For those of you who don't know me, my name is Laura Campbell, and I'm Head of Investor Relations for Hudson. As you can see, we have a full agenda of management presentations today. You're going to get a lot of information. Just so you know, the presentation materials, you can download them from our website, and the webcast will be available for up to one year as well. And just a reminder, since we are live, to put your phones on Vibrate.
We're going to keep the introductions for each speaker short because we've put a full bio for everyone in your folder. There will be two ten minute Q and A periods, one after Art Suazo and one after Mark Lammas. So please hold your questions until that time. And there will be two ten minute breaks as well, one after our fireside chat with Bruce Richmond and the other one after our first Q and A session. We're going to do our very best to stay on track because I know a lot of you have flights to check.
And before we kick off the presentations, I'd just like to turn things over to Kate Tidwell, our Executive Vice President and General Counsel, who will comment on forward looking statements for this presentation.
Management may make forward looking statements during this presentation. Forward looking statements are based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual results to differ materially. Forward looking statements include statements related to our future economic performance, plans and objectives for future operations and projections of revenue, net operating income, funds from operations, discounts to net asset values and other selected financial information. For a further discussion of the risks and uncertainties related to our business, see our Form 10 ks for the year ended December 3135, filed with the Securities and Exchange Commission on February 2636 and subsequent filings with the SEC. This presentation also contains non GAAP financial information.
Explanations and reconciliations to net income are included in the appendix.
Thank you, Kay. Now as you all know, Mayor Garcetti had intended to join us today, but unfortunately, had a conflict at the last minute. So he was very kind to film a brief message for all of you welcoming you to the city of Los Angeles. So let's take a look at that. And then we're also going to show you a little something especially put together on HPP.
Good morning. I'm Mayor Eric Garcetti, and I'm thrilled to welcome you to the City Of Angels, a city where unprecedented investment is fueling an exciting transformation. It wasn't long ago that many were riding Los Angeles off, saying that we couldn't compete with the culture of New York or the entrepreneurial spirit of San Francisco. When people talked about growth opportunities, they were mostly talking about the time that we spent in traffic. But today, we're proving the doubters wrong, giving birth to new industries.
Our skyline is expanding thanks to $7,000,000,000 in active development, and we're ensuring that every Angeleno has access to opportunities that foster success. We're creating new jobs, 112,000 since I took office, and we've cut our unemployment by more than half. And that's just the beginning. Over the next decade, we're spending billions of dollars to modernize our port, to remake our airport, our transportation network and our city streets. We're raising the minimum wage to the first major city in the country to do so.
We're competing to bring back the twenty twenty four Olympics here to America. We're even welcoming the LA Rams back home and opening world class museums like the Broad and the Peterson and constructing the tallest building West Of The Mississippi. Los Angeles today is standing on the world stage as a model of what the twenty first century metropolis can and should look like. We are investing in the present to shape our future. And by all measures, that future looks very bright.
But anything worth accomplishing is never accomplished alone. So I want to personally thank Victor Coleman for his vision and for his leadership. He is a great advocate for the city of Los Angeles and our people and a dear friend. Hudson's strategy and expertise has uniquely positioned the company to participate in LA's evolution. I'm proud to call them a partner now and going forward as we continue this journey of helping our city achieve its limitless potential, one brick and one job at a time.
Thanks for having me, and enjoy your day.
And the Those are the people we build for. We dream with the dreamers. We create with the creators. We innovate with the innovators. We build for the builders.
At Hudson Pacific Properties, we build as we grow our team, deepening our roots with diverse talent, loyal and collaborative, unified in vision and purpose, supporting one another with a generous spirit and an open heart. We build stunning spaces unlike anything seen before, beautiful and functional, filled with energy and light, giving people the inspiration they need to create, expand, explore and succeed. We build trusted relationships with our tenants, investors and stakeholders because trust is our currency. People count on us, and that's our proudest achievement. We build the future by embracing change and challenge, by attending to every detail, while never losing sight of the grander vision.
By instead of saying no, saying, we figure it out, you'll dream it up. At Hudson Pacific Properties, we build what's next. New spaces,
And with that, I give you our Chairman and Chief Executive Officer, Victor Coleman.
So welcome, everybody. It's a pleasure that I'm here, and it's a pleasure that you guys came to see The Cure last night for those of you who went to The Cure.
So the funny thing about
The Cure is we decided to string this sort of thing together, so we're going to have our Investor Day. One, we had no clue how difficult it is to have an Investor Day. So we're going only have two a year going forward instead of which is one. We picked the date, and it just so happened to be right after ICSI, and that's why we have to suspect after a turnout for a lot of you guys who came right from Vegas to detox here in Los Angeles. Figuring we'd take you to the Hollywood Bowl as a true LA experience and the Arts District.
And I made a comment. I said, we had no idea who was going to be playing. We just figured we're going to go to the Hollywood Bowl. Mean, it could have been The Sound of Music, so it could have been a much worse night. But the reality is there's a I saw some diehard Cure fans.
I actually knew two songs myself, so I felt pretty good about myself. So anyways, welcome. I want to just take a second before I get into our presentation here today. I want to take a second and talk just recognize Laura Campbell and her entire team for all the work they did to put this together. So Laura and your team, please stand.
Natalie, Alyssa, thank you, guys. Thanks for traveling us today. As Laura mentioned, we have an exciting day. We got some great things that you guys are going to see. That video, every person in that video was a Hudson employee.
So there was no marked individuals that were good looking. We have good looking people at Hudson, and
I'm proud to say that.
This is really our first real Investor Day. We did this four years ago with sort of a shoestring portfolio and a small tour. And this is, I think, going to be very impressive, and I'm pretty excited. It's a great opportunity for us to dig in as a company and share with you not only our past performance, but really what speaks to the future and where we're going. And we're going to do some unique things today, you're going to as I said yesterday, you're going to see some pretty interesting aspects of the company.
Many of you know us as a growth story. That's what we are. We are a growth company. We're in the West Coast markets, facilitated that growth and performance. But really, we're a story of execution, and that's our company's motto, execution at
the absolute highest level. Those spaces are all
the spaces that we've built and many, many more. And we've executed, I think, with an exceptional team and a team that's carefully honed in on their skills, carefully dealt with their core disciplines and priorities and made this company what it is today, and I'm very proud of that. Our markets are the strongest markets in the country. I'm excited for you to see today how we're prepared, not only just for what we're currently at today, but where we're going to go in the future. So let's get started, and we'll get into it.
From its inception, we have a senior management team. We've assembled an exceptional team, a team that has a diverse background. But for the most part, that team has all the right capabilities at all the levels to perform at the highest levels. Four characteristics of our senior management team are the industry veterans, local sharpshooters, a multidisciplinary expertise and focus on building and maintaining the right relationships. The two keys in that right now is repeat key business, it's relationships, it's how we treat others and how others treat us.
And I'm not afraid to say the phrase local sharpshooters because that's who we are and what we've executed on, on countless occasions. Together, all these characteristics as a company have formed a foundation by which we've have seen successful aspects of acquisitions, dispositions and development and execution throughout the portfolio. And this, you're going to hear, is carried throughout today. Let's just take a quick look back at what we've accomplished since going public in 2010. At its core, as I said, we're a growth company.
Over the past six years, we've demonstrated our ability not only to recognize opportunities but to execute at a pace and accuracy that very few, if any, could match. We've been the most active public company acquiring the West Coast office markets post recession, executing over $5,600,000,000 of transactions since our IPO. Our portfolio has grown almost 5x since the IPO from a small 3,500,000 square foot portfolio to over 17,000,000 square feet. Impressively, our market cap has also grown from only 5,000,000,000 to over $6,500,000,000 all while maintaining a very conservative balance sheet. On a leverage basis, consistently as a company, we've been 30% leveraged across the board, which is unheard of.
We really have never gone over 35%. We've gone down
as low as 25%.
Needless to say, as a company, we've been very busy over the last six years. I think it would be an understatement if people have asked us multiple times what markets are we going to move into. We have stayed true to our markets and core to our markets, only investing in what we believe are the clusters of knowledge and innovation in our society today. These markets have certain key characteristics that create high barriers to exit and facilitate outperformance over the long term. An example of this, as you can see in the slide, on the Fortune 500 headquarter companies, growing highly educated young professionals, leading universities with outstanding STEM programs, capital, not only just VC money, other capital, but R and D funding, Four of the top 10 schools in terms of funding are allocated to R and D are in our markets.
Stanford, Washington University University of Washington are on the top of the list for federal R and D grants, receiving billions of dollars. The West Coast itself has performed greater than anywhere else. And if you look at this, Silicon Valley, Seattle, San Francisco all recovered very quickly. Other than Boston in this slide, our four core markets are the highest performers in the country by far. And as you know, here in Los Angeles, after hearing Eric and after what you all know what's going on right now, the growth that we're seeing, the momentum in Los Angeles is key.
We've come out of a little slower than others, but the growth factor is big. As a result, you can see what we've done on a leasing basis. You can see what we're doing on our redevelopment development basis, and yields are proving themselves out. We've been strategic as a company, not only what we bought, but how and how and where we've done it. It's not easy to enter these markets, and I want to make sure people understand that.
When people come to these markets trying to amass quantity and quality real estate, it's not easy. If you have a foothold, you have a huge advantage. That's the phrase of local sharpshooters. Markets like Los Angeles and Seattle and the Peninsula and the Valley, you can grow to scale if you're people like us. You're not going to get in these markets today.
Quality real estate is already taken. We've done it time and time again consistently throughout our portfolio. 2,000,000 plus square feet in Hollywood, including our development properties 2,000,000 plus square feet in San Francisco and SoMa 1,000,000 square feet in Pioneer Square in Seattle 8,200,000 square feet in Palo Alto, Peninsula, Silicon Valley. We've been able to do this in large part because, as I mentioned earlier, we've got unparalleled relationships, and those relationships are cherished by us and the people we have them with, allowing us to access all these deals others never even get an opportunity to see. 80% of the deals we've done in this company have been off market related deals, over 12,000,000 square feet.
Nobody can say that. Relationships, as I said, for off market transactions are everything. Execution, performance and the ability to assemble properties based on who you are and what you can do. Hudson has done that countless times. If you look at our dominant position in marketing and gateway markets here, these holdings are the most sought after sub micro markets in the country.
Pioneer Square, Alex did his presentation yesterday and raised your hands, Soma, Midmarket, Palo Alto, now North San Jose, Hollywood, They're all part of what become the landlord of choice that we have established ourselves as a company for the leading growth companies in America. Companies like Amazon, Uber, Google, Netflix want and need to be in the markets that we're in because they are the clusters of knowledge and innovation. Simple stated, they're not moving from these markets, they're expanding in these markets. It's proven, and it will continue to be that way going forward. Let's take a look at how these factors out for unique competitiveness, strategies and executions that are impacting our results.
As you can see here, from our IPO to today, we've achieved a mark to market cash rents of 26%. That's 1,800 basis points above the next highest performer during the same period. It's not even close. So when I speak publicly and we go on roadshows and non deal roadshows and we tell people our performance, the numbers speak for themselves. If this as you all know who follow us closely, our markets trend the way our leasing trends, and right now, our portfolio also has a first quarter 'sixteen mark to market cash rents exceeding 65%, which Mark and Art are going to get into later on today.
This is in part because of the performance of our target markets. When we pick the markets, we pick them because the reality is when you see things like when we purchased the Blackstone portfolio, which is an A plus portfolio, execution is only part of the acquisition process. It's taking it from that level and then leasing it up. So a little later, Art's going to dig in on our strategy and how we accomplished this. I can't tell you how many people, after we bought that portfolio, when we took it from 80% to 85% in the first six months, they said, well, it's low hanging fruit.
I said, well, if it's low hanging fruit, why these other guys didn't do it? Execution is key. He's going to dig in and tell you what we do differently from our leasing team, Our process is significantly gives us a competitive advantage, and you'll see how we work through that. We are setting the bar for this industry, and we're proud of it. In terms of value creation, just gives you a little bit of an example.
You're looking at two things here: our development project ICON and Q, our Element project here both in Los Angeles. These projects are very, very successful from our standpoint. As you can see, we've created over $270,000,000 of additional shareholder value from two projects alone. Mark to market on these assets, people look at what our cost basis are, but the value creation is based on what we've done with the leasing and renovation. That story is consistent throughout our portfolio.
But at the same time, we diligently manage our development and redevelopment pipeline. This is key. A lot of people say you're going to get over your skis on development. We say no. We've been less than 10% consistently on new development, and we only develop in the last in our cycle on assets or properties that we own.
We've never bought a piece of property land wise, gone through the process and then developed it. Every piece of property we have in our future development going forward are assets that we have as a result of buying a portfolio. So we have additional FAR in the portfolio here as a company. We've maintained this. And as you all know, going forward, our projects like Kew, Icon, 50 Alaska Way, largely these assets had been pre leased prior to us even breaking ground on these assets at higher rents than markets have seen in the past.
So this is a consistent story with us, and we'll be consistent going forward on our future developments that we are about to announce in the near future. These actions and decisions, our timing, our market strategy, our capabilities have allowed us to outperform our peers in terms of cash flow growth. FFO per share has grown 54% since our IPO. As you can see here, every office REIT on this level, and we're number one. So to conclude, before we dig deep on this process, we offer an impressive track record of execution and value creation.
Risk management, we believe we're the best adjusted risk return among all of the office peers out there. We've been telling our story consistently, and we'll open it up to questions, and we'll tell you what we think and why as the day goes on. You're going see a lot of great insight on our cash flow, on our ability, on our inner workings of this company. And especially as I gave you a little teaser yesterday, Mark's little bridge to success, which will be the first time anybody has ever done something like that. So it will be kind of cool.
I'm confident you're going to walk away today with a better understanding of our company, our growth prospects and exactly where we are today and where we're going to go tomorrow and how we're positioned for this cycle moving forward. So I'm excited. I appreciate you all being here. I think the Hudson team is excited and appreciate you all being here. And let's get going, okay?
Thank you, Victor. And with that, I'm going to turn it over to Bill Humphrey, our General Manager of Hudson Pacific Properties.
Good morning, everybody. Lights, camera, action, please.
We're going roll a little video for you.
Live television.
We are going on a trip around the world.
So I'll just note first, for all you alternative rock experts, of which there's only one in the room, I was unable to find the appropriate Radiohead song for a video background and went with Daywaves instead. So the conversation around real estate these days is often focuses on New York, San Francisco. It's so easy to forget about Los Angeles. 15% of Hudson Pacific's base rent comes from LA and the convergence of media technology, Silicon Valley streaming companies migrating south is now a significant driver of the LA market. Today, I'm going talk about how HPP is uniquely positioned, particularly among public REIT peers to capture this increased demand through blended facilities and specialized services.
This demand is not only about the new players like Netflix or Amazon Prime, but traditional players like ABC and CBS and branded networks like HBO and HBO GO. Our recent deal with Netflix is a perfect example of the broader tech media phenomenon and of how our portfolio of skills and real estate and facilities allowing us to build relationships and continue to grow and add value beyond our initial leases. So let's take a closer look at what's going on here today. So in this first slide, West Coast streaming companies have significantly increased demand, period, in Los Angeles. 845,000 square feet of additional incremental space for creative and production office.
Many of these companies will continue to grow in LA, as Victor noted, exemplified by Netflix, for example, expansion relocation Beverly Hills to our Icon project in Hollywood. Major networks continue to create content with an emphasis on dramas, which require significant resources, stages and office space. Branded networks have expanded production to provide exclusive content, supporting global brand recognition. That word exclusive is important because each of these brands that you watch on TV or you stream are really important that you create a relationship between the brand and what they're showing. Digital entertainment jobs, there's 8,000 that were added in LA in 2015, a 6.5% increase over the previous year, 3x higher than private sector jobs in L.
A. County. So again, all these companies that were pretty much in the San Francisco area, Seattle area have driven down there because they need the talent, they need the people. Los Angeles, especially Hollywood, have attributes that are difficult to replicate. L.
A. Is where all the talent lives. It's where they reside. It's where they want to be. It's where the production people are.
It's where the postproduction people are. It's where creatives meet to spark new ideas, to do deals, to execute those deals. LA has historic studios that are over 100 years old, built in a time when land was cheap. So many may not know, but Sunset Gower's studios, for example, was where Columbia Pictures started when they moved from New York. They had huge there's so much land, they had a huge ranch where they could do cowboy movies.
So the traditional studio model, as you've probably all read in the paper and watch and TV, has been disrupted by technology. Sounds familiar, twenty years ago, look at the music business where it is today. The streaming model from Netflix to HBO Go to Amazon Prime is driven by technology and focus on global distribution, consumer brand recognition. And these companies focus their capital on content, brand, digital infrastructure, not owning physical studios as traditional studios have done. Their we organizations are non hierarchical, open space environment that stresses the value of collaboration.
Let's talk about Netflix as our example. They wanted a different facility, reflecting their culture, their business direction, their brand, which led them to our icon building at Sensor Bronson Studios. Netflix is growing quickly. They distribute in 190 countries, six hundred hours of programming announced this year. And just yesterday, they announced an exclusive U.
Pay window with Disney, which includes Marvel, Lucasfilm and Pixar. It's amazing stuff. When I entered this business a long time ago, I didn't understand the magic of how I was a back office guy, this magic of LA and how it concentrated here. But now I do, and it really does happen here. The intangibles of the vibe of Hollywood, the buzz, it can't be measured.
But believe me, it's real. And it's so important to creating the new next big hit TV show or movie or game, and Netflix understood this value. Sunset Bronson, the original home of Warner Bros. Studios and Sunset Gower, the home of Columbia Pictures, provides creative environment for Netflix that they were looking for. An icon neatly fits in what Netflix need for this open space allowing for collaborative culture to flourish.
In Hudson Pacific and our Hudson specifically, Hudson Pacific Media provides a service that's essential to closing that deal with Netflix. We're able to talk details with people about real estate, of course, finance, brokerage with Art and his team, construction engineering with Chris and all aspects of production ranging from how do you do an audience show for a talk show or for a judge show or a game show or geez, how do we do fiber routing for four ks cameras in the future. The whole bottom line is Hudson Pacific Media is all about catering to this convergence of media technology companies. So what started off as an office deal became a lot more. We work at Netflix almost every day right now, both on finishing the building with Icon, but also on stages.
But what Netflix really wanted was, hey, they wanted to walk out the door of the Icon Building, walk right onto a stage. And they wanted to walk into production offices with their contracted talent. Netflix new show, Girlboss, Sofia Amoruso's Rags to Richest Story of Founding the Nasty Girl label, when she was 27 year old, just moved to Stage 9 at Sunset Bronson Studios. And they're also committed to Stage 4 for another really big show that I can't note right now. That results in another 67,000 square feet of stage and support space and 26,000 square feet of office space incremental to the Icon project.
So let me spend a few minutes on the bigger picture beyond Netflix. The bottom line is the demand for studio production office increasing as network spending increases. You can see in this slide, Netflix is leading the way $5,000,000,000 of spend in 2016. So what's everybody else doing? Well, as you can see in the little quote from Broadcast and Cable, rival programmers are mounting Australia to fight fire with fire, and we're going to spend more money all the way well into 2020 because the proliferation of this network, its distribution network through the Internet provides a lot more ability to get content and more content needed to fill those pipes.
We're literally right now, we're turning away work, unfortunately. We're doing a lot of tours, but we're so full in terms of both our office space and our stage space, there's no place for people to go. And this trend may seem a little crazy, but it's really rational. Let me tell you why. First, millennials.
They're the growth market. They're the future. You see the data on them being the biggest majority part of the workforce now or in a few years. Think about the data. 94% of millennials stream, 56% of millennials watch TV shows and movies, but not on TV sets and 20% solely watching mobile devices.
Secondly, streaming technology is constantly improving, allowing for the distribution model to expand globally. And as The U. S. Becomes more saturated, Europe, Latin America, Asia will continue to drive this appetite for digital content. And everybody is jumping on board.
Time Warner just announced that Turner Classic movie is going to create an exclusive old movie network that's going to be streamed. And supply is not going
to increase. Look
at the economics. For example, to build a 22,000 square foot three story building with one floor, no columns, unique air conditioning and soundproof in the middle of LA, it just doesn't pencil out. As this chart notes, we see production hour dramatically increasing, but the numbers of stages remain stagnant. In fact, we believe that the number of stages can be decreased. Example, Universal Studios with the new Harry Potter and the theme park are taking stages out of commission to basically go for higher and better use.
Paramount Pictures just got their approval yesterday for the master plan. They'll be converting stages to creative office space that they really need. So the supply and demand curve is in our favor. And most shows are made in LA or New York. And the California $400,000,000 tax incentive, which now provides it now provides an effective competitive program for New York and other states in their new political climate are reducing and eliminating tax incentives.
So we have upside. We have studios. We have the support. We have a 1,100,000 square foot pipeline to meet demand on adjacent on our studio lots or adjacent to our studio lots in Hollywood. Chris is driving forward on the Q construction and 59 on Sunset approval, which is the best development site left in Hollywood.
We also have significant development potential at Sunset Garthu, as you can see in this slide. So we're really positioned well positioned to produce architecturally compelling, creative production office that satisfies the convergence of technology. The Silicon Valley whiteboard culture, as I call it, and the entertainment creative Hollywood culture, we really get it. So in short, there's no other public REIT that's better positioned to capture and monetize this increased media and entertainment demand. We're probably the only company now in the O'Reed that deeply understands real estate and production, the culture of media and technology.
We're positioned to provide the facilities. We're deeply rooted in media entertainment. We certainly know real estate and we're ready to meet demands of the L. A. Market.
Thanks so much for your time.
Thank you, Bill. Now we're going to have our first fireside chat with Victor Coleman, who will be chatting with Bruce Richmond, Executive Vice President of Production for HBO.
We want Whatever to you want me.
You pick your seat.
Run around the room like Inc. And
It's interesting. Bill gets to highlight all the Netflix stuff, and then we bring up an HBO guy. They
do a lot of work with us.
Bruce Rich I know, that which I felt like I had a good Netflix Exactly.
Bruce Rich is the Executive Vice President of Production at HBO. He's been there since 'ninety five, right? Long time. Yes, Can you count that
'ninety two. 'ninety two. There you go.
I've been there a long time.
He oversees all aspects of production and all HBO original series, miniseries films as well as Cinemax's original series. He's done overseeing the production of all the successful shows on HBO GO, including Game of Thrones, which if you're anybody's a Game of Thrones fan, may get a question out of him today or two. But shows like Veep, Warlock Empire Girls, True Blood, which was a show that filmed at our studio newsroom, which filmed at our studios. And also just because I like to say people get awards, so
he was a Golden Golden recipient,
Emmy Producers Guild. Yes. Yes. Do you
feel good about yourself? No, I had forgot about that stuff because I was a producer back then. There you go. I got lucky I got to produce some stuff. So we're going
to ask them a couple of questions, and at the very end, I'll let people if they got anything you want to shoot out there, just raise your hand and I'll get a couple questions if we have time, okay? So the evolution of HBO, the model that you created, which is really the first of its time, indicative of what's going on more broadly in the entertainment industry, how has that changed?
Talk about that. Well, listen, I think we've been through when you look at HBO, which starts in 'nineteen, early '80s, late '70s with original program with a stand up George Carlin special. And we go through traditional MSO. We go from being like many starting companies, certainly in some of companies like Netflix in their first year, from a place that licenses only their content and then has a window and puts it up and then doesn't really worry about the back end to a place that over time, obviously, has owned its all owned its IP, owned all of the distribution streams, We were one of the first companies to do that. So now you find yourself in a place where the traditional viewing habits of the public are changing.
And so what you don't want to do is ever be in a position where you can't reach extra additive subs. And so I think as we looked at the landscape, it became clear that to have a product that was more friction free, developed, populated, marketed and available would be something that would be critical our evolution as a primary content supplier. So I think we had certainly been developing HBO Now and HBO GO for some time. We've had several iterations. And think that we've been lucky to get here at this time having a fully featured product that is monetizable not And controllable.
Not only controllable, but not doesn't eat the existing money thoroughfares
that exist from traditional
broadcast, which is a very important part of the business. Unlike, I think, a Netflix that's starting out from scratch, that they don't have those types of relationships and they can kind of bypass how they're going to deal with the MSOs until the MSOs are coming in later in the game after they're successful. And that's kind of an opposite evolution. But I think we continue to do that, and you have to do that. And I was listening to a little bit of the presentation prior to this.
By the way, there is no fireside here.
Where is it? On the call.
It's like a coffee chat. No, I think you hit it on the head, which is ultimately what it does is there's oh, there's the fireside. Here we Yes, see,
in the bottom right corner.
That's better. No, so
I think it's you have a terrific everybody is doing stuff. I mean, I think that's really what you find right now is that traditional Internet plays that were more interested in the transactional financial gain from being a content provider versus we're going to make some of our own original programming because we know that, that drives things. And because it's opened up so much, you see things like Trans parent, which is Amazon, like not a fantastic show. I think not only are you seeing more get made, but you're seeing more get made at a quality level on the narrative. That's an interesting point.
If you look at the Golden Globes this year, right? Yes. I mean, there was not an ABC, CBS, NBC winner across the board and wasn't even an NBC nominee for a television show. But yet you guys dominated by far. Yes.
I mean, listen, I think awards are funny things. A lot can happen. I don't know how much you know
about the voting boards, but they're not the most Veneplative. I get it.
Yes. I mean, they're not working. They're usually the folks who are like kind of there at the Governor's Board and they're kind of have been out a little bit. Anything can happen at those things. It was amazing and we all kind of look at each other and say, will we ever relive a moment where you get to dominate all categories?
It was just fantastic, but I suspect that we will not have that type of showing next year. Just because we've skipped it. Right. So let's
just talk a little bit
about global strategy, expansion strategy and then the impact of LA because I know people want to sort of hear about that on production and how it's come back here and the support around it.
Yes. Mean, listen, I think we and whenever I see kind of new infrastructure being built, it gets me very excited. Listen, we've built a bunch of studios globally that we had to throw up. So, when I was doing Vanderv Brothers, we went into Hatfield Aerodrome, which is a gigantic space. And we needed a mill space.
Well, it just so happens one of their hangars was a mill space, but then you get into the infrastructural needs of heating 1,000,000 square feet of whatever the fuck it was. And gone. Yes. Or when we were doing From the Earth to the Moon, right, I figured, it's fireside. I'm sure if I can have one square.
The kids aren't here, so I can swear one. When you go to From the Earth to the Moon, we needed to create a 40,000 square foot moonscape. The only place to do that was at the El Toro Zechlin Hangars. Well, you get in there and you realize, oh, I got to blackout all the windows. Oh, God, that's $1,000,000 for this space.
So we certainly find ourselves even in Game of Thrones with Titanic Quarter developing studios where they don't exist. And the one thing that I tell everybody is you got to have to when you do this, you have to have a couple of things for it to be lasting. A, you have to have an incredibly vibrant community. Don't expect to go into a place and build a community in a place that doesn't have an incentive. That's why we get stuck having build like pop up shop versions of real studio.
A place like Los Angeles, New York, even Georgia, which has had a these are places that are interesting because the incentive money is driving production there. And now there's a lot more production. Now again, some of this incentive money has caps on it depending on which kind of setup you're in, whether it's credit sale, whatever. But I do think we want to shoot everywhere, but the one thing that we always look for or the four things we always look for after we read the script and know that it's being takes place on Mars or the Earth is we look for places with incredible infrastructure, places with really good, obviously, hubs of travel because sometimes we're traveling people in and out. We look for a place that's got a vibrant filming community because of the level of work we're trying to do.
And also, it has to be whether a financial incentive or how we cross stuff out. We always have those things that we then balance into the world. I do think that So just waiting on that.
So we go check, check, check, no check-in LA until recently now, right? But again, I think
LA does because it's got check, check, check for the first three for sure. And so it wasn't like we weren't shooting in L. A, but the truth of the matter is Mildred Pierce, which was a show about L. A, was cheaper to shoot in New York than in L. A.
We shot it in New York, okay. And now also we had some actor things that made it better for us to shoot in New York, but like that allowed us to do that. What's it mean it doesn't mean that we don't have a vibrant say, I mean, we've been shooting Well, a
shameless plug, you want
go Sunset Garand and Sunset Bronson, they have to be your favorite places. They are. Bill just told you that, right?
Before even everybody we've been shooting here I've been working in that little area most of my adult life. So, and whether you look at our first long show, Six Feet Underweg, which I feel like is the first one we really like got to experience a nice long, great seven year run of a show and watch the same thing kind of watch the facility kind of not grow around us,
but form around us. Absolutely.
I mean, was a shithole before that. Yes. It was. I'm telling you, know. When we bought it, it was.
So, but that unbelievably successful. So, me ask you about Would you guys ever consider because I know everybody here, this is their $1,000,000 question, would
you ever consider owning your own studio? So here's the thing. We're not in the business of owning our own studio. And I think that although there is a place for owning your own studio when you're Warner Bros, Sony, blah, blah, it's the truth of the matter is that how we film stuff doesn't give us the flex we don't want to have our flexibility encroached on. I don't really want to be in the studio business.
Actually, I know I don't want to be in the studio business. Got it. And so places like yours are key.
our investors don't want me to be in
the studio. I know, and they told
me that. For years, they've
been telling that. Did like suggestion box earlier and very No, I think, we don't want to have CapEx that's going to studios. We need CapEx that's going to our friction free products, And that again, we shoot at Sony, we shoot at some of the big but those are studios that generally are a little less nimble in how they would form around a show, and that's partly just because they have big departments that they have formed over the better part of one hundred or two hundred years, whether it's in wardrobe, this, that, lighting, that, that. And you're a little bit of a second class
Yes. Right?
I mean, in life, yes. No, mean, if they have their show, major production.
You're like hanging out in my house. Yes, totally. Exactly.
No, I think that's it. They and so they're feeding a beast, right? So we want to be somewhere where we can have the flexibility to get the show the resources it needs. Obviously, we understand that you pay somewhat of a premium to have someone else build that infrastructure for you. But to the extent that the infrastructure is moldable for the show, I think that's one of the things that you'll find with all hopefully with all these shows, particularly with companies writing checks to kind of people like is that each one of these shows is its own entrepreneurial business and because it's kind of commerce meets art endeavor, you never know whether it's going to come out subjectively good and you have a Game of Thrones or you have a Johnson Cincinnati.
Right.
Which is what? Exactly, right.
Yeah. Which is what? Exactly. We don't know it, right?
Right. And so I think because of that, you wind up wanting to create these productions melded to these showrunners. And each showrunner works a little differently, particularly when you're spending a bunch of money out and getting all these new people who may have worked in theater and never done anything here or may have done movies and never done anything in the series space. So you want to build a business, a stage, a production plan that's around that particular business.
It's funny you say that, Chris. When we started this business, of course, we went through the strike, the writers' strike, then the unions and the whole thing. But I can't tell you how many people asked us about I love writers,
but there are times where I just wish I could ask them to put the pencils down
that way.
And instead of them telling me they're putting the pencils down. I'll put them down now. You guys have been writing this script for like six years. It's put member put the pencils down.
Well, people would say to us like Dexter was a great It was a great show for everybody. It's like, how did you guys get so lucky? Said, we're not talent guys. We rely on HBO. We rely on you and credit, and I'm not saying this, but I think people who know our business, the credit is 100%.
Every single one of you guys, nobody's ever been late, nobody's ever not paid, because if you did that, you wouldn't get the stages,
you wouldn't get the access.
We're also publicly held going inside a publicly held company, which is something I'm pretty sure.
The entire industry, it's great I'm credit sure
Jeff Bucas doesn't want us going on a one hundred and ninety day net when you're requiring a no. I mean, I'm sure he'd like it, but I know that there might be some corporate
financing I think our CFO would
have a problem with that. I know that.
Talk about Hollywood. Because you've been here, the transformation now Hollywood, you guys filming in Hollywood, you're really focused a lot in that.
Tell us what you think about it. Listen, it's a great place to shoot. I love it. We're doing more and more here. A lot of the times, one of the people it's always balanced with a couple of different things, but it depends on what type of show it is.
Comedy is, by and large, you can kind of put in most places. So people like to be home. People like to be Most
Talent people kind of dictates a little bit. Dictate. Than a little bit?
And so when you're looking at a thing and you go, okay, can I put them in LA or do I have to ship them off to Eastern Europe for nine months? Well, it's probably going to not get the same quality of accuracy in Eastern Europe for nine months on a six year rotation, right? That said, if we have an ensemble cast, it's different, right? But L. A, we're doing right now, we're shooting several pilots here right now.
We're shooting most pilots we've ever shot here. And it just so happens that we got some products in where people were writing for places that were a little less character driven. Sometimes you get art scripts come in and the location is part of the story in a big way. So it becomes a little difficult for us to sometimes true that up with where we'd like to shoot. But L.
A. Is we're back in L. A. I enjoy it, enjoy driving around and seeing our No, it's true. And the thing about it is that you do have the ability to you forget when you ship out to and New York is very, very vibrant and Ireland is very vibrant because we've been there.
But you forget that when you ship out, people who are in L. A. This is where everybody is who does this. So everybody is who's doing some of the best technology in visual effects, they're doing the best technology in cameras. This is the center of being on the bleeding edge of technology.
And for all of us who are trying to deliver the highest quality product, it's important that we're at the center of and in the places where we can experiment like everybody else is experimenting so that not only on the distribution side, we're staying we're driving the technology process. But on the production and capture side, we're driving the technology. And being in L. A, it's nice to be here because it makes that stuff a lot easier. So give me or give us your prognostication on branded Oklahoma City and four.
It's already been five, but No, I'm in the finals. Oh, the finals. Okay. All right.
Well, actually, that's interesting because this is where I was going. I mean, live sports is the only thing you can't replicate, right?
Yes. So where do we where do you
think CBS, NBC, ABC, network television is going in the future?
Listen, they are live sports events are clearly the driver of getting amazing ad revenue. And it's those live sports events drive how people negotiate long term deals with the NFL and CAA, da, da. It drives how those networks are carried in a package for the major broadcasters and the carriage rights that go along with that. But you guys do it.
I mean, you do boxing,
you do MMA. Right. You know, well, we don't do MMA, but I really wish we had, but we never You missed the band. We didn't we had a chance, but did.
Listen, for us it's great. I think we find that in the boxing, Peter Nelson could speak more to this, but I do think that we find that boxing is an incredibly vibrant sport, particularly when you've got people who are fighters who are kind of in the current mainstream that people are getting behind. So that drives enough viewership, quite frankly, that you make a decision of whether it's going to be on Saturday Night at
Boxing or whether it's going to be pay per view.
But what happens to Thursday Night television?
Must be TV, right? Listen, again, I think it's I don't there's always going to be a place for live sports events, and there's always going to be a place for news, and there's always going to be a place for, quite frankly, things that are shorter as we see shorter in content level, but are completely current. Topicalness is definitely outpacing narrative with against volume of programming, So because it's also easier to produce 100 episodes of Chelsea Handler, of course, than it is to do 100 episodes of Game of Thrones.
Chelsea Handler is on our studio a lot now. I know.
At 98 episodes. Exactly. But okay,
so let me ask you this one because it's the Game of Thrones, right? It's the most successful, most expensive television show of all time. I mean, that's What's not your I won't
talk about it, but it's not. Will Are say
you over $10,000,000 in FFO?
I'm not going to
talk about the I five know.
Will tell you that.
Mean, these are huge numbers, right? Yes. Mean, listen, it's a very, very big show based on the subject matter. I remember when we did the first pilot and the Game of Thrones, the George R. R.
Martin, they are occult and don't mess with them because they will kill you. I remember you see the comment section about, oh my god, those people at HBO have no idea what they're getting into. Have they even read the third book? And it's like, we've read it and we're planning and yes, we've lobbied very hard to get the film television high profile credit.
How many people watch Game of Thrones?
Just to see. Look at that.
I know. These are middle age and up people and they're watching the show.
It's great. It's a good joke. Mean, it's crazy, right?
But I mean, okay, it's a huge show. We've also, to be fair, along the way, planned for incentives that rolled in into the third season. Got it, okay. So I mean, we're you're
on season five? Six. Oh, six. One more season to go?
No, we believe that we've I believe we announced that we're into another season. Season seven, yes. Yes.
So and then after that, you don't know?
Yes, there should be another season.
And you're ahead of the books now.
Yes. So this was the fun I got to have last night, which is I got to I was coming from day work, of course, you could sit and meeting a colleague at a restaurant and you're hearing people talk while you're waiting for a person, and they go arguing and arguing, and they're comparing George they're comparing this season, which is off book, right, to George R. Martin's book, which is the last five seasons previous. The book he would have written and how is this going work. So they're going through this whole thing of when he writes, how is he going to keep these characters straight and they're off book.
I just leaned over to them, I go, you realize you're comparing it to something that doesn't exist. Like, You'll see George's book. I mean George has been writing this book for a long time. Twenty years. So I just I love the question because, listen, we would have loved nothing more than to follow his amazing world and have that as a but at some point, well, you got to continue.
He's not he's and they are talking and they talk a lot and all the characters are that are going on in this series are things that George is aware of, but and they understand
what
the mythology would be. My sense is if he ever gets those books, they're going to be different just because of the nature of that narrative.
And you've also created something maybe he wants to go away from?
No. I think he's very I think they're very symbiotic. I think that's the one nice thing about this show is between David and Dan and George, they are incredibly you've got they're all caretakers of this story now even though it's George's world.
So, okay, and I'm going open up the questions, and then one second one. What's the most surprising HBO series or show that you guys have sort of done and said, wow, I didn't realize it
would be that good? Anything else to help you with that? Well, we never allow ourselves to say something is good ever because that's a bad, like Kid to death. Yes. I mean, we're always trying to go like how is the show, what are we're always trying to smartly go.
Like us performing on numbers, we actually we know we're
never going get there. Yes, mean, but I think that Silicon Valley was an amazing kind of surprise even Michael Bloomberg, right? Yes. Even though you know Mike Judge is going to just kill a workplace environment thing. But the thing about HBO is that we don't and this is interesting as it plays
interesting you said Silicon Valley, right? Because there's a whole anti tech Hudson, anti tech and now
Yeah, I mean it's Meta Meta, right, Meta Meta. But I do think that you always wonder, the thing about HBO is we don't pilot a lot. We don't have 25 pilots. And so this is kind of useful to you guys. We come in to do a series, our idea even though a couple haven't gone lately at Sunset Gower, that was going to shoot me death look, One in particular.
One in particular. I got it. I was just moving around. Got you. No, I think we try to do a series that's going to be on for six years.
And so once we get to pilot, you know for the most part that like we don't have the
ability. Well, tell people all the time that you once you've heard of
our thing went to pilot, like we've invested a lot. Game of Thrones came in and it was not an impressive pilot. We reshot enough of that pilot to fulfill the DGA requirement to change director names. Wow. So, please don't put that in any of your
Don't worry, we're just live simulcasting. That's okay. We're okay.
And by the same token, when we got the pilot at Silicon Valley, there were adjustments to make, major adjustments to make.
All We're going ask a couple of questions. Bruce, anybody got any questions? No fans. Really? There you go.
Yes, sir.
I guess with Well, I mean, I think because we're in a cyclical thing, what we try to do is when we get a show, we make a deal with these guys that has options for five, six years. So our intent is to come in. We never come in and say, hey, we're going to do this for a year. And hey, we'll talk to you guys next year when we know what's going on. We always go in to make sure that again, we go in thinking we're going to do a long distance.
So we are never trying to we're always on the side of longevity versus trying to play this and that in the market. We have several times through life done hold fees to have a moment to make a decision even. And we've done that more than anybody, even though you'd hate to do that because sometimes it doesn't go into the show. But if it's that busy out there and it certainly has been and had been, those are the types of things you do. And I think unfortunately because we can't control the we're only as good as the people who walk in the door and pitch to us, right?
So we don't have the ability to say we're going to be we're going to have X here. We have to be fluid about where those scripts come in because oftentimes, if it's a period piece or whatever, even though we probably aren't developing as many of those now, You don't want to have locked yourself into something that you can't produce. LA will always get a huge part of the growth just because of the load leveling of the type of production, right? So because people are going to make push more money out into the space, there will be the 30% to 40% of stuff that has to go somewhere because that's this higher level show and it's written for Sweden, so we can only shoot it in either. And then there's the rest of the production, which is the kind of stuff we're doing as well, which is Bill Simmons, which is John Stewart, which is Bill Maher, this is the Chelsea Handler, This is the stuff where if you're taking if you want to fill up a library, right, as someone who has a library of IP, these are the types of shows that really help you stay current.
And those shows will classically fall to LA and some maybe to New York, but as you know, most of that stuff, it happens here. And because it's talent driven, those shows can be talent driven. They want to be in a place where all the talent is because it's easier for them to book. Sesame Street comes here once a year, right around the Grammys for a week to do all of their musical numbers. That's more efficient for them than it is and they're in New York on a big stage where, trust me, they're a revered place, everybody would love you know, how many of you would if you were a star would go, oh, I'm going by, you know, Howe's Place and Sesame Street has this little stage where they do their musical numbers all time, I'm just going to go check-in.
That's not how they do it, they come here. So I do think L. A. Will always get a good portion of it, but places are trying to stay competitive. You always also have to watch out for the supply and demand curves that go into a new place.
With any emerging market, you find that there is a kind of a pendulum effect of here comes the incentive, now that's a great place to shoot, now kind of load levels because it gets so busy. We've seen that. Then all of a sudden the premium for good people, by the way may not even live there, gets higher because the demand is so high and the supply is not enough. So supply really always helps us figure out how that incentive to actual dollar spent and what that dollar means for an HBO production, that moves back and forth. But when you get to a place like L.
A, there's enough going on here that you don't see that as much and you like that. New York has definitely gone up to a place where the incentive is covers for the most part the cost of being a busy New York.
Bruce Fishman, thank you so much. Thanks. Thank
you, Bruce and Victor. Now that Victor has called us all middle aged, we will take a short break, ten minutes. So let's meet back here at 09:45.
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Alright, everyone. If you take your seats, we're gonna get started again. So next up, I'm pleased to welcome Drew Gordon, our Senior Vice President for Northern California. Take it away, Drew.
Thank you. So I'm sure many of you have children, and my children are a little older. And I communicate with them via social media, primarily Instagram. So I send an Instagram photo of The Cure last night, and my 12 year old daughter responds, goes, Dad, I thought you were an investor conference. I was like, I am, and some obscure emoji afterwards.
I had no idea Still trying to figure out the emoji thing. Anyway, good morning, everybody. I see a lot of familiar faces, and I think this is a much better approach than the SUV, the taxi, the all the limo, the bus tours that we do in the Bay Area, this is much better, I think. I know there's a lot of effort that goes into it, so Laura is probably going to kick me afterwards.
But what an amazing time to be in Northern California. Almost six years ago, when I joined Victor in Northern California, he really had two things that he wanted me to focus on. One was to help him grow the region and two was to integrate with his team. And I had no idea just how quickly we were going to grow in Northern California, but it's been an incredible ride. The market I've been I've lived and worked in the Bay Area for almost twenty six years, and I've never seen the market so vibrant and so healthy as it is today.
There's been a lot of conversation recently about the health of the Bay Area economy, how we're doing, many questions, very legitimate questions about things such as VC funding, unicorns, my favorite subject, sublease activity, new supply, etcetera. And from our perspective, the overall Northern California remains healthy. BC spending had a very strong quarter this year. Job growth remains positive. Tenant demand remains strong.
New construction product has been delivered with substantial pre leasing efficiency. And more importantly, though, Hudson's office portfolio in Northern California, we are very well positioned to continue our solid growth in occupancy with substantial mark to market rent growth, all while benefiting from a well balanced portfolio of best in class properties and tenants. Our NORCAL team is now fully integrated and energized to continue, I think, the great results and growth results that we've seen to date and feel very optimistic about the future. So let's start by discussing some of the strong momentum. Victor touched on this a little bit in his presentation.
But obviously, the Bay Area has been one of the leading areas in the country in terms of occupancy, rent, rate increases, asking rent growth and remains one of the world's leaders for clusters for innovations and creativity. The important thing on this slide is the 5.2% vacancy Francisco, which is one of the best rates that you're going to find anywhere in the country. And I think it's further evidence of the continued strength of that submarket. And then for the Valley, rent growth, well, for both San Francisco and for the Valley remains robust as evidenced by the year over year increases.
So
this is a good slide. It talks about Hudson's strong portfolio diversification, and it starts at the corporate level. Obviously, our combination of our Seattle portfolio, Northern California, Southern California and media properties that Bill spoke about. And this diversification continues as we get to the Bay Area with a diverse breadth across the San Francisco Peninsula and Silicon Valley submarkets with our portfolio spreads at 25%, 4035%, respectively. And within this diverse geography we place, we further enjoy a solid mix of both nontechnology and technology tenants at 5347%, respectively.
One of the, I think, powerful outcomes of our purchase of EOP that we benefit that our competitors do not is access to information. We are in all the major submarkets in Northern California. We know where the deals are happening, when the deals are going to happen, and we've been able to use that information tactically and strategically to help grow our market to grow rent growth and occupancy as well. So this slide compares how our Barrier portfolio is performing against the overall market in terms of percentage leased. Both our San Francisco and Silicon Valley properties are outperforming their prospective submarkets.
The Peninsula submarket, which is home to Sony's former headquarters in Foster City, and as many of you know, single biggest vacancy, has also been one of our major lease up priorities for the portfolio. Our efforts have included substantial and targeted capital improvements of the properties, which Josh and Chris will talk about shortly, as well as the deployment of our vacant prep program that Arp will speak to a little later as well. And as a consequence of these efforts, we're starting to see the tide shift in our favor in The Peninsula. First, we can now announce a new signed lease with BrightEdge for a full floor at 989 Hillsdale, our property for 36,000 square feet. And second, we've seen a recent uptick in tours and activity for the balance of the vacant premises.
So we're very bullish on The Peninsula right now. Our portfolio also boasts a large percentage of mature investment grade tenants such as Google, Qualcomm, Salesforce, Cisco, BofA and others. 74% of all our Bay Area tenants by ABR have been successfully operating the businesses in excess of ten years. And of all the technology companies in our portfolio, 68% have been operating for that equal duration. Lastly, and this is a great statistic, of our top 15 tenants by ABR, ABR nearly 60% are investment grade companies, and twothree of those companies are located within the Bay Area.
This slide kind of continues our focus on public versus private companies, and our NORCAL portfolio boasts 60% of our tenants that are public. Additionally, 4046% of our non tech tenants are public entities as well, further evidence of the strength and stability of our tenant base. Okay. Unicorn, one of my favorite topics, both with my 12 year old daughter and I'm sure all of you here, and as Canadians call a unicorn a narwhal. We have some new experts on narwhals who will be taking Q and A during the next break.
But a unicorn is defined not by Webster's private start up company, dollars 1,000,000,000 valuation or greater. And as you can see, our exposure is only 7% of our total portfolio by square footage, but half of that 7% is Uber. And so or put in other terms, we have seven one horned whales, one of which offers ride sharing. This is another great slide, and it talks to, I think, maybe one of the bigger issues that questions that get posed to us quite a bit, and that's what's happening with sublease activity in Northern California and which is much less mythical. When comparing Hudson's NORCAL portfolio against the overall market, we're obviously outperforming in the Peninsula and Silicon Valley submarkets in terms of availability.
I think the very interesting stat here is that in San Francisco, where we're showing 3.2% of available sublease, that is one single tenant. And it is our cash vault in the lower level of 1455 Market Street. If you were take that one tenant out, our sublease availability goes to zero in San Francisco. And if you were to adjust that on the overall Bay Area, we dropped from 1.9% to 1.1%, which is literally half of what the market rate is today. So though Hudson currently has no ground up development exposure in Northern California, Of the 16,000,000 square feet of new office construction underway, 50% has been pre leased already, resulting in only 4.2% of the total available inventory, an inventory rate well below historic averages.
The delivery of the square footage actually runs through the end of twenty eighteen. So if you annualize that, you're talking less than 2% per year. Finally, with only 29% of our NORCAL portfolio expiring by the end of twenty seventeen, we expect to experience substantial mark to market rent growth across the portfolio as evidenced by comparing our expiring rents against significantly higher market rents today. Two points I want to make here. One, Art and his team have been way ahead of the curve on handling our '16 expirations.
I think we've got commitments to 60% of our '16 roll and about 30% of our 'seventeen roll. But the stat, which is most shocking here, is 129% mark to market of our expiring rents over the next two years to where market is today. And look at it this way. If we're off by 50%, you're still talking about a 60% increase in mark to market rent adjustments. That's staggering.
I think the third point that's worthwhile mentioning is the reason that, that spread is so high is because we bought so early in the market. And as a consequence, our basis in our assets is very low, which gives us an additional competitive advantage over our competitors in San Francisco. So in conclusion, our portfolio has experienced no signs of weakness in any of our three submarkets, quite the contrary. We've seen strong demand in all of our vacant spaces and good health from all of our companies. Thank you for your time, and come soon.
Thank you, Drew. And now we'll turn to Seattle and hear from David Tye, Senior Vice President of Pacific Northwest.
Hello, and good morning. David Tye, Senior Vice President, Pacific Northwest. 2016 marks my thirtieth year in our industry. My focus has been on leasing, operations, acquisitions, dispositions and leading teams. I'm a Seattle native and have been with Hudson Pacific Properties for eighteen months.
I have the pleasure of talking with you about our Pacific Northwest region and specifically the Seattle market. The market primary drivers, the attraction of Pioneer Square and how this contributes to our strong position there both near and long term. The Seattle MSA is a $300,000,000,000 annual economy with 3,700,000 people. Seattle proper has a population of 668,000. The Seattle Bellevue Eastside market has undergone enviable economic expansion since the early 1980s, and it's called home by companies like Boeing, Nordstrom, Microsoft, Costco, Weyerhaeuser, Expedia, PACCAR, Inc, a host of technology and gaming companies and most recently, a rapidly growing little technology and retail company called amazon.com, who has chosen to reside in the heart of our city.
This slide just lists some of
the rankings and accolades for the city over the past year 2015 and details some of the primary drivers for this high growth gateway city. Let me stop here for just a minute. These rankings, we didn't have to spend hours on the Internet searching for that stuff. Check it out, as my friend Steve Jaffe and our Chief Risk Officer likes to say. Those are ones, twos and alone number four.
That's pretty cool. And it's my hometown. I have the best real estate job in the city. To be working for this team here, our Seattle team on the ground, amazing group of properties at this time in Seattle's history, I feel very fortunate. So an amazing time for our city.
Some of the key drivers are shown here. Those drivers are leading companies, both in the tech and non tech sectors that are located there are expanding to have a major Seattle presence. A highly educated workforce, one of the top in the country, exceptional employment growth since 02/2008,
2009
downturn, an esteemed national position for the University of Washington in securing R and D grant money, not to mention very strong VC funding over the last four years. In the quest for talent, opportunity and a vibrant energetic business environment, companies are focused on CBD and high barrier to entry adjacent CBD submarkets like Pioneer Square, where our holdings are located. Not only was our Seattle portfolio a good buy, but Pioneer Square Holdings affords significant value add opportunities currently and into our future. When talking about the Seattle market and robust fundamentals, we like to use the geographic area that spans from North Lake Union and the Ship Canal, home to one of Google's Puget Sound campuses to the South of Pioneer Square and DeSoto, inclusive of the CBD, South Lake Union Denny Triangle, Lower Queen Anne, The Waterfront and Pioneer Square. Let me stop here for just a moment.
Many of you probably read reports from the top brokerage firms and reporting agencies. Often those reports include Seattle and the Eastside as one market, inclusive of Bellevue. And they often include the Greater Eastside, which is Redmond where Microsoft is and up to the North where Bothell is. All of that gets labeled as Seattle. The goal here is to orient you geographically with what we feel our market is, at least today.
This slide references what we call our market. So these numbers are drawing from our market. All our slides, market data and comments relate to a 45,000,000 to 50,000,000 square foot market from the North Lake Union down through So To, which gets its name from the former Kingdome, and that's just south of Pioneer Square in our holdings. Like I to say that Seattle Bellevue Greater East Side market is 100,000,000 square feet and the market with the Seattle address, which people appreciate, is a 50,000,000 square foot market. This slide highlights themes and characteristics of this market as well as strong fundamentals.
Record absorption, declining vacancy and rising rents. I'll hit that first and come back to the themes. Absorption, dollars 2,400,000.0 for 2015, up from $1,400,000 in 2014. Average annual office absorption since 2010, one point eight thirty year average annual office absorption, 800,000 square feet. The graph shown here details a tighter look at the market that focuses on just the CBD and Pioneer Square.
A vacancy rate that has dropped from over 18% to a little over 9.5% Q1 'eleven or five years in a healthy growing market. And as a result, rental rates of approximately 35% or 8.75% a year over the same four year horizon. So I've been in this business for thirty years. I've seen rapidly increasing markets and I see some high rates. But this is the most solid fundamentally sound market I've seen in Seattle's history over thirty years.
Both traditional, non tech and technology tenants continue to drive demand and it comes from expansion of local companies and inbound publicly established technology tenants. We don't have start ups. I mean we have start ups, but the growth and the absorption is from established publicly traded technology companies, many of which are coming from Seattle or excuse me, from San Francisco and Silicon Valley. And we view this as additive to our portfolio in no way are we cannibalizing. These folks are not relocating from San Francisco.
We're not robbing Peter to pay Paul. These guys are growing in our portfolio. We have strong asset sales and record values, $7.50 a square foot to over $800 a square foot in the last year. And finally and importantly, a growing appreciation for the urban feel of the city, demand for Seattle submarkets and in city living. That's important.
Every month, the city looks and feels and becomes a lot more like San Francisco and Vancouver, BC. As you can see from this slide, the majority of our current holdings are in Pioneer Square, totaling 63% of our Pacific Northwest portfolio. And when you combine that with our South Lake Union Denny Triangle market presence, you see that 82% of our holdings are in the urban core, in the vibrant adjacent submarkets flanking the CBD. With our Linwood asset, we are 93% leased with an average three year remaining term. And as you can see, we are 96% leased in South Lake Union Denny Triangle with average expiration of 2023.
This is a single tenant leased asset to amazon.com. As a result, we're focusing today on Pioneer Square, our assets that we hold there and our ground up development. Pioneer Square is where Seattle began and was the flat spot on Elliott Bay, surrounded by tall hills, lots of trees and a deepwater port, all of which were important to its early growth and which helps to define it as a gateway city for trade and export today. It is currently a 4,000,000 square foot office market characterized by older historic buildings, small tenants and small floor plates. The district is just North of the Stadium District and immediately South of the CBD, but conveniently connected to not only the CBD, but also the growing submarkets North of the Central Business District and along the waterfront.
From afar, you hear a lot about Seattle and a lot of it has to do with South Lake Union and the Denny Triangle.
It gets a lot of press.
Pioneer Square, not as advertised nationally, same
kind of
thing, maybe even cooler. Got a lot more authenticity and a lot of history that's there that South Lake Union doesn't have. Our assets in Pioneer Square are blocks from the stadium. They're close to restaurants and retail, access to King Street Station and the streetcar, rail lines. We're four blocks from the ferry terminal at the Coleman Dock.
We're three minutes from I-five and Interstate 90 on and off ramps, and we're adjacent to a new waterfront. Also of note is the partial tenant roster let me go back for just a minute. Also of note is the partial tenant roster for this submarket, ADP, Getty Images, Paul Allen's Vulcan, EMC to name a few. And of note is the fact that both Weyerhaeuser for 200,000 square feet and Saltchuk for 90,000 square feet, both longstanding Seattle companies, one in timber and Saltchuk, a maritime company, they're both choosing to locate in Pioneer Square as the next generation of Class A office buildings comes to the neighborhood. This slide highlights some of the benefits of the neighborhood, speaks to the walking and bicycling friendliness as well as lifts over 30 eating and drinking establishments in a tight manageable radius.
Seattle also enjoys two of the finest outdoor sports venues in North America, both within walking distance, which adds electricity and vibrancy to not only the neighborhood, but also the city and the region. I think the point is obvious from this slide, but I'll go ahead and make it. This proximity to transportation, infrastructure, the historic flavor of the neighborhood and the flat walkable area with authentic retail, eating and dining has made Pioneer Square the location of choice and preference for a number of established tech companies and traditional non tech companies such as Saltchuk, who have recently relocated or are in the process of relocating here. Along with all of these beneficial assets, we are in the process of getting a new world class waterfront. This slide shows both the before and after and lists a few of the key details.
We chose the slide on the left because it shows that really changed, didn't it? Sorry about that. The slide on the left shows 505 First Avenue and our holdings there in Pioneer Square adjacent to the waterfront as it exists today. The slide on the right is a rendering from the north, kind of give you a different perspective and shows the viaduct down with a new promenade and city park. The Waterfront project is currently under construction and consists of the undergrounding of State Highway 99 by means of a deep tunnel along the bay and under the city, removal of an obsolete elevated viaduct and rebuilding of a seawall that's 100 years old.
So the Embarcadero in San Francisco, same kind of structure, obsoletes coming down in Seattle. We get with this a new boulevard, park streetscape, open access to waterfront that is in transition and enhanced views for residents, visitors and office workers. It's a $1,000,000,000 project with $700,000,000 in committed funds with a little over $300,000,000 to be raised through a Central Business District Waterfront and Pioneer Square funded LID of approximately $200,000,000 and they have commitments for up to $100,000,000 through a philanthropy effort. That goes to speak to the commitment that people have in the private sector and the families of the Pacific Northwest putting their money into this enhancement because they believe in the future and what this will do for the city. The estimated completion date comes in phases, but the majority of the project is estimated to be done in 2019 to 2020.
It's an exciting project and despite its complications has tremendous support. It will get done. It will get done. And I'm convinced it will be even better than people can now imagine. I grew up here.
We've got a working waterfront. It's got great rich history. We put a freeway along the front of it like San Francisco did. It's going to be an amazing place. And often, people that are outside of the city see it with more vision and clarity than people in the city.
We've got a lot of people in the city that see it with vision and clarity. But the world is watching us create this new world class waterfront. So it's going to be exciting. So it's not only exciting for our city, Hudson Pacific, we're right where we want to be. We are right there and we're going
to take advantage of it.
As Victor likes to say, we're going to have oceanfront property. All the mentioned attributes of Pioneer Square, the solid vibrant economy in our region and our new waterfront translate to very good news for our existing portfolio. Our ground up development at 450 Alaskan Way and our future acquisitions. By way of example, let's look at mark to market rent increases we are experiencing and forecast to experience in the next few years. The bottom line on the table puts forth management's internal expectations regarding the opportunity to grow in place rents as the market continues to experience tightening in year over year rent growth.
You can see from the top line that our expirations are relatively modest this year and for the next two years, but we have significant opportunity out in 2019 with the expiration of Capital One lease that was signed by our predecessor in the depths of the two thousand and eight-two thousand and nine financial crisis, a very real opportunity to create added value. Note the 43% below market today and then the 35% out in 2019. As part of the Merrill Place purchase in early twenty fourteen, HPP has demolished a two story 1980s nonhistoric garage and is underway with the construction of an eight story 165,000 square foot Class A office building. The project is immediately adjacent to our existing holdings and will be the newest offering in our branded King Street Crossing, a two Block 2 City Block urban campus. We are building into an incredibly geographically constrained market, limited existing Class A supply, no new office development since 02/2009, very few development sites, a historic designation for most all of the buildings that sit in this district, which fuels a rigorous entitlement process.
And all that equates to high demand for larger Class A office space in modern buildings. The building will have a prominent Alaskan Way address signaling the arrival of Seattle's new and much anticipated waterfront. And in part due to this, the views, waterfront location and Hudson Pacific Properties reputation, we've secured a 60% pre lease for the building with Saltchuk, a maritime logistics and shipping parent company active up and down the coast and around the world. Saltchuk is a respected old school company that holds the number one position on the privately held Washington State companies list. The building will have a 6,000 square foot penthouse, and you're seeing part of that right here.
It will have conference and tenant amenity space with sweeping views of the waterfront, city skyline and Olympic Mountains. Page 19 of our supplemental lists details about our construction costs, land basis and going in yield, so feel free to refer to that. We have a confidentiality agreement with regarding the Saltchuk lease terms, but I can tell you our lease is at some of the highest triple net rates in the market today. We are currently in discussions today, in fact, with interested parties that would potentially take the balance of the building. The project's reception in the marketplace speaks to the attractiveness of the Pioneer Square neighborhood for both tech and non tech tenants, the excitement about the new waterfront and the desire for modern large spaces in a traditional small market of historic buildings.
When complete, we will have a one of a kind urban collection of renovated historic and modern Class A buildings in a two block Waterfront location totaling over 800,000 square feet. And as Victor said, it will all be on oceanfront property. My hope is that in the few short minutes, I've been able to convey our excitement for Seattle, the strong economy, market drivers, along with the unique opportunities we have to create value both near and long term. We are creating a one of a kind portfolio in a unique submarket that is in the beginning stages of truly becoming a truly special place that office tenants are attracted to and want to call home. Thank you for listening, and I look forward to seeing you in Seattle.
Thank you, David. Now we're going to hear from Josh Hatfield, our Executive Vice President of Operations Barton, our Executive Vice President of Development and Capital Investments.
Good morning. Chris and I are going to take a few minutes and share with you how Hudson has leveraged its vision to build and execute a comprehensive portfolio capital plan. HPP has a significant track record of success repositioning assets, demonstrated across submarkets, asset types and project complexity. We believe this is attributable to the vision that exists across the HVP team. We see things that others don't, resulting from extensive years of experience, the vertical integration of the company, being closely connected to our markets and our customers and and having the license to take prudent risks.
Take fourteen fifty five Market. HPP transformed an ugly windowless data center into best in class creative office that tenants across San Francisco envy. We recognized and exploited the momentum building in the mid market area of San Francisco and redesigned the highest and best use for a 23 story tower with a lower podium the size of a full city block. We had the vision to identify the opportunity and execution capabilities to deliver world class creative office space, now the world headquarters for both Uber and Square, enabling us to JV the asset for over a 300% increase to our investment. Staying in San Francisco, reference our success at 275 Brannan.
This was a vacant food storage warehouse. Again, we identified an underutilized asset with a terrific location in SoMa. This building was converted into high end creative office and 100% leased to a tech user paying top dollar rents. As Victor mentioned earlier, here in Los Angeles, you can look to our Element LA and 3,401 Exposition projects. Both started as rundown warehouse lots distinguished by their West Side infill locations.
You're noticing a theme, having the vision to combine the potential of a well located site with improvements that resonate in the marketplace. Today, these projects provide full service campus environments for Riot Games and Deluxe Media. Most recently is our repositioning of The Landing on Jefferson Boulevard in Playa Vista. We acquired this asset early in the transition of Playa into Silicon Beach and have subsequently invested to upgrade the quality of the building and 100% pre leased it to WeWork and Dentsu, ultimately enabling a sale of the stabilized project at a substantial gain to our all in basis. The direct benefit of these examples for everyone in this room is that HPP's vision is a distinct and ongoing competitive advantage that is not easily replicated, and that benefit has and will continue to create substantial value.
The next application of these elements that made these past investments so successful is happening right now across the portfolio that we acquired last year from Equity Office in Northern California. I'll now spend some time providing you with insights into how this capital plan has come together, and Chris will deep dive into a sizable piece of the plan where we are fundamentally changing the positioning of one of the assets in the airport submarket in San Jose.
Regardless of the size of
the project, the HPP process for evaluating the demand drivers and leasing benefits that support the rationale for doing the job is fundamentally the same. Specific to the creation of the repositioning strategy for our NORCAL acquisition and executed as a critical component of the integration. We applied a detailed cross functional approach to create a comprehensive ten year capital investment plan. This process involved teams across the company from operations to leasing. To further support our internal evaluations, we engaged key brokers to understand their perspectives on where specific asset level investments would resonate the most with our customers.
And lastly, we evaluated tenant needs and desires through a portfolio wide tenant survey. The plan incorporates two basic components: building infrastructure, which includes structural components and engineering systems and elective capital, which is comprised of the common area upgrades. More simply, think of it as back of the house and front of the house. The plan contemplates the overall market, submarkets and individual micro market positioning to further support where investment dollars are best deployed. This is a dynamic living document designed to evolve with the changes in the marketplace, asset dispositions, leasing velocity and systems performance, with a detailed refresh incorporated into our annual budgeting process.
An example of the dynamic nature of the plan is the evolution of Page Mill Center in the Stanford Research Park. Art's team leased up the 60% occupied asset with Toyota in Stanford, eliminating the need for a planned $2,500,000 reposition, allowing us to reallocate the dollars elsewhere. It's our belief that these prudent capital investments defend asset value through improved infrastructure and systems performance and enhanced NOI generation by improving the current and future leasability of the asset. Much focus has been applied over the past year to our investment profile for the former EOP Northern California portfolio and specifically how it supports HPP's business plan and lease up for that acquisition. As such, I'll spend a minute or two focusing on our execution of this portion of the capital plan or how we translate data in a spreadsheet to swinging hammers at a property.
Here's how the plan lays out over the first three years, 2015 to 'seventeen. We're focused on deploying $63,000,000 of capital over that period, 70% on elected capital and 30% on building infrastructure. And it's important to note that this $63,000,000 is a subset of the $250,000,000 total capital spend that includes both TIs and LCs that we've shared with you in the past. Of the $63,000,000 investment, 15% has been spent during the first twelve months through March. The rate of the spend will accelerate over the remainder of the year as the teams push hard to deliver the improvements deemed most impactful early in our investment period while also leveraging delivery of upgrades into a strong market.
And keep in mind that invoice payment lags actual project progress, so a material piece of these $20.16 committed dollars are payments in arrears for work that tenants are enjoying today. It's also important to realize that we're extracting value from future jobs today. Immediately upon finalizing the plan, our leasing and marketing teams created a campaign targeting the key tenant rep brokers in the market to highlight that Hudson was committed to investing more than $100,000,000 over ten years to significantly enhance the portfolio to the benefit of their clients. Our team continues to reinforce this message with specific examples of pending projects on an ongoing basis. So how does this achievement of this magnitude happen?
For the elective capital work specifically, the teams have developed four phases of bundled projects. This execution structure strikes a balance between bulk pricing economies and construction team bandwidth overlaid across in-depth asset level knowledge that supports project priorities at those assets which most critically demand the investment. Phase one of the common area work launched shortly after the close is now complete, 19 individual projects totaling $5,600,000 75% of this work went into much needed restroom upgrades, and these restrooms were really bad. Many had carpet, most had two inches salmon and aqua colored tiles. They all looked and smelled like the '80s.
The renovation of these restrooms involved developing a set of standard restroom design templates that takes cues from the hospitality world. This standardized approach also drove architectural cost efficiencies, a consistent look and feel and greatly aided the speed of execution. Phase two is in process, 20 projects totaling $5,800,000 with scheduled completion in June. 40% of this investment is going into lobbies at assets that require near term leasing momentum. Architectural work has started on Phase three, twenty projects, 3,500,000.0.
This work will carry us through the remainder of 2016. Half of the phase is more restrooms and lobbies predominantly focused on our San Jose assets. Phase four to be executed in 2017 is 28 projects, 4,600,000.0, predominantly rounding out the portfolio restroom work. To reiterate, vision is a defining attribute of this company, a fundamental value creating differentiator that is not easily replicable by our competitors and is aligned and resonates with our customers, the next generation of office users. This vision extends beyond multimillion dollar complete repositioning projects and is equally effective when applied to smaller upgrades.
Everyone should appreciate the scale of the achievement to date. In the span of twelve months, the team developed a strategy, built an execution plan, worked through the design, pricing and permitting process and then completed the first 9,000,000 of the investment, all during a period of significant change related to the integration of the acquisition. This stands as a testament to the execution ability of the Hudson team. I'll close by reminding everyone of the primary goal of this capital plan, like the repositioning investments that have come before. These projects will deliver enhanced income generation across a broad cross section of the portfolio to the direct benefit of all of our stakeholders.
Let me now turn it over to Chris, who will detail the single largest project in the plan where we are repositioning one of our assets in the airport market in San Jose from being yesterday's plain vanilla commodity space into a truly unique asset to host the forward thinking tenants of tomorrow.
Great. Thank you, Josh. Good afternoon, everybody. So Hudson's had tremendous history of success with our value creation on development, redevelopment, repositioning projects in Los Angeles and in Downtown San Francisco. And we're now looking to take that unique vision and expertise and bring it to San Jose.
So looking at this slide, you might think that Hudson's moved into the discount motel or the residential business, but I can assure you that it's only the result of a really bad idea. Fortunately, I can say it's the only HPP asset with a pool as its centerpiece, but that's what
we had to work with
to start. Gateway Place is really the ugly duckling of the EOP portfolio acquisition, and we value this property at the lowest cost basis per square foot in our San Jose portfolio, but it's possibly going to end up being our best asset. The asset is part of our 2,600,000 square foot of North San Jose properties, and North San Jose is booming. It's experiencing a race for space. We've all seen what's happening with the proliferation of autonomous vehicle market.
Some of the most compelling deals in the Bay Area are happening here right now with the likes of Apple, Google and others. This property has five buildings that make up 609,000 square feet. It was built in the early '80s. When we acquired it, it was 80% occupied with approximately 80 tenants. So therefore, you have a lot of tenants but smaller tenants.
The average size tenant actually is about 5,000 square feet. But it's in an excellent location in the North San Jose market. It's right next to the San Jose Airport. It's at the intersection of the 101 And 87 Freeways. It's right across from the 86 acre new Apple site, which was just acquired, and it's walking distance to restaurants, retails and hotels.
The property as was could really be defined as commodity space with its dated interiors and exteriors and its lack of amenities other than the pool. So its appeal to the creative tech tenant was really limited. However, there were many opportunities and potential that the property offered, including concrete construction with large floor plates and attractive slab to slab heights. It was a real opportunity to create a campus with its large courtyard that fronts all the buildings. And lastly, it has outstanding visibility and signage opportunities.
But we had to come up with a plan. And we looked at our existing tenant base and the companies in the market we're trying to attract to Gateway Place. We then identified architectural elements and amenities that tenants wanted in their workplace. And we came up with a detailed project design attracted tailored to attract these tenants to the property while executing our strategy at a cost effective and timely manner. But in order to do this, we knew we had to make a distinctive impact on the property.
We knew we had to make some bold decisions that might be controversial. While others would have likely engaged the local design team, we engaged Rios Clemente, an established architect from Los Angeles that is well known at creating exciting work environments for tech and media tenants. We also engaged SWA, a renowned landscape architecture firm with numerous high profile projects on its resume. We had the vision to create a mix of local and outside design consultants to make something really special. And the improvements encompass many aspects of the property, including comprehensive lobby renovations that will be architecturally compelling, extensive facade improvements, a striking landscape courtyard with outdoor meeting spaces, play areas and an outdoor cafe.
And at last, we are also instilling new tenant amenities, including a conference center, state of the art conference center, a fitness center that faces the courtyard that includes showers and lockers and bike parking. We initiated project design soon after the acquisition of the property, and we're into the city for permits by the end of twenty fifteen. After receiving our permits in February, the property has been under construction, and we're anticipated to be substantially complete before October 2016. And as you can see, with the $8,500,000 budget for this extensive rep reposition project, we think the funds have been effectively targeted on the property to really drive rents since nearly all these improvements are actually front of the house improvements. They're not infrastructure or back of the house.
When we look at this from a macro view, we believe we will have created substantial value to this property while only modestly increasing our basis from $243 a square foot to $257 a square foot. Upon completion, we'll have a superior product in the San Jose market at a relatively low basis. And also, the incremental rental rates that we expect to achieve after completion is going to far outstrip the incremental cost basis that we realized. Gateway Place is only one of the many projects we've had the vision to pursue and execute our strategy. We continue to look at other similar opportunities within and outside our portfolio as we have the acumen and the expertise to complete complex development, redevelopment and reposition projects that create value for our shareholders.
Thank you for your time.
And now we're going to hear from Art Szwazo, our Executive Vice President of Leasing.
Hi. I'm as disappointed as you are to hear this morning that I'm not the headliner today. I heard it for the first time. That's not cool, Victor. Anyway, I'm excited to be here to talk to you.
We talk often, but I don't get the chance to really share with you what we do on a day to day basis, right? Something that I'm so passionate about, something that we've been really successful about, I now get the opportunity to do it. I could go on for hours. I've been told I only have a few minutes to speak, and that may be a good thing. I'm also excited to share with you how our unique strategy and process helps drive and define our HBP brand throughout the market, we're going talk about Northern California.
But we've been reaping the tremendous and really unparalleled benefits from this process since the very beginning, right? And I got to say in the twenty five years I've been in this business that I've never been associated with a process that yields such tremendous results. And I've been on the tenant rep side of the business, and I've been on the landlord side of the business. So let's move forward. I really that Jonathan Gray from Blackstone said it at the outset He said, we choose to take a major stake in a high quality portfolio, outstanding management team and attractive prospects for growth.
What I heard, and I have impeccable hearing, what I heard was we choose to take a major stake in Hudson, given its high quality portfolio and outstanding leasing team. So that's what I heard. And either way, it's a resounding vote of confidence for us. It's a challenge, I think, that we've been more than equal to and we will continue to be more than equal to going forward. The next few slides I'm going to talk about, it really gets in the meat and potatoes of what we do and how we've been successful.
Somebody wanted me to say it's our secret sauce. I hate that expression. It's really a well thought out strategy that's executed on the ground. I'm pretty sure that secret sauce was just Stiles and I were addressing. So it first starts with accelerating the leasing process, right?
Streamlining the negotiation. Everybody gets into the leasing process. It starts with a skilled leasing team. And the skilled leasing team really means it doesn't just mean the leasing professionals on the ground that are top shelf for us and have tremendous experience. It involves the property management teams, the engineering teams, the construction teams, the legal teams and so forth.
We get them involved early in transaction, meet with the tenants. What do we do differently? We listen. We listen really well. And we try to get the really salient issues out of the way and on the table, first and foremost, get the ugly ugliness of the deal on the table so we don't get bogged down later on in the transaction and maybe get leveraged for it.
So we do a really good job of setting up the deal. It's not about pushing paper, right? All other landlords just are content pushing paper. We're not. We set up the deal so that we can close quickly, and we set up that expectation.
Secondly, it involves strategic third party partners. What does that mean? Well, yes, we have the right roster of team members, but we want to have the right personnel on the field. Oftentimes, we'll get out in front of it, we'll find out if our attorney has worked with tenants' counsel, with tenants' broker, with the tenant, and they have some insight on the deal. Perhaps the architect has worked with them.
They understand the build out that the tenant is requiring. Or maybe it's a broker, maybe it's a third party broker that we use in a special circumstance to streamline that part of the negotiation to help speed it up. I use the example of the right personnel on the field. I have to go back to the 85 Bears, right, to get down to the goal line. Who's coming into the ballgame?
The fridge, right, right, to ensure that we get over the goal line. And no, I'm not the fridge in that situation. Oftentimes, it's Victor, I got to be honest. Timely financial review. A lot of deals get bogged down with the financial review, and they do it at the end of the transaction.
We do it as early as possible. We have two third party groups that we work with. They're best in the business. Our turnaround time is two to three days. It's a very comprehensive financial review in addition to our own financial or our finance department at Hudson, and we shave a lot of time off of it.
Next is local signing authority. We realized early that 90% of our deals are 8,000 square feet and below. And so we give the local team members the signing authority on the ground. Number one, it does speed up the transaction, shave some time off. But it also empowers them with the people they're negotiating with, right?
So they know that the guy across the table is the guy signing the lease. That was me shaking hands to close the deal. And it works, right? They know that these are the right guys on the field. Now all of this would be for naught if our ultimate goal wasn't to get rent paying rent paid early and fast.
And so that's the seamless delivery. Everybody working early in the transaction to get the space delivered to the tenant and the rent check quickly. Next
part of
the branding process is the broker outreach program, right? And the premise is and a lot of landlords, most landlords don't get it, the premise is, it's a broker driven business. It just is. We accept it. Many of us were ex brokers.
We take care of the brokers in many ways. So we do broker incentives that keep them happy. We usually target challenging markets, challenging buildings, challenging spaces on a one off basis to make sure that they
are
compensated properly. We also do gosh, we have $100,000 giveaway party that we've been doing for years, and it's talk of the brokerage community. They work all year to get an opportunity to win $100,000 by the volume of deals they bring us. And it's a black tie event at the end of the year. It's fantastic.
And I believe it pays for itself several times over. And you'll see later when I start talking about the pipeline that it's starting to create and help us maintain a robust pipeline. Lastly, the broker incentives, it says expedited payment. Obviously, want to put some shackles in their pockets quickly, but there's surety to payment, right? Surety to payment goes hand in hand with expedited payment.
Most there's a lot of landlords out there. Let's be honest, it's six to five in pick them whether you're going to get a commission check and how fast you're going to get it. So we really take care of them on that front. Then we have it's a courting process with the brokers, right? We have a lot of events.
We have roadshows. We have one off events. We have you name it, these really intimate events with them so you can understand what they're doing, where the tenants are coming from. It's all about the information, and they're willing to share with you if you're in a quiet setting, with 50 other brokers at some conference or whatever. What happens is that information helps us on deals, helps us on tenants in the market and it helps us on understanding what the other landlords are doing and how we can be strategic about or on a deal by deal basis, how we can be strategic to beat that landlord.
It gives us first and last look. Think about that. It gives us first and last look on many deals, which means that we really have the pick of the litter. And one example I can use right now, two examples, deals totaling 500,000 square feet in San Francisco never saw the light of day. Think about that.
Never saw the light of day, and we struck those two deals because of the relationship that we nurtured with the broker. And so what do these two things do? It creates an advocate versus adversary environment. They know that we're looking out to do a quick deal. They have surety to close, and it's a really solutions oriented approach that drives our leasing and our retention.
These strategies work, but you really have to have the space and the space ready to go, right? Speed to market is everything, and we want to make sure that the first impression counts. We have two programs in place that were alluded to before. One is the VSP program, the VacantSuite Prep and the other is the LeaseReady program. The VSP program,
so it's two prongs. The first
prong is really it's improving substandard space. It's building out spec suites and it's reducing our static vacancy. It's important to note that it's a forward spend of our TI dollars. So we're spending it in advance so that they can envision the space and move in quicker. We've got two phases going.
The first phase, we've built out 119,000 square feet, and we already have 82,000 square feet spoken for. So now we're launching Phase two, which will be about 176,000 square feet. The lease ready program, it's our kind of 2,000 to 5,000 square foot suites that we're just doing cosmetic improvements to. We're maximizing the existing build out. You might call it plug and play, but it just it increases our hit ratio on these deals.
And again, these two to five is really, really our bread and butter, right? We've approved 105,000 square feet. We've built 40 and we've got commitments for practically all of them. Now when these things are done with the right combination, you can see how we begin to unlock value, right? This is four examples.
These are real tenants, deals done in the first two quarters, renewal tenants, and the mark to market is off the charts, 44%, 136%, 10677%, respectively. The strategy works. And the bond and the billing of the relationships with the brokers, with the tenants also creates additional space opportunities with us because they want surety to close. They want to know that the process, the ease of the process is replicated. And I'll share with you these three examples.
They're existing tenants, and there's a total of these three. There's a total of 150,000 square feet of new deals as a result of just negotiating with these tenants at their current location. You might think, okay, big deal. 150,000 feet, three tenants, they're captive tenant, where are they going
to go?
Not the case. Every single one of these is a tenant who has another requirement in another market, in another building, another building, and they decided that they're not going to take the deal to market. They're going to deal directly with us, and we are currently in the process right now. Next slide is I'm actually most proud of this slide because it's our pipeline. It's our lifeblood.
And you can see it starts January 15. When we took over the portfolio, there was roughly 750,000 square feet of pipeline. We quickly grew it to about 1,000,000 We've maintained it. We've grown it. And you can see all the way till today, it's just a little bit over $1.3 of pipeline.
And this is growing a pipeline at the same time that we pruned the EOP portfolio from 8,200,000.0 feet down to 7,300,000 square feet. This does not seem like a slowing marketplace to me based upon our increased pipeline. The other thing to note is our pipeline consists of deals in negotiation. It's not inquiries. It's not phone calls.
It's not even tours. This is all deals in negotiation at some level, and we're pretty proud of that. And we've been busy, as you can see, with such a robust pipeline. In the last sixteen months, we've leased we've executed 2,800,000 square feet. That's 1,600,000 in 2015, and that's 1.2 in quarter excuse me, to the end of the first quarter in 2016.
And there's much more to come. And not just that, but we're well out in front of our renewals, again, advantage of relationships. In 2016, we've got 1,000,000 square feet expiring, and we've got 62% accounted for. Many of those are already signed deals. And in 2017, where we have 2,000,000 square feet expiring, that's a big number, we've already got commitments on 33% of those, right?
And we'll just continue to chip away at that process. Now of the deals executed this year, renewal deals executed this year, this astounding we were at 40.5% mark to market. Those aren't just deals that were executed this year. So the process is clearly working. And it's not just vacant space.
It's not just renewals. We're out in front of pre leasing for our development or redevelopment assets to the tune of over 900,000 square feet. These are just a few examples that you're probably aware of. 100% leased six months early with Ride Games at Element LA for 284,000 square feet, right? Netflix at Icon for 323,000 square feet, five months early.
Apply Vista, The Landing was 100,000 square feet. We pre leased it three months before delivery with two tenants, Dentsu and WeWork. And as David mentioned, Saltchuk for 55% of the building, 18 well over eighteen months early, we still have a lot of activity going on there. So we do again, another statistic we are very, very proud of. And as the process we continue to work the process and we continue to do all the things that we feel that other landlords are not doing and that we're capitalizing it.
I just want to leave you there's no conclusion. We keep going. But I want to leave you with this that when there's our team is out there working hard, there's just simply no deal out of reach. Yes, that's me.
All right. So now we're going to do ten minutes of Q and A. So if management, can you come up to the front here? And we've got a couple of mics to pass around. But for the sake of the webcast, if someone isn't miced when they ask a question, if management, if you're responding, if you can repeat the question into the mic so that everyone can hear it.
So let's get started. Are there any questions?
Stephane? All
right. Drew, the pipeline coming online in San Francisco, you mentioned about 50% pre leased, which would represent about 4.2% of inventory. Can you talk about backfilling for the part that's actually pre leased? Because with all the noise around the Dropbox backfilling, how much of that is pure expansion? And what's the challenge to fill what is just move around within that what's already pre leased?
So you're talking about the new construction versus the sublease space?
Yes.
Okay. Well, on the sublease side, as I think you and I have talked about this before, the last nine months, we've seen aggressive lease up of sublease availability. I think it speaks to the strong demand that we've seen in San Francisco. So with the Dropbox Fitbit taking over almost 300,000 square feet from Schwab, on every sublease availability that's been in the market over the last twelve to eighteen months, there have been multiple tenants backed up buying for that space. So to date, we've that's still the case as far as what we've seen.
And again, as the demand has stayed strong, it's been able to and I think one thing I wanted to say about sublease space, especially for San Francisco, it's an important and a valuable part of the dynamics of the market because with technology companies, how they look at their growth, dynamic growth, quick, slow, what have you, Sublease space, which has a variety of expirations and sizes, provides optionality for these tenants. So we actually see it as a healthy element of the market in the city right now.
Anyone else? Are we that good?
All right.
Well, we're running a little bit behind. So if there no other questions right now, we'll take a five minute break, and then we're going to keep going. So be back here in five minutes.
Yo. Yo. Yo.
All right, everyone. In an effort to keep things moving and get everyone to their flights, we're going get going again. So we're now going to have our second fireside chat with Victor Coleman and Tim Kentley Clay, Co Founder and Chief Executive Officer of Zoox, an autonomous car company. So Victor and Tim, come on up.
Thank you, Laura. Tim, why don't you sit in the prime spot?
Thanks, Victor.
It's a pleasure. So a huge Game of Thrones fan. No. So Tim is the Co Founder and CEO of Zoox. He founded in 2013.
He's a creative entrepreneur who founded three international design and technology driven companies: Studios X, Y and Z, Crayon and Will Barrel. He earned 50 plus awards for within the creative industry, and he's done a tremendous amount of global campaigns for campaigns on companies like McDonald's and Comcast and Honda, Visa and Chrysler. And we're very fortunate not only the fact to have Tim here today, but the fact that Tim is a tenant of Hudson's, and so we're trying to keep the theme. So before I get into the Q and A, Tim, tell me tell us what's the proper language here? Is it autonomous cars?
Is it driverless cars? Is it get screwed up and drive because you've been drinking and you can jump into a male discussion?
What do people really think? What's your world?
How do they classify this? Because everybody talks about a different vernacular.
So first of all, thank you for having me. Pleasure. Zoox was actually founded in 2014, July 29, just for the record. And Victor is very quickly becoming my favorite landlord in the entire world. I think autonomous mobility is about making getting around wonderful again.
It's pretty negative at the moment. Congestion, it's not safe. And it's generally a hassle that if you get distracted, you have an accident, that sort of thing. And so I think freeing the driver and the people in
the vehicle having to worry about what's happening around them is actually going to enable a wonderful lifestyle experience for people moving around cities. Great. So listen, talk and I know just for the record, there's a lot that in as you all know, that's evolving in this business and proprietary IP and R and D. So there's only so much in a parameter that Tim is going to be able to share with us, but we're trying to do a little bit of a deep dive here. So when you and I initially talked, I remember you used the phrase, what you're creating really is a robot with wheels, is what you said.
Is that
sort of accurate? So tell
us about Zoox and what makes you different than any of the other autonomous car companies or what sort of stands out and where your passion is? Well, that's exactly it.
So we don't see ourselves as an autonomous car company. The car was actually first referred to as a horseless carriage, because they wouldn't know what an automobile or a car was. And today we call it a self driving car, but we just think that's because they would understand really what this technology is. And what it really is, is a sensor system with artificial intelligence compute stack that goes down to electromechanical actuation. And in our view, that's actually a robot.
We actually call them mobots, which is mobile robots or mobotics. And so we actually see ourselves as a robotics company, not an automotive company. And I think when you look at mobility through that lens, you start thinking differently around how to solve the problem.
And sort of inception, where we are sort of today to reality, give me your time frame because I think people will love to think about that. When we think this is actually I mean, it's moving fast, as we all know. Why don't just talk about how fast and when does this become reality?
So I think there's two broad trends that you'll see with this technology. One is incremental adaptation to the automobile. You're going to see more advanced ADAS systems, ADAS stands for advanced drive assist. So automated emergency braking, that's going become mandatory around 2020 on all vehicles. And that's going to make them more and more safe.
At the same time, you're going to see other breed of vehicles if you like, which are fully autonomous on demand, point to point mobility services, essentially like ride sharing companies like Uber and Lyft are without the driver. And so there's kind of these two broad areas that are happening. Zoox is definitely in the latter area. Now, I think it's that latter area that we really get a societal level change in how we move around our cities. In 02/1950, 70% of our world's population is going to live in cities, this is really big.
And I think what happens in the next ten years, sort of 2015 through to 2025, that time frame is actually going determine who the players are in the next one hundred years in terms of on demand autonomous mobility.
And the players, I mean, we're going to get into Silicon Valley in a second, but everybody is there now, right?
Yes, likely, he's not there.
So and I think I've been talking about this for about two years now, this revolution from a space demand standpoint. But I mean exactly that, who is not there? Every major car company is there for some R and D and IP, correct? And they all need to be there for what reason?
Fiat was the one company that wasn't there and they're now dating with Google because Google needed a partner. They said they're not going to develop autonomous technology. So now they've teamed up to make 100 vans, which is Interesting.
So they actually said they weren't, but now they are. Now they are. So
if you're a tech giant, if you're an auto giant, they're all thinking about this. I think everyone's seen what happened with Kodak and digital cameras, everyone's seen what happened with the iPhone and Blackberry and Nokia. And I think all these large automotive companies, they can see us coming. And they don't want to be the people that didn't adapt and change. But I think it's very, very hard for them to adapt and change in reality because it's not actually a mechanical engineering vehicle dynamics problem.
It's not about how you build an internal combustion engine. It's actually a harder computer science problem. And it's having the most advanced scientists that can create the algorithms that can create essentially a robot that can move through a complex urban dynamic environment flawlessly. And that's never been done before. No one can do it on this planet today.
It doesn't matter if you have the manufacturing prowess of a Toyota. If you don't have an AI system that can do that, you can't ship. And what we have at Zoox is a team now of over 140 people, over 40 PhDs, four professors, top universities that we think can create an artificial intelligence system for a mobility vehicle that can actually deal with dense urban dynamic driving. And that's if you create that, it's so powerful, you're going be able to generate the capital to actually create the vehicle architecture in which that AI system sits. And you
mentioned capital. Capital is racing to this, correct? Yes. Without you getting into details on capital, but I'm sure your door has been knocked on by every single person around who wants to give you money.
Yes, we're well financially backed. We don't have any issues in that area.
So let's talk about Silicon Valley, okay? That's where you are. You're in one of the best buildings of all time in any portfolio, the greatest landlord ever. We all know that, And we appreciate the plug. Landlords
love me because I just inherently remodel even though I get no TIs because you guys negotiate very well and you have the upper hand. Just so you know, what tobacco yellow walls, It looked like if you ran over a hedgehog, that was what the carpet looked like. And so we pulled the carpet out, painting the walls white, Got a the to
crew happy. So okay, Silicon Valley, why are
you there? I think it goes back to what I was saying is this is a computer science problem. And Stanford University is actually one of the leaders in machine learning techniques. And it's those techniques that actually going to allow this technology to scale in the marketplace. And so I think, it's there's a reason why this is happening in Silicon Valley.
It's not because it understands mechanical engineering and those sorts of things, it's because it actually understands sensors, perception, planning, all the things that you need for mobile robotics. So let's talk about the downer of the business, state, federal regulations, the negative aspect. What's your concerns there? At the moment, it's actually pretty positive in that we actually had NHTSA, the National Highway Traffic and Safety Administration come pass our little startup a couple of weeks ago. And the headline is that the regulators get this.
They're not like, well, what is a self driving car? How does this help society? They have bought into the vision. They don't need to be sold past the close. And so the conversation is really around how do we bring this technology safely into the marketplace?
And there's some really core questions around that because when you're talking about creating a machine that can move through the environment, if it screws up, it can cause a problem. You need to be very careful about how you deploy that. And so the good news is that they get it. NHTSA is its core mandate is safety. The number one killer of young people in America today is actually automobiles.
They know that this technology can change the statistic that ninety four percent of accidents are actually from people driving, non mechanical failure. So it's really about working with them, the regulators and the innovators to create a pathway to deploy the technology in a safe way.
And you're excited about this, right? I mean, it's got to be on the so before we sort of talk a little bit about some of the mergers that are going on, just get your opinion, tell us about your vehicle, your robot. I know no steering wheel, no mirrors. Just explain that a little bit and how different it is and with our mobile technology and the likes of that. Yes.
I mean, I think part of what attracted me to this space is as a creative person, I understand that when you have a really powerful new invention or piece of technology, the previous paradigm and physical form factor of previous technologies will be really suboptimal. So just like when we had the horse and carriage, we're in that mobility paradigm for around six thousand years, it was actually around 4,000 BC, we domesticated the horse and put the axle on the wheel. That And was a really big deal in the day, because you had to roll goods over the ground versus carrying them or dragging, it's like one fortieth the amount of energy. It was the invention of internal combustion engine that let us go from the age of the horse and carriage to the age of the automobile. That didn't mean putting the internal combustion engine in the carriage and keeping the horse.
People tried that, it didn't work very well. It makes getting rid of the horse, which wasn't a trivial thing to do. And interestingly, it wasn't the coach builders that figured out how to do it. And these were the Fords of their day, these coach builders, these were big companies. There's actually new founders, people like Ford, Porsche, Benz that understood mechanical engineering, which was state of the art in the time, and they discovered what the automobile architecture was.
Been in the age of the automobile now since maybe 1886 when Carl Benz got the patent for the Model one Motorwagen. That architecture really hasn't changed from what's in our car parks today. When you have a robotic system that's able to navigate the environment, it means that we should be changing the architecture of the vehicle to optimize for that reality, not human driving. We don't need a forward windshield, we don't need steering wheel, we don't need side mirrors, we don't need windscreen wipers. We actually want to optimize the architecture for machine vision, not human vision.
And then we can also change the interior experience to optimize what we want to be doing, not for the business of having to sit behind a steering wheel and all this sort of thing. And so it gives you a wonderful opportunity as a creative person. And when I talk about creativity, I just mean aesthetics, I also mean architectures, to ask the questions, well, how do we form this object? How do we sculpt this in a way that's optimal and solves these problems? That's not a trivial thing to do because it's a highly regulated product.
There's a lot of different things you need to do, but I really enjoy that challenge and Zoox is sort of what makes Zoox different I think than anyone else is. A lot of people I think are just looking at trying to make a car self driving and we think that's really suboptimal. And so what we're working on is sort of what the full realization of technology might be in one to two decades from that perspective Very that make it
cool. So like forward, backward, it doesn't matter, right?
Well, I can't say too much.
Okay. I get the You can give
it superhuman capabilities if you like.
Got it. Very cool. All right. So let's talk about your just the land grabbing that we're seeing right now. I mean, I just saw yesterday, right, Toyota just invested in Uber or did some sort of a marriage with Uber.
We saw GM and Lyft. Is this and it's completely different than your sort of thought process here in that these guys are trying to marry up with each other. What's your thought about that?
I mean, to me, that's kind of like dinosaurs jumping on asteroid stuff, telling everyone it tastes like truffle like this. There's a lot of Carosaurus talk going on. Carosaurus, I can use mean, I don't know, I mean GM bought a 40 person company in San Francisco for $1,000,000,000 20 engineers, no diligence. I think they're panicking. I think they don't really know what they're doing and they have management that's trying to just do something.
Whereas at Zoox, the reason that we're getting the very best people is we have a very clear vision. We're marching to market and when people see what we're doing and they see that we're looking at holistically and not just doing some little slice and trying to flip the business or license it to someone, that's a very rewarding thing to do because making a robot is also like raising a kid, like when you write code, you put it on and it goes down the street and it doesn't screw up and it stops for pedestrian and understands the cyclist stops for a car. I mean, it's magical. And so this can be more about than just safety as important that is. It's also creating something that will bring wonder into how we get around our cities.
So you see, so the light bulb just went off. You got all these other guys over here. And then I don't want to say that you're the same, but then there's you and two others, which are the obvious two, Google and Apple, who think the similar way. So maybe different prototypes and it may be different type of engineering, but they're thinking differently. They're not marrying up with these other guys.
You've got your dinosaurs over here, which is our household names, who have all populated Silicon Valley now, as you know. They're all there and trying to figure out the R and D and IP, but you've got yourselves and two others, maybe somebody else out there or a few others that I would know, that are doing this differently. Do you sort of see that segregating that way?
I probably don't want to comment too much about the competitors. I've only been living in Silicon Valley for a little under two years and I've kind of figured out that everyone kind of knows what everyone else is doing. And if you don't know what someone else is doing, it means they don't know what they're doing. It's like the poker table, right? But it's like a bit of a blood sport always be looking over the fence, what's that person doing that's rubbish or not.
At the end of the day, the market's going to decide who wins and who doesn't. And all I can say is, at Zoox, we're very focused on what we're doing and taking a leadership position in terms of how we
think this technology should be made and deployed. When you walk in your office with all your PhDs and everybody else, what's the most exciting thing that hits you every day? What are you
thinking about? Remodeling the kitchen.
Well, we can help you out
with that, I think, but what
it really is, is my co founder, Doctor. Jeff Levinson, who's from Stanford, he did his PhD and postdoc under Professor Sebastian Spron, who actually founded Google X and their driver's car program. When we first started Zoox, it was actually just Google and then it was Uber and now it's kind of everyone. It was a batshit crazy thing to do. It was a big leap for a startup to try and do something that's in such a capital intensive area.
It's now be 140 people. I just respect everyone that I come to work with every day because like if Zuks was a Martini, we'd be like equal parts brilliant and bonkers. Like it's crazy for a startup to be trying to do something so ambitious at the same time. I think that's also its kernel of success and genius that actually makes it sort of work. So it's really these courageous makers, pioneers that I'm working with that want to try and do this against all the odds of tech giants and automotive giants and everything else that actually inspires me to work with them to make it happen.
All right. So one, and I think I know the answer to this, but I'm going to ask it anyways, and then we'll open up to a couple of questions. And feel free not to answer them if you don't want to. Let's talk about the what nobody else is talking about right now, which is manufacturing. Where do you see that?
Is it domestically United States? Is it overseas? I know you guys aren't thinking about it here, right? Or are you? I should ask that question.
I thought you were thinking about it over in Germany.
Yes. I'd probably prefer not to answer the manufacturing pace question. Okay. Yes.
So but suffice to say, it could be a challenge to be manufacturing in The United States relative to the rest of the world and the economy and cost, right?
One of the nice things about what we're doing with our vehicle platform is actually reducing complexity. Automakers, it seems that they're keeping the automobile and then adding autonomy on top of that, and that's creating a really complex product. And then if you're trying to sell that at a price point to a customer, gets even harder again. And then it's a level of technology now where you actually need to maintain software updates and everything in that. So that's not my world, that's not my problem.
By actually reinventing the architecture of the vehicle and getting rid of all the human in the loop control, so actually fundamentally reducing complexity in the vehicle a lot, which I
think
simplifies the manufacturing piece of what we're doing in some really profound ways. And that opens up some new opportunities about how you may make these vehicles and what sort of state of the art techniques you might actually be able to use to do them.
Well, I can tell you one thing. I think Hudson has like a half
a dozen of them. So
whenever we can get our
hands on them. Any questions? Anybody? Yes,
good question. The answer is yes. Yeah, I went skydiving recently and I thought we'd just get that disclaimer, we just have to sign everything away. No, I think that on the insurance piece, we're working with Aon on that, they're really cool. I think the insurance model really shifts to the aviation model.
When you book your plane ticket, a percentage of that fare covers your personal insurance and also product liability for the company as well. So it's embedded in what you pay. It moves away from the model where you have to get your own personal car insurance because we don't sell our products. It's on demand mobility. We own and operate it.
These vehicles will be 99.99% autonomous when they're deployed in a city. We've got rid of the middleman, so why would we go and put that back in? So yes, the insurance and the product liability will be covered in the fare of the vehicle. It's interesting. Think there's two sort of counterposing things here.
One in terms of total addressable market, think it's going to skyrocket with this technology. Think people are really going to like it. If you look at San Francisco as a use case, when Uber first started there around five years ago, I think revenue from mobility in the main city was around $130,000,000 a year. More recently, was $1,300,000,000 And that's with the cost of rides going down quite profoundly. So where there was a metric that people sort of didn't like the taxi experience and they love ride sharing, it's that the actual market is increasing because people like point to point low friction services.
And I think when you bring autonomy in, don't have a human driver push your phone, it comes, it's cheap. It's going to go in order of magnitude again in terms of how much people love this technology. So through that lens, it's like, congestion could get worse. There's another lens where it can also get better. When you have a fully robotized fleet, you can use network fleet algorithms to create efficiencies in terms of where the vehicles are, how you redistribute them, when they're driving back empty, what back sweeps they take that will help.
Ride sharing is also becoming a very powerful thing. So today in San Francisco and Manhattan, there's Uber Pool and Lyft Line. And those services have only been going in recent history and actually make up around 50% of fares now in those cities. And that's really profound because you start having algorithms that go, okay, you four people are being picked up from here and we're taking you over here, you're getting four to one in the vehicle, which is obviously great for the individuals because they pay less. It's great for us because we actually make more if we have four people paying 60% of the fare or something like that.
And then it's great for cities because you can really start driving some efficiencies through that lens. And then more broadly, think when the technology really starts deploying, you're already seeing there's areas, some cities where they're actually banning cars from CBD areas, from Melbourne City, they're starting to think about doing that in some of the areas. Places like Beijing, it's automated number plates. In places like Singapore, there's a restriction on the amount of license plates that you can actually have. So I think given that we're living and working and breathing and jogging in our city centers, and this is zero emission technology, I think when it really takes bite, cities will be looking to really favor this technology as the primary way of getting around streets and creating disincentives for automobiles to come into the center of the city, which will also alleviate congestion because today in San Francisco, 40% of the congestion is nuts.
40% of congestion is actually drivers circling for car parks. It's incredibly inefficient. Yes, it's a good question. Mean, think you're always going to have that bell curve of early adopters and laggards and then the general populace in the middle with any new technology that's the way it sort of happens. San Francisco is a pretty progressive city.
So hopefully we have a lot of early adopters in a city like that. But it's also this isn't something that's going to be binary. It's not like overnight you have 10,000 fully autonomous vehicles in a city. This is something that's going come in with a shallow ramp, right. It's to be done in pilot programs in limited areas of limp speed.
And so there's going be opportunity companies like Zoox to build trust with the people, with the regulators, with the city, and then enhance the domain of operation, the speed of operation over a period of time. How
important do you see that the manufacturing
Well, it depends on Donald Trump. Why don't we go there? So I mean, there can be import taxes and that sort of thing that can create asymmetries irrespective of, hey, it might be cheaper and put this vehicle on a boat and bring it over. Typically, that's why automotive companies do manufacture locally within geographic domains is because of taxes that are implied on their vehicles if they don't do that. One of the things that I think I'm really passionate about Zuka is really passionate about our people who work there are, is this is just fundamentally a really good technology.
It's going to be safer. It's going be zero emission, but it's also a much better use of resources as well. The automobiles only use 4% of the year. So you put all that energy, minerals, chemistry into an electric or an internal combustion engine vehicle, it's not getting great utilization. Whereas this product is kind of like halfway between private car ownership and public meeting in the middle.
When you're not using it, someone else is. But when you're in it, it's like a private car or better experience, maybe one day even like a little bit of a jet experience. So I think what was the question again? Yes, probably a little bit more the latter, I would say. Go ahead.
Yes, it's a good question. I mean, there's definitely different demographics. I mean, average across America of car ownership is around two per household.
But if you go to
something like Manhattan, it's 0.6. And young people, people living in cities, typically they want to own a car, they don't want to deal with parking, insurance, someone keying their vehicle overnight and smashing a window and grabbing something. And so they love the idea of on demand mobility. I think people living around the cities, almost in the second phase of this technology when these vehicles start doing a broader geographic domain, It might be that you see average car ownership drop a little bit over the course of the decade, because you might keep that one nice SUV to go to Tahoe with your babysit in the back and your skis and everything else. But otherwise, it's just push a button and the kids are taken to school on an on demand product.
And so I think people who are living outside cities, you might see a more hybrid approach in terms of how the blend goes. I don't really have a comment about that too much. It seems that Apple is largely making that investment for domestic political reasons to get more into the culture and the community. Yes, that's probably not as much as I want to say.
Last one.
So from where you are
today, getting to your flawless robotic mobility, just to recap your science and forget about the manufacturing and your vision,
Yes, it's a good question. It's a very
good question, actually.
What size property do we need in the Bay Area? Our publicly stated goal is 2020 to be ready with a pilot service with a ground up vehicle, small scale, nothing large. Our team size, I think, would have doubled and then some by that phase. This isn't a trivial thing to do and it does require a large team to do it. But that's also what is really fun about Zoox is that holistic approach from computer science, artificial intelligence, electromechanical engineering, but also through the lens of product experience.
We don't believe that if you could make a car magically self driving, it would actually work as a product in a city as a mobility service. What happens if someone just didn't shut the door fully when they got out of it? What does the vehicle do? Just sit there, drive down the street with the door flailing because they're trying to accelerate and brake really quickly and slam it shut. Right, you see what I'm saying?
And so you actually need to change a lot to get the right solution.
Great. I mean, how cool is this, right? Thank you. Very exciting.
Thank you, Victor and Tim. And now what you've all been waiting for, our Chief Operating Officer and Chief Financial Officer, Mark Lammas. Just I'll mention again that everything is on the website, presentation materials and webcast, so it's a lot of information that you'll be able to access it again after first. Mark?
Boy, if I had known I had
to follow these visions of
the future and take you all the way back to the horse drawn carriage, I think I would have begged to be a little bit earlier. But that was great. That was really great. Good morning, everyone. Think you can tell how excited everyone is about everyone at HPP is about what's going on in the company.
I'm excited to have the opportunity to take you through a couple of topics, which you all know are very near and dear to our hearts, our NOI growth prospects and our current share price discount to NAV. What makes this morning's conversation a little bit different from conversations we have with you guys in the past is we have an opportunity to reveal to you in much greater detail the contractual and non contractual drivers underlying our NOI growth through 2017 and the building blocks of our intrinsic value and current NAV discount. We've attempted to strike a balance between providing enough specifics to clearly understand our assumptions and source data, but hopefully won't mire you in too much detail. In most cases, the essential information underlying the analyses can be found in our supplemental reports. The footnotes and appendix to our presentation posted on the website also provide further clarity.
Now that I've hopefully wet your appetite to go through the only portions of this presentation where you probably can't you actually came here to see, I'd be remiss if I didn't take you through quickly a current update on our capitalization, capital availability and credit metrics. I'll keep it brief and then we'll get to the good stuff. Since our inception nearly six years ago, we've had we've executed a financing strategy consistently maintaining a conservative balance sheet, strong access to capital sources and sustainable liquidity. We've always and continue to maintain low leverage, currently 33% debt to market cap and historically averaging 30% to undepreciated book. Our debt maturities have and continue to be managed to avoid potential event risk.
Our interest rate exposure has been balanced to limit our impacts of rate volatility while affording us financial flexibility, and we forge relationships with the country's strongest financial institutions to ensure access to a range of capital sources. These next slides will provide greater detail on each of these points, but I think our track record is clear. We have grown our company around a commitment to a fundamentally sound and sustainable capital structure. Here, you can see our current debt composition. As you can see on the left hand side of the page, we have no near term debt maturities.
Beginning with 2020, we have carefully laddered our indebtedness to limit our exposure to capital market volatility. As indicated, only 16% of our outstanding indebtedness is floating rate with all of that indebtedness housed within our five year term facilities. Not only does this allow us to take measured advantage of the current low interest rate environment, but it affords us considerable financial flexibility to repay and extend our debt maturities with little early extinguishment expense. One of our core financing objectives has been to move increasingly towards an unsecured debt strategy. As you can see at this point, fully 75% of our portfolio is unencumbered.
Attended management of our capitalization of our assets towards creating a large diversified unencumbered pool of properties allowed us to obtain an investment grade rating more than a year ago and within little more than four years after going public. This not only continues to drive down our cost of capital, but will facilitate capital availability in the term debt, private placement and public issuance debt markets. This next slide clearly outlines our current capital sources. A combination of cash on hand, a fully undrawn revolving credit facility and sizable accordion, loan availabilities under our Sunset Gower and Sunset Bronson loan, Our ATM and Target dispositions, the majority of which is already under contract, provides us with $1,600,000,000 of capital availability. Josh and Chris outlined our capital improvement initiatives for the former EOP portfolio, and our public filings summarize our current development and redevelopment spend for projects under construction.
I think you will agree that our ample capital availability not only more than covers our near and midterm capital requirements, but provides considerable excess liquidity. Favorable credit metrics are the hallmark of a sound capital strategy. I think this slide says it all in terms of our credit quality, so I do not want to move too fast past this slide. On effectively every measurement, we have stronger credit metrics than our office peers. This from a company that has grown nearly tenfold in six years.
Only the careful execution of our capital strategy, coupled with the successful execution by our investment, leasing, operations and development teams, could lead to this impressive credit quality. So that does it for the discussion of our capitalization strategy and credit metrics. Now I'll turn to what I think you've been patiently waiting for, a rundown of our projected net operating income growth, followed by an examination of our current discount to NAV. We refer to this next portion of our presentation as our bridge to success. Many of you may recall conversations with us during recent non deal roadshows and banking conferences where we held out the promise of building what we coined then as this bridge to success at this Investor Day, and here it is.
This next handful of slides chart our projected net operating income growth drivers through 2017 and ultimately beyond. The team is understandably proud of our success, and this next set of slides shows why they should be. We will walk through each of these components of growth, but this first slide cuts to the chase for those of us with short attention spans. Importantly, we are projecting net operating income growth from the end of last year through 2017 of close to 25% with fully 55% of that future growth generated from current contractual sources. Allow me to repeat that to ensure significance is not lost as we begin to delve into the details.
We are projecting close to twenty five percent NOI growth through 2017, 55% of which is driven from contractual sources. We believe very few REITs and none of our office peers have the growth potential that we do. In this slide, we provide the breakout of $41,500,000 of embedded NOI growth from a combination of two contractual sources: signed, uncommenced and backfilled leases and contractual rent bumps under existing leases. You can find the detail for our uncommenced and backfilled leases and lease expirations over the next eight quarters on Pages twenty seven and twenty eight of our latest supplemental. The first $28,500,000 of NOI simply represents the estimated NOI growth resulting from those executed uncommenced and backfill leases.
With respect to the backfill portion of those leases, only the mark to market impact of those leases is included. We've assumed an NOI margin of 70% with respect to the rents and other revenue associated with uncommenced and backfill leases. With current NOI margins for a stabilized office of approximately 65%, 70% should be conservative margin on what is after all only incremental leasing. One additional item to mention about the uncommenced lease component of NOI growth is that it includes $1,800,000 of incremental NOI associated with the burn off of the nonrecurring abatements reflected on Page 26 of the supplemental. Turning to the $13,000,000 of NOI growth from contractual rent bumps.
This represents 3% contractual rent increases on our existing leases adjusted for scheduled expirations. We assume a 70% NOI margin on this incremental income, which may seem especially conservative in light of the nature of this revenue, but we believe it appropriately addresses the impact of unrecoverable operating expense increases through 2017. This next slide summarizes the $35,500,000 of speculative NOI comprised of three sources: mark to market spreads on expiring leases lease up of existing vacancy in our in service portfolio to 93% occupancy and incremental NOI associated with our media and entertainment portfolio. I'll begin with the $1,600,000 of NOI associated with our media and entertainment segment. This simply projects incremental NOI, assuming we achieve 5% annual NOI growth over our trailing twelve month NOI as of the end of last quarter.
The remaining two components of our speculative NOI growth are essential to appreciating potential growth, so allow me to spend an extra moment to explain them. First, we are projecting approximately $22,600,000 of NOI growth before downtime from the releasing of expiring leases not subject to backfill under existing leases sorry, executed leases. This represents only the incremental NOI associated with the mark to market impact of releasing the space corresponding to the expiring leases shown on Page 28, which have not already been backfilled. We have assumed 30% mark to market leasing spreads to the rents under the expiring leases, a conservative assumption considering our current weighted average mark to market on 2016 and 2017 expirations of close to 40%. Obviously, not all of the leases expiring over the remainder of this year and next will be renewed.
The space associated with leases which are not renewed will experience downtime until backfilled. To account for this downtime, the $22,600,000 of incremental NOI associated with the mark to market impact of re leasing is being offset by $17,500,000 described as re leasing downtime, which represents the unrealized potential NOI growth on expiring leases based on a 70% renewal probability and nine month downtime assumption on leases which are not renewed. Finally, we reached the last component of the NOI growth through 2017, lease up of existing vacancy. The 10,900,000 of incremental NOI growth represents the NOI potential from the lease up of existing vacancy within our in service portfolio and approximately 107,000 square feet of near term availability at 875 Howard and 3402 Pico until we reach stabilization. To get there, we've assumed average absorption of 50,000 square feet per quarter until we reach and assume 93% stabilized occupancy by the end of twenty seventeen.
In terms of aggregate square footage, this amounts to 387,665 square feet of net absorption over the next seven quarters or roughly 3% of the square footage of our in service portfolio. We have assumed that rents under leases on our existing vacancy are executed at 20% mark to market spread to the existing rents on the properties where we have vacancy. We believe the 20% mark to market on our in place rents and absorption assumptions are more than supported by our recent cash leasing trends and net absorption track record, appropriately adjusted for the composition of leases throughout our portfolio. Now for the final brick to complete our bridge to success. While we are projecting $410,500,000 of NOI by 2017, The components are in place for NOI growth reaching $442,800,000 beyond 'seventeen.
First, the realization of the seventeen point five million dollars of potential NOI growth on expiring leases, which we have expiring leases, which we have excluded from the NOI growth through 2017, should occur in 2018. Also, our development and redevelopment assets offer the potential for nearly $15,000,000 of incremental NOI if spaces delivered in 2018. Approximately $2,100,000 of that is contractual NOI from 50,000 square feet of Netflix must take space at our Icon project. The remaining potential NOI relates to our 90,000 square foot Q Building, approximately 75,000 square feet at 450 Alaskan Way and 121,000 square feet at our Forth And Traction asset, all of which will be available for lease within 2018. Based on the high level of prospective tenant interest, we are optimistic about the NOI potential on these assets.
One final word about this NOI growth projection. It assumes no unannounced acquisitions or dispositions, including the potential sale of the $50,000,000 asset mentioned in our last guidance. We've made no adjustment for that potential sale to ensure consistency with the portfolio underlying the NOI as of the end of last year. That covers our NOI projection and hopefully provides everyone with a clear appreciation of why we believe HVP is positioned to deliver among the highest NOI growth rates within the REIT sector. Now I'll turn to what might be the other topic you've been waiting to see, a discussion of our current discount to NAV.
I want to stress from the outset that we've intentionally used conservative cap rates and benchmarks throughout the analysis so that the conclusions remain clear. By the time we go through it, I think you will it will be obvious just how steeply discounted our current share price is to any reasonable valuation for the company. The next set of slides detail the value of each component contributing to the intrinsic value of HVP. We begin with $6,100,000,000 of total capitalization based on Monday's closing price of $27.81.235900000.0 dollars of our enterprise value is attributable to our media and entertainment properties based on Q1 twenty sixteen trailing twelve month NOI for this segment at a cap rate of 6.5%. Dollars 84,000,000 is attributable to our land properties.
You can find a detailed description of our valuation assumptions on our land assets in the appendix to this presentation posted on our website. I think you will find them very reasonable. Dollars 278,900,000.0 of our enterprise value is allocated to our two ongoing development properties, our largely pre leased Icon Q and 450 Alaskan Way developments. You can find our cost and yield assumptions for those assets on Page 19 of our supplemental. We've simply applied a five percent and five point two five percent cap rate on the stabilized net operating income for those assets, respectively, then deducted the remaining cost to complete these assets.
The resulting value has not been discounted to present value as the cash flow associated with these assets prior to stabilization has been ignored to simplify the valuation. Dollars 251,800,000.0 of our enterprise value is allocable to our redevelopment pipeline outlined on Page 16 of our supplemental. Our 12,655 Jefferson asset is under contract for sale for $80,000,000 Page 19 of our supplemental reflects our project costs and stabilized yield assumptions for 3402 Pico and fourth in Traction. Similar to our evaluation of ICON Q and 450 Alaskan Way, we've applied a 5% cap rate to the NOI corresponding to the projected stabilized implied yield and reduced that value by our remaining costs. Finally, our four our 405 Mateo And Merrill Place Theatre building developments are carried at cost.
The $1,890,000,000 attributed to the lease up component of our in service portfolio reflects the value of those 11 assets at a 4.5% cap rate on Q1 'sixteen annualized NOI. As of March 31, those assets were approximately 77% occupied, so we've applied a cap rate to appropriately reflect the stabilized value potential. Upon projected stabilization, the implied value equates to just shy of a six cap on stabilized NOI. The other components of our enterprise value, other assets and liabilities and cash, tied to our Q1 'sixteen balance sheet. The rest is painfully obvious.
Our stabilized office portfolio comprises $3,290,000,000 of our enterprise value. Q1 'sixteen annualized NOI on that portfolio was $260,200,000 resulting in a 7.9% cap rate on assets in the highest barrier West Coast markets with among the strongest credit quality in the office sector and in place rents more than 20% below market. If Alex had the opportunity to acquire these assets at that cap rate, I can assure you he wouldn't rest until they were ours. If we assume these assets were appropriately valued, you can see that our shares will be trading at $37.62 at a conservative cap rate of five point five percent and $39.16 at a closer to market cap rate of 5.25%. As of Monday's close, we are trading at a discount to NAV between 35% and over 40% at these cap rates.
Of course, that's a value on historic NOI. If we use the full year NOI for 2017 on our stabilized portfolio, the discount would be considerably higher. But don't just take our word for it. Our friends on the sell side of the aisle, some of whom are here today, figured this out long ago. This final slide says it all.
Only one office REIT is expected to generate higher FFO growth through 2017 than HPP. That company enjoys one of the lowest discounts to consensus NAV among comparable office REITs. Meanwhile, HVP sits in the untenable position of having the third highest discount to consensus NAV among those same office REITs. That does it for my presentation. You found the discussion of our NOI growth and NAV discount informative.
Hopefully, you agree that the company is poised to deliver exceptional returns that support a considerably higher valuation than our current share price. Thank you.
So we'll open it up to any questions on this or anything else before we exit. Questions, anybody? Anybody? Yes?
And a lot of that mark to market is driving the NOI growth. How should we think about, as you guys pair some of that exposure, how that impacts the NOI growth going forward?
So as we sit today, we have not taken any additional action action on selling assets other than the assets that we've discussed, which is the sorry, 130,000,000 of prospective dispositions. So assuming that, that's the case, the period allocation would be much more conservative as we sit today. We were to sell assets at market rates, the cap rates we're talking about that Mark referred to are much lower. So I think this is taking a much more of a conservative approach.
Disposition that the one we haven't been specific enough to kind of You
know from the supplemental, what kind of CapEx leasing costs are you assuming to get the incremental NOI from the bridge that's not developmentally?
Through the end of 'seventeen, which is kind of in the main measurement period, in fact, at that point, it was largely statewide. The last update I saw on PI's submissions is Josh already walking through the $63,000,000 on the lack of CapEx, only some of which is
I mean, not some of which
has already been spent. I it was 134,000,000 within EOP Northern California portfolio.
Talk about the elephant in the room, recent Blackstone selling of the stock, given their previous statements about the intrinsic value on NAV and what it means their huge plans could be? I mean, listen, I don't know what Blackstone's plans are going be. I'm not in the room with them. I am in the room in our Board meetings and the intrinsic value they see. They've been a fantastic partner.
They've been very dedicated and loyal. It's not a surprise that they're selling or that they will sell. All I can say is the additional float has enabled us to have new investors in the marketplace, which has been very good for us in the last couple of weeks. I wouldn't be upset about it at all. And I think if they were to sell one more time, they're going to be slightly bigger than three of our larger investors.
And so it's not something I'm concerned about. It's inevitable. I do think, quite frankly, it's flattering given the fact that there are other positions they have they've done much worse on. They've made a nice return on us. And I think this is a two year process for them.
And so if people want to perceive that to be an overhang on the stock, look at the numbers. The numbers speak for themselves. You're going to lose out if you think it's an overhang. That's what I say. In terms of distribution growth, I'd say distribution growth tracking NOI growth is probably slightly less, but not materially change, I don't think, in any manner.
The one topic you haven't
really touched on too much today is external growth. Obviously, you guys missed out on one of the bigger transactions that was announced this week. With the stock trading at such a wide discount to what you guys view as value, what should we expect as some more of those Blackstone assets come to market or other opportunities come to market, your willingness to kind of take a run on some of those?
Actually, that's an excellent question. I think whether we missed out or didn't miss out, I think that's for fruit to bear down the road based on how the structure of the deals are. I do think that the presentation today echoed two material issues. One, David's presentation about Seattle and our feelings about Seattle was not just his feelings, but the company's feelings. And I believe that there's a marketplace there in Pioneer Square and opportunities that we will consistently look at.
I think the flow of growth here in Los Angeles and the rental rate movement is also something that we're very happy about the upward mobility. If there is opportunities for us to participate in and assets that we think are beneficial to extending the value of the portfolio, we're going to consider them. We're not going to put our head in the sand and say we're not going to be future buyers of assets. We've said that. But earmarking for specific cases in those two markets have always been sort of our footprint.
I think it would be bold of us to say that given our presence in the Bay Area today and what we have in some of the dispositions in that marketplace that we would look there at this time. Anybody else?
Yes. Just a follow-up on the funding of a good deal like the Boston Properties deal. How would you go about it with the discount that you guys trade at?
We wouldn't re raise an equity. That's your question. Yes, we have a lot of capital and accessibility. Listen, we still have a tremendous amount of debt on the capacity, both on asset level as well as on the ability for us to go out and do a rated debt position. We have an untapped credit facility, which Mark walked you through earlier.
We have $10.31 exchange money coming due with a couple of dispositions. We have a full facility on an accordion feature. So I'm not that concerned about our ability, but it would not be raising equity. That's your question. Yes, JVs as well.
From a corporate governance standpoint, one could potentially argue that there might be a little bit of a disconnect in the boardroom now that Blackstone is selling. They perhaps have a shorter term interest than perhaps other board members or management might have. Have you thought about having a conversation with them to accelerate the change in the Board to make sure that you've got Board members who are inherently interested in the long term value maximization of the company?
It's a great question. By the direct merits, they chose to take one less Board seat anyways at the end of the year and not they had the right to fill that seat, and they chose not to. I think that was indicative of their confidence level and their ability to execute and watch execute at the same time. I do believe that the alignment of the Board is complete even with their recent disposition. Listen, they own a little more than 30% of the stock.
Fairlawn, at one point, owned almost 45% of the stock. Meraki Free has been on our board since the beginning, and the alignments, I think, are very, very transparent and very, very similar. The other aspect is that they're not in a position to dump stock for the benefit of what they see you saw, they've seen. So they're not crazily out there saying, Hey, we're going to dump stock. And as I said, I don't think this is a short term scenario.
I believe this is a long term scenario. They're not first of all, they're limited to the number of transactions they can do. And second of all, they're committed to doing the execution based upon the right timing and growth of the company. It's going to work out. I think it's less of an issue of internally in the Board.
Conversations are very, very dynamic, and I believe that they believe in the intrinsic value as other Board members have shared with them at the same time. Anybody else? Yes. As
you go through the NOI bridge, you're going to create a capacity as your leverage metrics come down. How should we think about should we expect you to bring leverage even lower? Or should that capacity be used for external growth or buybacks or things like that?
Yes. I wouldn't look at it that way as a capacity issue as our leverage metrics are going to grow decrease sub-thirty percent, and therefore, we're going to spend capital to bring it up or incur more debt. It's a case by case scenario on external growth. It's absolutely going to be a fundamental business strategy of Hudson's in place today to have a debt level strategy around the 30%, consistent to what we've had in the past. And I don't think that's going to be offset by any transaction or structure.
As I said, I think we have access to multiple levels of capital and multiple accesses to debt that will manage those levels at the frequency. And so I'm not concerned about increased NOI. Therefore, our debt levels are going go to 25%. When something got there, we're going to bring them back up. It's going to be flowing based on need.
The beauty is that Mark and his team have extended the capital structure out through 'eighteen for our needs. We know exactly how much money are going to be deployed for tenant improvements, construction and external growth aspects aside from any dispositions or new acquisitions. So I think we're pretty comfortable with
it at the levels we're at.
Anything else? As you can see, first of all, these are pretty compelling numbers. We've been talking about these numbers on a consistent basis. We've been, as a company, on the road doing non deal roadshows since January, more than I've ever done in a quarterly period in my entire history of being a public company, both in my predecessor company and at Hudson. We've been telling this story.
I don't think people have been listening, and we have not done it in the detail that we have today. We're excited about the prospects and understanding. Mark and his team are prepared to dialogue with anybody who need additional material information or deep diving even further. He's always been accessible at that and will continue to be so. This is now out in the public.
We have NAREIT in two weeks. We have a complete full schedule, ironically, with a lot of you people who wanted to see us. We're now seeing other people. Sorry, you're kicked out. So you have the opportunity to see us here.
And I think the message is going to be clear and concise, and we're excited about that. I want to thank the Hudson Gene. These people don't speak publicly. This is what they do for a living. So they did a phenomenal job.
I'm very proud of them. They're passionate about what they do every day, and more importantly, they're passionate about what each other does every day. And that shows true based on what we see here and what we've seen here in the presentations. Laura Campbell and her entire team put this together. As I said, congratulations.
You killed it, knocked it out of the Park. We'll be seeing the next Investor Day, we'll be seeing Laura Kestival with a Dodger uniform like Art did. Art's sense of humor is organic, and we appreciate that sometimes around the office, sometimes we don't. I want to thank our two guest speakers for coming out. It's not every day that you get to see a media entertainment and you get to see a technology person.
But the most important thing is their tenants of Hudson. So they're passionate, they're embedded, they believe in our company, and that's why they're there. And I think they're longstanding, and it says a lot to the company. And lastly, for everybody else who came here, it's not a bad place to come, come to L. A.
Once in a while. The next one will maybe be up in Northern California and the likes of that. But I appreciate the time. I appreciate the consideration and more importantly, the following and loyalty of HBP. Thanks very much.
Just a couple of quick announcements as everybody is leaving. There are box lunches outside. We'll have a shuttle the two shuttles departing for the airport in about ten minutes. And there is a survey in your folder. If you could just take a few minutes to fill it out and give us some feedback, that would be terrific.
Thank you so much. We'll see you in