citigroup. Please go ahead.

Hi, it's David [Toti] here with Michael, actually. A couple of questions. Can you talk a little bit about your revenue management systems, and are you seeing dramatic decreases in rent levels as a form of concession relative to most of your markets?

Yes, this is Jerry. We use the old star and we are seeing reductions in rent levels, especially on new leases. What we are really seeing is getting probably 2 to 3% increases on renewals, but pretty much probably going backwards 1% on a new lease coming in the door. That varies a little market to market. You know, it's a little stronger in the Pacific Northwest, as well as northern California. And in Florida, we are typically having to give away a little bit more than that. We are pretty fortunate typically in Florida if we renew at flat.

Okay, and what's your sort of tolerance level before you feel comfortable giving up occupancy?

Before we -- ?

I guess the question is how negative could you see that going before you would give up occupancy as that ratio balances?

I haven't really thought of that. We've been able to really manage the portfolio pretty consistently throughout the year in the 94.5 to 95.5 range to date. You know, year to date we are at 94.8. There's a few markets it's tough for us to get to 95, especially in some of the Florida markets. But I mean, for the most part we feel like an occupied unit today is better than getting the rent growth.

David, this is Tom. A couple of things I might add. I mean in this cycle, and all other recessions that we've approached in the past, we've seen a lot of development occur. And in fact, the trigger has been an over supply. There is very little development going on. What is is not probably going to be finished that quickly. So we don't have that big threat of over supply at us, and so we think with the technology advances on being able to drive more traffic and literally buy traffic, if you will, we'll be able to sustain our occupancy levels at pretty good levels through this recession. Pricing, what Jerry has pointed out, is that customers are becoming very sensitive to it and we'll have to fight it floor plan by floor plan, market by market.

Great. Then my second question is with regard to your development pipeline. Can you talk a little bit about whether concessions in your lease-up properties are coming in at pro forma levels, if you are seeing any margin compression given where rents are in those markets?

Well, this is Mark. You know, in our Texas developments, we're at or above our pro formas. Anecdotally, our projects in Houston, our target last month for leases were 30. We hit 36, so obviously we've got some power there. I will say that in Florida, that's where with see some softness in concessions on the presale. We have one that's really not turned units yet, one that has in Orlando. We are about 90% leased, but the concessions have been over our initial pro forma.

What are they getting, six weeks on 12?

Yes, six weeks on 12. But we are at the top of the market as far as our rents. And from an overall performance standpoint, it's doing well. We have a small presale -- it's only 200 homes in Phoenix -- and we are seeing similar kind of activity there although the traffic is actually better than we would have expected given the market in the last six months.

Mark, why don't you -- attachment eight -- go down some of the occupancies or percentage leased. These were as of September. Are here any material changes between there and where you stand in November? While you are pulling that up?

Yes, if you look at the Marina Del Ray, for example, one of the lower ones -- 37.9 -- we are now at about 50% there this month. The Laurel Wood deal in Houston is the one I mentioned that had the very strong leasing month, that's now at over 62%. The deal in Phoenix, we've gotten to 50% there at the end of the month. So you can see those actually this last month had fairly decent leasing months and they were hitting their target activity. So that should give you maybe a flavor for how that's going.

Great, I appreciate the color. And then my last question -- and forgive me if I missed this -- I hopped on a little bit late -- did you talk about your appetite for additional debt repurchasing going forward?

I think the appetite is we continue to look at liquidity on some of these bonds holders and other forms of securities. We are getting daily calls and solicitations from them about buying our debts back at some financial discounts from where they are trading today. And a deal like that we will continue to grow between now and the end of the year. We think that, as you can see, Fannie and Freddie are still open for business, and if we can borrow money under five from them and we can go back and by debt that is of greater yield than the five, then that's not a bad use of that credit facility from Fannie. It's one option we are looking at, but I would expect us to continue to look at that market and find it -- where it's inefficient for us to be jumping in there and creating some value. And last time I checked in life, if I can buy back my debt at $0.70 on the dollar, I'm doing pretty good.

Great. Thank you.

Thank you. Our next question comes from the line of David Bragg with Merrill Lynch.

Yes, good morning to you. Just wanted to ask a few more questions on development; and specifically, Tom, wanted to get your thoughts about the relationship between development years and cap rates and how you see that changing going forward? I remember on last quarter's call you talked about spread of 100 to 150 basis points, and obviously we are in a different world today. So it would be great to get your update on how that relationship is changed on both ends and what you can see happening over the next couple of years here.

Fair enough. You want to start or?

David, I'll start -- this is Mark, and Tom will chime in here. You know, we've been at this a long time as far as the development industry, and I think that basis point spread that you talked about -- 125 to 150 -- it really is still holding in there in our opinion. And so how could that be possible given all that's going on? There's always probably submarket exceptions somewhere where there's -- somebody has over built the submarket. But as Tom talked about, this downturn is probably different from the big one we had I referred to in 1990, because that was not only bank driven -- even though the bank situation probably was smaller -- it was supply driven. And a lot of deals were tax syndication deals, that's how the multi-family industry was financed. So today, supply is more in check and I think that's holding that spread. And the cap rates going in yields may change if the market changes, but I don't see the spread changing dramatically unless we are in a particular market that's been dramatically over built or maybe just has a huge overhang of some nature happening there -- you know, a big vacancy overhang. But we don't have anything to point to speak to a fundamental change there today. Tom?

No, I think Mark has kind of summarized it correctly, so.

Well, just to follow up on that, if we think about acquisition cap rates clearly have moved up over the last quarter since we last talked about that, and it's debatable to what degree. But then you think about pencilling out rent rate potential declines, are you seeing a decline in replacement cost?

This is Mark. I'll speak to a couple of those points. One, what we've experienced up until the last six months on construction costs was dramatic increases. (Inaudible) cost moving 30% up pro formas that were done only nine months ago; that's correcting itself in a dramatic way. I think construction costs are getting back in line. But they are certainly not moving where replacement cost is below, quote, what you can buy for. I mean, I think replacement cost is still a good measure. But when we look at things, that's how we look at both acquisitions and development. And then there is a presumption that, quote, cap rates have changed. And in visiting this this week with Matt Aiken who heads up our acquisition distribution activities in the market every day, I said, "Matt, where are we today in your view if you were asked that question?" He said, " You know, the bid ask is pretty wide".

And now my view might be a little more focused on newer assets. We are not talking about C assets or secondary markets -- that is another subject, even though there's not as unique trends going on there. But in those markets, may be actually still available to private buyers, and as Matt said, we still sea some transactions happening there. But in the upper end of the market -- I'm looking at a schedule -- we track deals that, even though we are not in the market to buy today, we track them every month. I got half a dozen -- I got a dozen deals max of decent quality. None of these assets are priced when they are marketed. And so you have sellers hoping, still sticky on their sell prices, and buyers are really -- they are not meeting and things aren't trading. And that maybe a deduction that cap rates have changed; but until we start seeing trades for higher quality product, it's hard to say. And the other thing is, there's not much product out there. So it's hard to say how much cap rates have in fact moved, although I think the general wisdom out there -- you know, everyone says they've probably moved maybe 50 basis points, but I can't tell -- point to a trade that backs it up. Sort of a long-winded answer, but that's sort of an overview.

Okay. Thank you.

Thank you. Our next question comes from the line of Dustin Pizza with Banc of America Securities. Please go ahead.

Dustin?

Sorry about that, guys. Mark, just to follow up on some of David's questions there. I mean, some of the recent published reports, even for your markets, and some of the comments that your peers have made on the calls have suggested that land prices have fallen anywhere from, I mean 20 to 30% for some of the mid to high-rise properties and 50% for garden properties. So should we just infer from your comments that you are kind of not seeing that?

I'll say this. I think, number one, entitled land sites or for sale, that's different. You couldn't touch entitled land sites. So you have got to, one, those sights are probably -- you probably can get a 5% better price on today. You can only speak to your own particular experience, so we'll say we had a site we were looking at of this general area in Southern California, pretty good site near rapid transit. We attempted to renegotiate that land price in due diligence on the theory that probably we are the only -- one of the few buyers in the market. The seller did not hesitate to terminate the due diligence period and go on to the next buyer. So now, if you are talking sites that are not entitled that are further out that aren't near a metro stop, I'm sure those prices are softer and they are probably -- someone could throw up, an example, one that's 20% off, but we don't see it across the board. But we do see people who spent money on entitled sites probably writing some of their planned costs off so their pursuit costs off being willing to sell those sites. So depending on how you interpret that percentage, there are a few of those that are available.

And Dustin, this is Tom. It's tough to really throw a blanket over a statement. I mean, the natural thought would be is, they're people that borrowed heavily, they're (inaudible), were speculating on land going up, have obviously got burned and they're trying to cut their prices. The core on transportation hubs in urban areas; if they're coming down, Mark has it right, it's 5%, it's not material. Construction costs, I was talking with a couple other people running California REITS, as well as development, private companies, and they are saying their construction costs are coming down 10 to 15. So if you take those two combined and you say your rents are coming off on your forecasts instead of growth of 5%, now you are having to say two in some of those markets, believe it or not your returns are holding up.

And so just not enough volume of activity to really draw any more than generalities to this. The point is, we've outlined our development and the optionality of moving into a -- continuing it should funding be available, and if it's not, we are happy to just warehouse it and live on the NOI that it generates today. I mean, we are not going to go out and just develop because with feel compelled to. We are going to develop to because we think it's a responsible use of our capital, and it has to compete with other uses including buying back the debt, including acquisitions. And we are about trying to build the right Company for the long-term, and we are not going to abandon any one effort over another -- we are going to compete them against each other.

Okay, fair enough. And then as you think about the redevelopment program and the kitchen and bath specifically, I mean, it's been a pretty big driver of returns. I mean, it looks like there's nothing beyond the first quarter if I'm looking at the supplemental right, and so are you guys basically just sort of shutting down redevelopment here as it becomes more difficult to push rents at a level necessary to achieve your target IRRs and conserving capital for some of the more opportunistic investments that you just kind of outlined?

Well, this is Mark. Couple of things. One, we finished a lot in our portfolio, so naturally we knew the number was going to go down. And on the redevelopment, we are concentrating on a couple of deals that we want to do out in California that the permitting -- I guess use the word entitlement process -- out there, even for what you would think would be a routine redevelopment is very lengthy, so that's delayed. That just means we are going to keep them leased up longer on the current status. So we are not abandoning that process. We have a couple longer term entitlement processes that our teams -- that a lot of times our teams are working on the eastern half of the country, it's going to take them probably ten months to get those done. So they are all actively working. We'll add a couple in California when those permits are available. And on kitchen and baths, yes, we are cutting back. Jerry may want to comment on that because it obviously ties into his work, but we are trying to be prudent about where we should do those kitchen and baths.

Yes, what I would add to that is several years ago we were doing 500 a month -- that was from a larger portfolio. In 2008, we've been averaging probably about 200 kitchen and baths a month. And we are probably projecting next year it's going to go down to about 150. Part of that is its harder to get the return. The other part is a lot of the product that is coming on notice that we have the opportunity to do a kitchen and bath has already had a kitchen and bath done. So we just kind of run out of product to do.

Okay. And then just lastly, are there any additional one-time gains as it stands today that we should expect in the fourth quarter from either additional debt repurchases or preferreds?

This is Dave. At this time, like Tom said, we are evaluating where we stand within the marketplace, or we are looking at the different opportunities. As of today, we've not done anything.

Okay. Perfect, thanks.

Thank you, Dustin.

Thank you. Our next question comes from the line of Jay Habermann with Goldman Sachs. Please go ahead.

Hey, guys, how are you? I was curious on the expense growth, you mentioned the pick up obviously for the quarter; but given the challenges you will likely face into 2009, just given the tough comps of the existing year, is it fair to say that the expense growth rate will likely persist?

We really haven't got too far into our budget process. I don't know if we really want to give guidance for 2009.

But just terms of comps year over year?

I mean, comps year over year, I don't expect to have bad comps with real estate taxes like we are going to have in the fourth quarter of this year. I think on the insurance front, it will probably even itself out. You know, utilities -- you know, gas prices have come down -- we should be in pretty good shape there; so I think what you are going to see is a more normalized rate on a more consistent basis. But again, any time you self insure on insurance, it can cause fluctuations on a quarterly basis.

Insurance is one topic -- it's 7%. But if you think about the primary drivers of our expense growth and you look out to next year, start with real estate taxes. You got 45% of the NOI coming from California. Real estate taxes are our largest expense and so they are capped at 2.9. So you got to think, okay, if I have got the other 55% what do taxes look like? So that thing is going to average right around a little bit over 3, 3.5. Payroll, our associates know it's a tough job market. We have a good job on the benefits area. And so that number probably comes in at a three just to put a peg it -- and utilities. People forget that 87% of our utilities are bought by our residents. Of the remaining 13%, it's probably our third largest expense category, and you have a spike this year and you probably won't have a recurrence of that spike going into next year so that's probably going to be a more manageable number. This year it probably came in at four, it will probably be better than that in my view.

So that's probably 80% of your cost structure, just in those three or four line items, and you hear a lot of, well around 3. And that's probably this business and this portfolio on a long-term basis. And I can't see next year any unusual spikes. I think we are going to be fortunate to get our insurance renewal done in December before the market runs out of capacity next year. And that will probably give us a chance. On the other front, marketing, admin, cut staffing areas, I mean the technology that we have deployed is a lot about the front end of our business attracting more customers; and I think as we move further and further into the implementation of that, we will continue to shrink our marketing cost and find other ways to become more efficient in our staffing model. So I think Jerry and his group have a pretty good plan. They want to go through their detailed efforts. But I'm not going to say that next year looks like a heavy expense year at this point. But if we are not going to continue -- this portfolio has been doing very well and they've been doing great at keeping it at 2 to 2.5, and I think we will probably revert more to a normal three.

Okay, that's helpful. And then in terms of an outlook here, I guess focusing on California, I mean, just given the recession concerns you highlighted in and risks that unemployment move up perhaps as much as 200 basis points from here, can you just give us your thoughts in terms of Coastal California? You did mention thus far it's been holding up well, but how do you see that market, I guess, relative to the national average?

I think, you know, everything we are seeing -- job loss is probably going to be a little harder hit in California than the national average. But we do like our market, our locations, we like our prices. We really haven't been directly affected by too many job losses to date. But there could be an effect coming. I will tell you we've experienced a little bit of doubling up -- you know, the one bedroom guys going into two bedrooms together in Orange County, but it's interesting when you look at our occupancy across floor plans, they are all right around 95%. It's pretty consistent.

But right now, we haven't felt any softness really up in Northern California to date. Seattle -- you know, it depends on which jobs you are dependent on. A lot of our new product up there is in Bellevue, and Microsoft is about to move in right next door to our properties. So we feel like there's a lot of jobs coming in there. So it's kind of specific to the properties. But to date have we felt in Coastal Orange County a decline? Yes, you can see it in our numbers. Our revenue growth has been shrinking over the last couple of quarters. But we still feel like we are better suited to handle that market than our competition. And the other thing we feel is one thing we do better than most people, especially in California -- which is older product and it's very privately owned -- is we have continued to invest in the interiors as well as the exteriors, and we just think as our competition starves their assets, that even if there is some job loss, the people that want a good apartment to live in are going to flock to us.

Great. And then focusing on development for a second, in the event that cap rates do move up higher over the next 12 months, I mean, would you anticipate -- or do you think that there is some risk that some of the projects you currently have slated for that 2010, 2011 or beyond would get reconsidered or possibly drop off?

Well, if you look at what we've outlined there, we've got today 342 million under way. We have gotten approved financing on Signal Hill -- we'll start that. And then the rest of the list, we just will just look at as the market unfolds. What I was trying to communicate is this is a very scalable development pipeline. And 350 to 550 or so million of development for an enterprise this size scattered among several markets is what we should be doing for the long-term, but we are not going to scale up until some of these clouds go away and the financial markets get a little more clarity to them. So to answer your question, we are going to be careful about it.

Jay, it's Toomey. I would add, take a hard look at Schedule 10 in the attachment and you can see, Mark's pipeline of warehoused opportunities is 1.1 billion, but it's on our books for 130 -- call it 140 million. He's got $11 million of NOI coming off that 140. We'll just sit on it. I mean, we think have we have great dirt, great communities situated where we want to ultimately develop. But if the returns aren't there -- the returns are greater at buying other investments -- these opportunities will continue to sit in the warehouse. What you want to be -- and Mark highlighted earlier -- this economy is going to turnaround, in '10, '11, you are going to be asking us what are we doing to grow our enterprise? And the simple answer is we are going to be 60 days from turning these back on, and building in the right market with the right product we think will get good returns and that's the way experienced developers handle themselves. Merchant builders go out and lock up lots of land, borrow until their teeth bleed and keep building because that's the only (expletive) thing they can do. Experienced people, they buy it, they auction it, they warehouse it and when the right time comes, they have the financial and the technical skills to deliver it. So spend a little bit of time really looking at 10, and you will understand our psychology about development.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Michele Ko with UBS. Please go ahead.

Hi, thank you. Currently in the call you mentioned that you had taken down guidance, partly because you were seeing a slower revenue growth at the end of 3Q and beginning of 4Q. I was wondering if you could expand upon that a little bit more and tell us which markets you think are deteriorating going forward?

This is Jerry. I wouldn't say any are really deteriorating. I would just say they are all getting marginally worse to a degree. You don't see any that are going to be getting higher from this past quarter's growth over Q3 when you compare 4Q to 4Q. Florida continues to struggle. We have seen Jacksonville get a little bit worse in the last three to four months. Phoenix has gotten a little worse in the last -- has probably gotten more hurt in the last four months than any of our other portfolios. Luckily, we only have 1,000 units there. But the remainder of the portfolio, it's just coming down a couple percent of growth. If earlier in the year we were at 10% let's say, or more in Northern California and Seattle, it's getting down into the 7, 8%. But I wouldn't say it's a massive deterioration; it's just they are all coming down a couple percent.

Okay. And given that we believe fundamentals worsen next year and cash flows could be less than anticipated, how secure do you feel about your dividend going forward?

This is Tom. I'm very confident in the dividend -- very confident in the Company's ability to fund it, and that's where we stand.

Okay. Thank you.

Thank you. Our next question comes from the line of (Inaudible) with FBR capital markets. Please go ahead.

Good afternoon. Just one question here. I was looking at the bad debt side, and it was up a lot sequentially. Can you provide some color on that? Is that more of a seasonal thing?

A little bit of a seasonal. You know, we -- when you look at it sequentially, we run a special with our collection agency every year in April to try to get people that have skipped on us in the past but owe us to give us a portion of their tax refund back. We run a sale on what they owe us. So typically you are going to see the second quarter be our lowest of the year. That would really more explain the jump up in Q3 if you are looking at sequentially.

Also can you provide some color on foreclosure activities in some of the major markets that you are seeing?

They are continue going to up, that's for sure. You know, a couple hundred percent year over year. When you look at the Inland Empire or Phoenix or LA, the biggest problem markets are in the Inland Empire. Again, luckily we only have two or three assets there. We've been able to do pretty well. We are not seeing a lot of foreclosed homeowners flocking to multi-family. We think they are heading to the shadow market of single-family homes that are being rented out.

Okay. Thank you.

Our next question comes from the line of Jeff Donnelly with Wachovia. Please go ahead.

Hi, guys, I guess building upon Michele's earlier question, Tom, are there markets that have been persistently strong -- or weak for that matter -- in the past few quarters that you see approaching a -- I guess peak or bottom in the next 12 to 18 months that might lead you to change your thinking about capital allocation in those areas?

Well, I think markets that we feel like we are getting close to a bottom might surprise us is Florida -- feels a little bit that way. Looking at next year and thinking about markets that will probably surprise you to be up, it might be D.C., You are going to have a complete turnover of a lot of jobs, and it turns out that all the former politicians become lobbyists and still stay there. So that's probably going to be an up. Texas, more sideways probably. High fuel was driving a lot of its engine; it's still got a robust economy but it's not on fire at 65 a barrel as much as it was 140 per barrel. Moving across -- Southern California, we are almost in a different kind of market condition there, because we are west of the 405. I real would encourage to you look at our website for details of where that's at. So it's a pretty high employment area, stable -- people loss a job, they go find another one very close. We have got a good price point there. Technology, I think in '09 people are going to cut back on their technology spending and you'll see San Francisco go from a high 10% revenue growth to half; and Seattle, I wouldn't want to bet against Google or Microsoft or Boeing -- again whoever wins, and given their cash reserves and their plans to grow the enterprise -- so I feel like Seattle has still got another good year in it. So that's kind of the mix in markets and how I feel about them. Jerry, any different?

No, I would agree. D.C. is lining up to look very good for next year from what we see.

That's great. And I guess I'm curious, on the expense side, Tom, you were talking earlier about expense (inaudible) returning to a more normalized 3% pace. Do you think that we achieve that more -- I guess later in the year, because you potentially face some difficult comps in the first half of '09 versus first half of '08.

I'm certain some of that will be -- you know, you've kind of got this roller coaster and that's why we are not overly alarmed at year over year 6.6 when we look at and say, there's been an insurance claim here -- and the trend on a year to date basis is 1.7, that's a pretty good trends. I've never, as long as I've been at this, focused on a quarter of expenses as much as I've looked at a trailing four and asked myself how does that feel like. And I don't think companies can continue to run well below three for long periods of time. Cost structure kicks up, contracts catch up, it's just facts of this business as long as I've been at it; and I will tell you I will take it as long you have got a 70% margin business, 3% revenue growth -- expense growth -- isn't an issue.

This might be the answer then to my next question, but a good bit of the increase you saw in Q3 expenses on a sequential basis was concentrated in the markets that are exhibiting, I guess, the weakest fundamentals. What's driving that, and I guess do you think that those weaker markets will come in line with your expense growth expectation next year?

This is Jerry, I haven't spent much time looking at sequential expenses. I spent a little bit of time. You know, when I look at the higher sequential expense growth markets, you know, Jacksonville, some of that was higher term. We did turn quite a few units in the third quarter versus the second. So you always have to look at when do people move in and move out; and typically the summer is heavier and in the softer markets people have more options to move to, and also their options also are typically more concessionary and they're price driven, so they will jump on you. So Jacksonville, other than the insurance amounts -- had you some repair and maintenance. You know, Norfolk, you had some higher utility costs. Sometimes that's just the timing of when we pay the bills; if it's an every other month type deal, we are pretty much on a cash basis with some of our utilities. Phoenix, same thing in Phoenix. Our turnover in Phoenix, even though the turnover for the Company is flat for the year and quarter over quarter, a couple of markets such as Phoenix and the Inland Empire were up well over 10% and during the summer, we saw heavy turnover expense in Phoenix.

That's helpful. And one last question, I think you mentioned the start of the call about you anticipate further deceleration in Q4 revenues. To be clear, does that mean you believe that year over year same store revenue could in fact turn negative next quarter, or it will just be slightly positive?

It won't be negative. It will still be positive. It's just going to -- you know, you've seen it go from 5 to 4.4 to 3.4. We expect it's probably going to be a hair under three.

Great. Thank you.

It won't be negative. I think, Mike, one thing here -- looking over my notes and some of the anticipated questions, I failed to mention a couple of thing. I mean, this portfolio when we go through and analyze our next year numbers and think about where we stand, we look a lot about the employment base of our residents and what our exposure is. And just to give you a thumb feel, I mean, our largest employer in the portfolio, frankly, turns out to be government or utilities. And I think those are probably safe industries. I mean, technology is only about 10% of our employment base. So when we look around and ask ourselves -- manufacturing like 5% -- we see industries having to roll through this recession, and ask ourselves, what industries are going to have a hit and how does that overlay? Because you can be in a good market but if the industry goes upside down, it's still going to hit you.

And so as we think through next year and think through each of our quarters, we overlay our employment base over our belief of what industries are going to do well. I think one of the surprises next year is going to be the military is going -- a lot of it's going to come home and a lot of it's going to have to get rebuilt. They tore up a (expletive) of a lot of equipment and a lot of people are going to get employed by rebuilding that equipment, and we think we have got good exposure in the Tidewater, Norfolk area, Jacksonville, and some of the Florida cities. And that's probably driving a little bit of our optimism is that belief that you probably don't hear from other people. So we think about it in a lot of different ways when we are not just relying upon what the last person in the door told us what they want to pay. Fair enough?

Yes, thanks.

Thanks for indulging me.

Thank you. Our next question comes from the line of Michael Salinsky with RBC Capital Markets. Please go ahead.

Good afternoon. Tom, first question for you. In your financing assumptions for next year, you've got the $200 million (inaudible) note coming due in June, it looks like to offset an unsecured offering. How confident are you that that money comes in the door next year? And if it doesn't, what are the ramifications?

I think I will ask Warren to address the note collectability.

Sure. Michael, we are very confident about it. It's -- as you know, completely secured by an interest in the properties and also has a guarantee by the parent company, DRA, income and growth funds. In addition, we've had discussions with them and they've advised us that it's their intent to pay the note in June when it becomes due.

And their financials, you've looked at them and feel comfortable with their ability to do so?

Very strong.

Okay. If for any reason, though, it is not, would you take back properties or would you just extent the note out?

We are not going to say that on this call. I mean, we will wait until that day comes if it comes; but we anticipate right now our plan is to collect.

Okay. And secondly, it looked like in the quarter you deferred another portion of the (Inaudible) Park. How much of that can be pushed back to later dates, or how much of that rather has to -- actually, just given that you are working with the City of (Inaudible), how much has to be moved forward at certain dates?

This is Mark Wallis. We've got a real wide bandwidth there. We are under no pressure. We are just about finished with our contract -- with their hiring us to do the infrastructure that puts this nice water way, bridge, waterfall through there. Our start we had today is we are in compliance with that -- which is the south portion of the first intersection we are building there. And as you know, we have operating units on the rest of the property. So we are under no pressure there. We've got many, many years -- which really, if we ever built it out, we wouldn't want the rest of their funding anyway. There wouldn't be any place for it to go. So the first big chunk is already coming in of their dollars. We are about ready to cut all those (inaudible) public contracts from the City of (Inaudible) where we administrate that for them for a fee. So that's about done. So we are in good shape there.

Okay, but there's no specific that says you have to have certain things done by certain dates or anything like that?

There is, but it's four, five years out in the future and it would be on phases across the Street that if we didn't build, you wouldn't put the structure in any way, if that makes sense. It's sort of a just in time kind of when we need it is when we would go for those dollars.

And the assumptions --

(Inaudible) dollars don't have that time line on them.

And the assumption is still to joint venture that somewhere down the road?

Yes, Warren may want to comment on that; but yes, that's our ultimate view because of the size of development, and I think our timing will be good because we will -- as we go into the market next year -- because we'll have the infrastructure started and the first phase started. Warren, I mean, did you have anything to add to that?

I agree. It's a --

Then finally, probably a bigger picture question for Tom, just having been through a number of cycles and just looking at the leverage that's been employed by some of the private guys over the past several years, how much distress do you expect in this current downturn?

I think you have to draw kind of a decision tree, and the first part of that is tell me when the banking industry and Fannie and Freddie's disposition are determined, my guess is is we will know more about that in the second half of '09, and I'm anticipating they are going to come back in pretty good shape. And so what I think is, is you have to divide it between the following segments. Merchant builders who have significant capital lending requirements, they are not going to come back in '09. You'll start to see them resurface in '10 The portfolios that were bought in the '04, '05, '06 time frame that relied upon 4% debt, 85% leverage, they are going to come back to the market in the '10, '11 window with interest rates being at six to seven, and their need to kick in 20, 30% more equity. I think you are going to see those things come to the market. But they are going to come to the market, they are going to be beaten up Bs be Cs and they are probably not the right type of product and not in the markets we are going to look; at but I think there are going to be a lot of good buys in that window. And I wouldn't be surprised if it doesn't resemble the 2003 and '04 window where Wall Street said, great demographics, no new supply, look, we can fund and go capital markets, in essence participate and take a lot of those guys public again.

So our sense is, is that if we back up, think about it, it's that you are in the middle of a quick sand pile, you have got to get enough capital to get across this. Across looks like us '10, '11; and then the capital markets will feed us a lot of capital by virtue of realizing that we haven't built anything and/or the demographics are taking over. And so we see a very rapid rebound in a robust second half of '10 and '11, and that's kind of a backing up and thinking about the industry and where we sit. There are going to be -- you'll hear a lot of merchant builders go out of business in the next six months, and we see it. There is not a lot of opportunities and there's no reason to buy those guys. The simple answer is you can get the talent for free later. Fair enough?

That's great. Thanks for the added color.

Thank you. Our next question comes from the line of Mark Biffert with Oppenheimer. Please go ahead.

Good afternoon. My first question is related to how you think about permanent refinancing of some of your construction projects that you are delivering into '09 and '10, sitting at the -- given that you have the construction financing coming due as you stabilize them?

This is Warren. Most of our construction loans -- or almost all of them -- have extension features, and most of them are three years with one and one extensions. So -- but at the end of that, I think the market is going to be a lot different. But we already factored that into our capital needs and we think that we will be able to get permanent construction at that point in time or -- if any is still available.

You have to realize a lot of these deals have somewhere between 25 and 35% equity in them. So potentially, you look at that type of low leverage coming out on the backside of these, Fannie and Freddie will be there, some CNBS market will be back, the unsecured market isn't going to be shut down forever. So I got to look out two, three years, I feel like we will be fine. The key is making sure you have got enough gas to get all the way across '10 and into '11, and that's where our plan is.

Okay. And then jumping to the mezzanine environment and I'm just wondering more if you're seeing opportunities of distress or areas where people, given that the capital markets might be constricted through the end of '09 and into '10, where you think those opportunities might arise and would you partake in them?

You know, Mark and I have been at that business and seen it before time and time again; and it just always comes back to the same darn thing. You are buying the (expletive) real estate and ask yourself if the mortgage is 70%, are you willing to underwrite that the asset won't go down 20 or 30% in value? Because if you are, and you are convinced that it's not going to go down 20 or 30, then you ought to do that business. Last time we checked, a lot of merchant builders building in suburbs, assets go down 20% in value and all of a sudden you are writing your loan down, or you can say, well, great, we will just take the asset. We are not interested in suburban assets like that, and that's where you'd see those opportunities. I mean, infill, urban, transportation hub-driven developments are usually well capitalized by very high caliber of people, and they don't need our help as mez.

Okay. And then lastly, how do you think of RA 3 and the thing that you plan to do through it over the next year or so? Do you see any gains coming out of that business, and is that built into your expectations looking ahead?

We've said and adopted a policy that we wouldn't count on RA 3 for gains and put it in the earnings cycle. I mean, we've got assets in there. We continue to believe that they are worth more than what we have them on the books for. We will continue to run them, increase their value. But today is not an environment where we would see RA 3 as a very big components of our enterprise.

Okay. Thanks.

Thank you. Our next question comes from the line of Rich Anderson with BMO Capital Markets. Please go ahead.

Thanks, I got on really late so I don't know if this question was asked, but was curious -- and I just have one question about the special dividend and if with the current stock price you would had just changed your strategy about whether it would be stock or cash,.

Rich, this is Warren. The way that we set up the special dividend, it can be paid to either cash or a combination of shares and cash, and we retain the flexibility that if we get at the end of the valuation period, that the share price is not a price that's acceptable to the Board, that we could pay that in all cash.

So at this level would you pay it at all cash?

We are deferring the question, Rich. I mean, it's just premature. It would be like me trying to tell who's going to win the election tonight. Just premature.

You know, don't you? All right.

We are running an office pool, but I probably will be the guy buying the Get Smart DVD tonight and watching it.

Okay, thanks.

Thank you. Our last question comes from the line of (Inaudible). Please go ahead.

Good afternoon.

(Inaudible).

Hey, Tom, not to overuse the phrase, but obviously the world has changed significantly the last couple of months. And I appreciate your earlier comments on asset values, but given the dramatic asset value deflation currently underway, increasing return requirements, where is the puck headed? How much more do you think asset values can potentially decline, and is it inconceivable to consider aversion to a 9% cap rate world?

I'd tell you this -- as long as -- I read your piece, I thought it was very well thought out. Here's kind of what I think about this business and multi-family. We typically finds a typical B apartment across America, price it against five-year leverage. And so a five-year paper today can be had at 75% loan to value at a 5.7 -- it's going to pay cap rates are anywhere from 6.5 to 7.5 for that asset. If you tell me interest rates are going to 8 or 9, then, yes, 9 is an easy number to see. So I think a lot of it's going to be driven off of where interest rates move. And I think what you have in my personal view is that interest rates come down because of all this stimulus in the short window of the next year. But then after that ,start to climb pretty steadily as people -- one wild factor in your cap rates that you didn't calculate in there, what if you are in a high income tax bracket game and we are back to tax syndications and people are using not just the cash flow, but also the after tax benefits in valuing the real estate? And that area is potentially there under both potential candidates. So I think in the interim, to see nine caps, as your article points out, I think is a long shot. To see it if interest rates move to 7.5 on that type of paper, then I'd say yes. So think more about where interest rates are headed than values and return expectations. Because in this business, I've seen cap rates more correlated to that.

Okay. One quick follow up, perhaps for Mark. I'd like to go back to the (Inaudible) acquisition for a moment. I didn't quite hear -- maybe I missed it -- but you said that purchase price to what that land might have sold for a year ago? And assuming you could get construction financing today as a return that you could develop to?

And that was on a specific piece that you were talking about or just in general? I didn't quite -- (inaudible).

So if you could compare that purchase price today versus what you think it might have --

Oh, a year ago?

Yes. And then --

I think on that particular site, probably when you consider their pursuit costs, that it's entitled -- you know, I would have a staff out there churning and burning payroll every month, it's probably -- because -- and this site -- oh, it's 400 feet from the metro station, 500 feet -- I mean, it's easily walkable. It's probably all in 10% better. And so you know, the yields are in there and we feel like our construction costs, as Tom talked a little bit about, are coming in 10, 15% better than a year ago. So then we see the yield on that could be pretty strong for a California deal. You know, when you get a mid-six return or upwards -- I don't want to over forecast that as we price everything out and work on that deal. It could be, from a long-term perspective, a pretty healthy deal that you haven't seen in awhile. But, as Tom said, these infill urban sites are not -- we do not see them being discounted 20, 30%. (Inaudible). They are going to build it anyway. By the time you carry them, you're going to end up in the same spot. Yes, there is going to be discounted, but we are just not seeing it. And we've been bidding on some sites with that expectation and not getting anywhere.

Okay. And certainly given your construction -- well, I guess the question on construction financing today, any sense of where that would be today versus what you closed your loans for during the quarter?

Yes, the loan to cost would -- we were doing something earlier at loan to cost of 70, 75, and it's more like 60% today, and the pricing has moved from LIBOR plus 175 to about LIBOR plus 250 today. Thanks, (Inaudible).

All right, gentlemen, thank you.

Operator, I understand we have no more calls, but let me wrap up with closing. Let me mention again that we have posting a Los Angeles property tour, specifically Marina Del Ray, on November 18th. This is the day prior to the NAREIT conference. And so if you fly into LA, we are glad to give you a bus ride down to San Diego to the conference. There are sign up forms on the Investor Relations tab, or you can give Larry or I a call and we will be able arrange more details. Thank you for your time today, and take care.

Ladies and gentlemen, that does conclude our UDR third quarter earnings conference call. Thank you for your participation. You may now disconnect