Victor, we'll now turn it over to you to introduce your company and team, provide any open remarks, tell the audience the top reasons an investor should buy your stock today, and then we can get in the Q&A.
Great. Thank you for having us. Welcome everybody.
You just tap the... There we go.
Thank you, Seth. Welcome, everybody. It's great to be here at Citi's Annual Conference. To my immediate right is our President, Mark Lammas. To my immediate left is our Executive Vice President of Leasing, Arthur Suazo. To left of Arthur is our Executive Vice President of Market Investments, Laura Campbell. It's a pleasure to be here, as I mentioned. Hudson Pacific is a West Coast-founded REIT owning high-quality office and studio assets in innovation and content epicenters. Our 19 million sq ft portfolio spans the Bay Area, Los Angeles, Seattle, and Vancouver, with a recently opened studio in New York. I wanna frame this conversation briefly around two themes. First theme is the 2025 reset that the foundation of the company, Hudson Pacific has put in place.
Second, how 2026 is capturing our flight to quality and driving our earnings growth. We just had our conference call, Quarterly Conference Call last Thursday, so there's obviously current information straight out there. It's only 48 hours old. Starting in 2025, this was truly a foundation year for the company. We strengthened our balance sheet through $330 million of asset sales and over $2 billion of capital transactions, reduced our net debt by 22% and nearly doubling our liquidity to $934 million. We materially improved our financial flexibility and extended our runway. We optimized our cost structure in the company by achieving $26 million in G&A and interest savings and locking up $25 million of annualized reductions in our Quixote investment.
Our leasing momentum accelerated with 518,000 sq ft of leases that were signed in the fourth quarter. Our occupancy increased by 40 basis points sequentially. We achieved our second-highest quarter of positive net absorption. For the full year, we signed 2.2 million sq ft, which is our second longest, strongest annual leasing quarter since 2019. In terms of our studio business, it continued to reform our Hollywood business, which is the Sunset Studios. We're over 86% leased, and Sunset Pier 94, as I said, we just started, and we're fully leased out of the gate on that asset in New York. With 2026, the position is of our balance sheet strength, lower costs, and improving our fundamentals. I'm gonna focus on the execution because that's the priority here.
We're gonna accelerate our occupancy growth, which we mentioned. We have 2.3 million sq ft of pipeline, up 15% year-over-year, and only 1 million sq ft of assets that are of leases that are expiring in 2026. We have strong coverage throughout our portfolio. Our objective is very clear and concise, so we mentioned this on our call. We're gonna push our occupancy beyond 80%-82% on average for the outlook at the year-end. Second, we're gonna unlock our embedded NOI in the company. As lease-up converts to cash flow, we expect sequential FFO growth as we progress through the year. Third, we had mentioned our Quixote investment, which has not been our best investment.
We're gonna target for that company a break-even by the end of the year through our operational improvements, which we have many alternatives. Fourth, we're gonna have a disciplined capital recycling plan. We targeted somewhere between $200 million and $300 million of FFO accretive sales to further delever the company, and we're gonna deploy capital within the existing portfolio only when returns are clear, attractive, and risk-adjusted. As we see market tailwinds in our markets like San Francisco, which posted a 2.5 million sq ft absorption, third highest on record. Our Silicon Valley, which is our second-largest marketplace with 2.9 million sq ft of positive absorption, and obviously the AI-driven formation in the Bay Area and Seattle. For our investors, the story is very straightforward. We will deleverage our balance sheet. We've done that very well in 2025.
We're gonna continue that in 2026. Our embedded occupancy, which is gonna be consistent with last year, West Coast office fundamentals, which everybody sees as a tailwind, which is a clear path to our FFO accretion and inflection, which is on the upswing. We're positioned very well so far. The quarter has been good. Our quarterly call was excellent, and we have meaningful upside for 2026. With that, Seth, I'll turn it back over to you.
Great. Maybe just following up on a few of those points. You reinstated full year FFO guidance for the first time in nearly two years. What specific macro or market signals kinda gave you the conviction to issue the full year outlook now?
First and foremost, I think it's the stability of leasing. As I said, with 2.3 million sq ft in the pipeline and the lowest year we've had in six years on expirations, we felt very comfortable in our execution. We've been executing approximately 500,000 sq ft a quarter, so that gets us well within the range of our FFO accretion and for us to feel comfortable about year-end guidance.
Sec ondarily, I think our lowered costs, as I mentioned, between interest expense and our G&A, which is stabilized now going forward and potentially could be lower, but in terms of the model, we've stabilized that. Then third, and most importantly, the flattening of Quixote. We sort of feel by the end of this year, with our multiple opportunities, we're gonna turn around and make that a t worst case scenario, a zero. From that point on, we'll see where it goes.
Great. Then how much of kind of the 2026 FFO uplift is recurring NOI versus non-recurring items like, you know, lease termination payments?
Yeah, yeah. There's no non-recurring items in the guidance.
Okay. You kind of mentioned, you know, HPP as a fundamentally transformed company. You know, what are the kind of three most kind of material structure changes investors should underwrite kind of going forward about the company?
Listen, I think there's a lot more than three, but I'll just highlight a few of them, as I said. First and foremost, you have to look at 87% of our portfolio is office. We get 95% of the intentions in the studio business. Of which Over 60% of it stabilized leased in our Sunset Studios vehicle. The remainder, which is going into growth mode, which is our Quixote business, which we say we're gonna get to zero. The market's valued that at less than zero, we feel at zero we're in pretty good shape. Focus on the upside, which is the leasing, which is the West Coast office market, which is the fundamental increases that we have in our opportunity here.
You're seeing our FFO growth last year obviously improved. Next two years it looks like it's on a trajectory well beyond anybody's current underwriting, and we feel comfortable with that. I think lastly, or secondarily, you know, the return to office has been a lag on the West Coast. We finally have the wind behind us. In all major markets that we're in, we're seeing activity with the exception. I think the worst market would be Los Angeles. Our Los Angeles portfolio is 100% leased for the most part, we don't have a lot of concerns there. In terms of the Bay Area, specifically in the Valley and in San Francisco, we're seeing that upshift.
In Seattle now, we always said Seattle was gonna be a 12-18 month trail to San Francisco, now we're seeing that capacity. Art and his team are seeing more 100,000 sq ft tenants in that marketplace, which absorption in Bellevue is virtually 100%. The vacancy in Seattle is moving now to almost flat with sublease space. We're seeing that momentum shift, we're gonna capitalize on that. We have class A assets in class A markets. We don't have a lot of peripheral marketplaces that we have any exposure in, we can see that growth prospect to be very high for us.
You referenced kind of a line of sight sequential FFO growth starting in the second quarter. You know, what specifically happens in two Qs out, rent commitments, you know, anything on the studio business with the uplift there or kind of any cost savings?
Yeah. It's all rent commencements. There's nothing special going on either in cost reduction or in the studio business. It's really just an uplift in second quarter commencements, and importantly, as we've mentioned in the past, City of San Francisco lease.
The expiration in the end of first quarter with volume. That shifts the numbers.
No. Oh, that's on same-store.
Yeah.
Yeah. That's... You're asking about FFO cadence and, yeah, it's rent commencements. What Victor's referring to, if you're interested in, is shifting over to the same-store NOI year-over-year comparison, we do first quarter of last year included Square. It expired in that quarter. When you look ahead on same-store comparison, we'll starting in the second quarter, we'll no longer be sort of, you know, weighted down, if you will, by the prior year block lease as of the end of the first quarter.
Then you've talked about kind of accelerating leasing activity in all your markets. AI has obviously been very topical among the headlines over the past two weeks with, you know, some job reductions. You know, how is that kind of framing your outlook as you think about the markets? Is that coming up in any of your conversations with tenants as they think about future needs for space?
Obviously, the catalyst of AI growth is in the Bay Area, right? That's number one in the country. I think Seattle is, and Boston are sort of a close 2nd and 3rd, 2nd, depending on what markets you're in. You know, our underwriting has been consistent throughout. We're always gonna underwrite the credit of these tenants and, you know, we're always gonna have a consistent game plan around that. You know, our AI consumption of tenants in the portfolio is fairly limited, but we believe it's a, it's a massively strong point for the Bay Area. I think it's very early on in people evaluating cost-cutting and the likes of that. We look at the formation of the core businesses that people aren't talking about in our markets, right? It's education, it's government, it's healthcare.
These businesses are growing and flourishing. I mean, we're talking about maybe a component of fire, which is potentially legal and accounting. To date, we've seen no impact. We've seen no tenants coming back to us for shrinking space. It's quite the contrary. Because of AI and the growth in the markets, the ancillary businesses are growing in all of our marketplaces. Our average lease terms are up year-over-year for the last three consecutive years, and our size of leases that we're seeing is also up year-over-year. I think it's consistent with our portfolio. It's a quality play. Quality assets are gonna lease up. Given the complexity of the tenants, we'll see what the credit is, but we're not gonna, you know, look at a classification of saying AI and we're not gonna lease to them. We're also gonna evaluate every tenant as they come.
You know, kind of on that with continuing with leasing a little bit. You know, your guidance is the 80%-82%. You know, being a bit maybe back half weighted or second, you know, starting in the second quarter, that kind of implies you end the year at higher than 82%. How much of that kind of uplift from where you are now, which is the 76.3%, is already, you know, signed versus is any of that kind of speculative or based on renewals, or does anything need to happen to kind of get to that target?
Well, lots needs to happen to get to that target, clearly. The tenants that are in play right now. We classify them, you know, whether they're in leases, in LOIs or they've toured space. When we're talking about a sort of a stabilized 82% by average for the year-end, that's just assuming the tenants that we're negotiating with right now make. We have a strong indication that the majority of the tenants are gonna make. I mean, a lot of it depends on a couple of large leases that we're working on right now, and the comfort level of those getting executed is very high.
Kind of, on the kind of that same topic. You know, your expiration schedule's at a four-year low, so very kind of favorable, heading into the year. You know, expirations or renewals? Represent kind of the biggest swing factors, and can you kind of walk through any maybe upcoming move-outs or things we should be aware of there?
Well, I don't want to negotiate our hand in public as to which tenants we're talking to and which we're not and what we're doing. I can tell you know, we've been conservative in our renewal. It's roughly around 50%. We think we're going to renew higher than 50%. It's going to be closer to the mid-60s. The reality is, as you mentioned, and as we pointed out in our prepared remarks, we only have 1 million sq ft of effectively expiring. If we do 500,000 sq ft a quarter, which is what we've been doing, as I said, for the last three years, every single quarter on average, that means we renew effectively half of our renewals, then we have three-quarters of stabilized space. It equates to the same thing. We think we're going to exceed that substantially, but yeah, that's where the averages come in.
Then of the pipeline, the 2.3 million sq ft, maybe just breaking that down a little bit. What is kind of late stage of LOI and near decision and like, how are you thinking about that converting in the executed leases?
Sure. We talked about the pipeline, 2.3 million sq ft. Currently, you know, it's very dynamic, but currently, we've got close to 500,000 sq ft of deals in late-stage LOI or leases. Our execution rate on those is roughly about 95% once you get there. That number is dynamic, so we're gonna get those done. You know, the deals that are early stage, the team's done an excellent job of moving them forward, which is why we have all the confidence in the world about getting more into leases and executed.
Maybe shifting gears a little bit to the studio business. You know, you took the impairment on Quixote this quarter. You know, is that kind of just, you know, a clearing of the decks, and then you have kind of the break-even by year-end? Just kind of what's your outlook there? Can you talk a bit about kind of the tax credits and the pipeline of activity that you're seeing from that? You know, maybe just layering on kind of, you know, there's obviously been transactions discussed with some of the large media companies. Just how does that inform kind of demand for space and what is your thoughts there?
Sure. I'll take the first part, I'll flip over the Quixote write down to Mark in a second. If you look at the overall industry, clearly, there's a ton of eyeballs on it. The number one M&A transaction in this year, whether it closes this year or not, you know, Netflix was in the pole position. They're clearly out now. It's Paramount. It's a much better situation for Hudson. We've got 775,000 sq ft of office expiring in Netflix, but not till 2031. Our conversations with them are fluid. I think there is definitely going to be some impact on consolidation with Paramount and Warner Bros.
The impact is gonna be a lot less than it would've been with Netflix, but because they're buying the entire company and all the food groups of that company. I think that, you know, the sort of the confusion around the conversation in studio business is clearly deals with just quality of information. We have two companies. We have a Sunset platform, and we have a Quixote platform. In our Sunset platform, we're virtually 100% leased. We have high-quality space. We've got high-quality tenants. There's very little short-term leasing, and that consistent pattern has really proven out for us all the way through, whether consolidation or not. Second of all, you've got some pretty smart guys who are buying a $100+ billion company.
They're not thinking that the production world is going away, which the rest of the world has been mimicking and talking about that there's just not gonna be any more production. Well, that's obviously not the case. L.A. and New York have seen a rise in production with the downfall of their markets, like Albuquerque, New Mexico, New Orleans, Louisiana, Atlanta, Georgia, and a little bit of Chicago and Illinois. Those markets are much more depressed. The tax credits in both Los Angeles and New York have enhanced what we see as the production flow. The first part of this year is a little slower. We kind of feel that the input is gonna go further. We've looked at managing expectations around show counts at what they are right now, which is the all-time low.
If it's better than that, then we're gonna achieve a lot more. As I mentioned earlier, the third business we have is Quixote. Yes, we've taken a write-down on that business. It's effectively, when we bought Quixote, it's effectively one large office building of ours. It gets a tremendous amount of vision, but it's one large building. That's all it is. If we take a write-down on that, it's like making one bad deal. Obviously, it clearly was not the best deal we've ever done, but if you compare that to everything else we've done, then we're doing okay.
We think that we have multiple alternatives with that asset, that we can make it zero or at least flat at the end of the year. Those alternatives are, as I said, multiple. There's not just one course of action. There's many courses of action, and we're gonna pick the right course of action over the near term, and we'll execute on that. In terms of the depreciation, you wanna comment on that?
Yeah. I mean, well, you kind of said it. It does, to some extent, clear the deck. Not entirely, but it does better align the operating results for the Quixote business to the impact that having depreciation at a relative to what was previously a much higher basis, the impact that not being able to add that back under the SEC sanction definition of FFO had to that metric, right? You write it down, you lower the impact that the depreciation for that asset has on FFO, and I think it more closely aligns to its actual operating results now.
You could argue that perhaps we ought to, you know, create a definition of core FFO that ignores the depreciation associated with that business as well. I would say the impairment gets us a little closer to that result in any event, and like I said, kind of better aligns it to its operating performance.
Then, you know, you've kind of mentioned several alternatives. Can you kind of elaborate on, you know, what you're thinking about now in terms of what that asset could look like? Then, you know, just. How are you thinking about the cost structure of the Quixote business?
I don't wanna, you know, open my hand since we were negotiate our position with certain constituents. If you look at the business, the business is made up of two aspects. We've got assets that we lease, and we have assets that we own. The beauty of the position we're in is both the assets that we lease and the assets that we own are unencumbered. We have no debt on that business.
We have a tremendous amount of flexibility around the owned assets and the leased assets and the obligations of each. That should sort of lead you to sort of where we think we're gonna work on based on lease-up and based on alternatives. As I said, we're gonna make the right decision on an asset-by-asset, lease-by-lease basis, and we've already accomplished that. I mean, we closed our offices in Albuquerque, we closed our offices in Louisiana, and so we've already made some effective decisions that have lowered the expenses on that business, and there's more to come.
Can you comment at all on how you think about maybe the stabilized earnings contribution from that?
Well, as we sit today, as we said, right now it's a negative, and our goal is by the end of the year, it will be flat.
You know, what are kind of the, you know, as you're thinking about kind of the Hollywood Media Portfolio loan maturing, what kind of terms are under discussion, and what kind of contingency plans are there as you kind of engage with lenders?
As I mentioned in our call, in our prepared remarks on Thursday, I'm not gonna negotiate in an open forum our conversations with a lender that would open our hand. I think it's suffice to say that the loan itself is in conversation with us, our partner at Blackstone, and with the lender at various different forms and functions of the stage. It's like us saying, you know, who would negotiate with a tenant that expires in five years and six months from now? What tenant's gonna talk to you? We have rent with the tenant until 2031 for 100% of the office. We have rent with the tenant through the Studio business till almost 2028 across the board. We've got a lot of flexibility.
There's a tremendous amount of cash flow which exceeds any obligation with whether we rightsize the loan or not. There's cash there. I think our comfort level is to sort of sit down and be pragmatic, and look at alternatives around the cash flow. You would assume that that'd probably be some form of a cash sweep and an extension.
Maybe just turning back a little bit to kind of the office portfolio and leasing. You know, kind of going back to the pipeline, is there a way to measure how much of that is kind of true new net demand versus, you know, intra-market relocations? What's the kind of mix between expansions and renewals?
Yeah. Well, let me just start with your first part of the question. We're seeing about 30%-35% of the pipeline being net growth, okay? We're seeing about a third of that, just about a third of that as new to a market, right? Again, that's across the board. Obviously, those numbers are higher or escalated in San Francisco and in the Valley, but that's what we're seeing across the board. In terms of how much of the pipeline is new versus renew, it's currently 75% new, 25% renew as we sit today. Again, it's very dynamic.
You mentioned kind of some of the technology and AI, driving demand. Is there a way to quantify how much of the pipeline is AI or AI adjacent, and has that kind of accelerated over the past year?
It's definitely picked up over the last year. Of our pipeline, 50% of our pipeline is tech, just general tech. Again, of that, we'll call it roughly a third is AI. It's slightly higher in the city, in San Francisco and in the Valley. You know, we're not seeing much tech growth in Vancouver, but we're very stable. We're seeing 30% tech now in Seattle, which sounds low compared to the Valley and San Francisco, but it's growing, right? We're kind of 12, 18 months behind, but we're starting to see tech, you know, leak into in Seattle, plant their flags and grow, and things like that.
You know, our tech tenants and AI tenants, you know, what type of spaces are they looking for? Are they looking for largely spec suite, smaller spaces, larger spaces? Any differences there in terms of, you know, lease terms that you're negotiating with those types of tenants?
Yeah, I don't think there's any differences, yes. I mean, the smaller tech tenants are looking for, you know, move in right away, right? We have a spec suite program that we've been extremely successful. We've got 400,000 sq ft of spec suites coming online. It's all being looked at by various different companies, not just tech or AI, but all different companies. That seems to be the sweet spot because they're smaller tenants. Obviously, the larger tenants are looking for much more improved space and customized space, a lot more open area. You've seen the increase of space to employees have gone up considerably to, you know, to the low points. We're seeing that consistent going forward.
Then, you know, kind of as you drive occupancy, you know, how do you kind of balance, you know, wanting to kind of, you know, have better kind of lease economics versus just positive space absorption? Is there any way you're kind of changing the way you think about, you know, pricing or leasing activity just based off .
Yeah. That's a dynamic answer. It's gonna change market to market. Those ideas are not mutually exclusive, right? We're always pushing rent. We're always trying to get a better deal. Some markets like Palo Alto, where tenants have urgency, obviously you have a little bit more leverage. Not all the markets are there. Even though we're recovering and we feel like we've turned the corner, right? There is still not a lot of urgency in some of these markets. We continue to push, but again, we're Obviously subject to a particular market, sub-market, or even type of space within a building.
Maybe switching gears a little bit towards capital allocation. You've, you know, you've completed $330 million of sales. You, you know, you've executed a lot on capital transactions and increased liquidity. How are you thinking about the appropriate level of leverage for the company?
Go ahead.
Yeah, we're gonna continue to just chip away and get leverage down back to sort of, you know, let's just say industry levels in terms of debt to EBITDA. The ingredients are there even without the capital transactions you're mentioning, right? If you just map out a relatively conservative growth trajectory on occupancy on the office, what you would find is you know, you get somewhere, you know, into the mid-6s by 2029. And that's without any other efforts to de-lever quicker. For example, if we complete the $200 million-$300 million that we announced on the call for this year, that's gonna accelerate that de-levering effort, you know, considerably. That's how we're thinking about it.
There, you know, it wasn't that long ago, say pre-pandemic, we were generating debt-to-EBITDA ratios at a point in time in the mid-5s. I'm not saying that, you know, we're necessarily heading as low as that level, but I do think in the relative near term here, and here I mean maybe two years, you're gonna start seeing ratios in the 8s, then before not long after that, 7s. Like I said, by 2030, we could, you know, be in the mid-6s.
On just the $200 million-$300 million of asset sales, are those kind of assets that you've already identified and started marketing? How much of that is, you know, non-core office versus studio assets? How are you thinking about pricing for those assets?
We've announced two deals already. One is being marketed as we speak right now. As I mentioned, the assets we're talking are non-core assets. They're FFO accretive. Some of them are vacant. The markets have shifted, specifically in some of the markets that we're looking to sell these assets. People are looking to buy vacancy when before people were just looking to buy WALT, we're positioned well there. As Mark said, it's, you know, the use of proceeds are gonna go to pay down debt and operating expenses and the likes of that. We're comfortable with that number.
We can exceed it, but I think that's gonna be the number we're gonna be looking at, and I don't think you're gonna see any, if at all, impact other than potentially accretive, on FFO when we sell these assets.
How is, how has the buyer pool composition kind of changed and demand changed for those assets?
We have two different types of assets. One is obviously specific to the marketplace 'cause we're selling a 508 unit fully entitled resi with either a JV or a sale. The buyer pool, our NDAs are over. I think it's over 80 NDAs are signed, it's virtually a who's who of who's bidding on it now. There's 20 high-quality bidders at either a JV, either an outright sale, or a combination of both or both. That's because it's in Culver City, it's a lot more flexible, a lot more business friendly. It's not city of Los Angeles. We feel very comfortable about that. I think the other is the buyer pool, as I said, has changed from the last couple years.
People were only buying assets with WALT, some stabilized income stream, and now people are realizing that the upside is potentially better and their IRR returns are gonna be better. We're seeing interest level in vacancy and people willing to take a little bit more risk return on assets specifically in the Bay Area. There's also interest in Seattle to a certain extent. There's a couple of big deals that have come to market just recently, we'll see where pricing comes into play. Los Angeles has been pretty quiet. There's only been a few transactions, I think it's too early to tell where the valuation shift and demand's gonna be in that marketplace.
H ow are you thinking about, you know, the L.A. market has seemed to lag San Francisco. Is that just, you know, technology has kind of driven San Francisco, or have you seen anything specific to L.A. that's kind of been a headwind to that, the recovery of that market?
That's a loaded question, Seth. You know that, right? I think the political environment in Los Angeles has detracted a lot of people from investing in the current position, and it's what you guys cover. You know, we're in a very strange timeline with an election coming up in November. Our current mayor has now become a moderate mayor, at least on paper, because the opposition is extremely left of her. There's been a shift. At the end of the day, I think what you've seen in San Francisco with Dan Lurie or with Matt Mahan in San Jose is the direction that we would like to see Los Angeles go in. I'm not so sure it's gonna happen in this election. It can't get much worse if the current administration gets elected.
It's all around safety. It's all around pro-business. It's all around homelessness. Those are the areas by which people are gonna focus their attention on. If they get a handle on that, I think the city's got some upswing. Lastly, Los Angeles does have some head, some tailwinds, clearly with the amount of activity and events between FIFA World Cup, Super Bowl, and the Olympics over the next 24 or 30 months, I guess. There's gonna be a lot of capital invested in Los Angeles.
Have you started to see signs of that capital and translating into any demand for, you know, the office or studio business?
In terms of the office building business, the answer is yes. I mean, we're about to sign two different leases with those agencies that I've mentioned, some of those agencies I just mentioned, which are more short-term. The amount of capital going into renovations, you know, the nice thing is there's not a tremendous amount of capital needed for the Olympics, which you would normally have to see in almost every single city. Los Angeles has already got every major facilities already built, so infrastructure's already in place. I think you have to deal with the village, which is at UCLA. There will be some construction dollars and some input around that. Yeah, there's I mean, there's a lot of momentum because these events are happening with or without the current administration or lack thereof, so people understand that.
Just kind of the wealth tax initiative that's on the ballot, is that coming up in conversations? You know?
It's not yet on the ballot.
Okay.
Yes. I mean, the answer is no, it's not come up. The polling still seems like it's not gonna pass, but it still has to get on the ballot. There is a TPA, which is Tax Protection Act, that is hopefully approaching the ballot, which will constitutionally make it such that in all of California you need 66% to get any taxation, any implementation approved, and that should override. That looks like that will be on the ballot because we've been spending a lot of energy and effort, myself and lots of our brethren landlords in Southern California and Northern California. We feel that itself will have an upswing to help rectify some of this instability in the political markets.
Great. One of the questions we're asking all the companies are kind of what AI solutions are you using, and how do you decide what solutions your company either builds or buys from some of the top kind of AI companies that are out there?
We've implemented a number of tools. I think it's been very successful to date. We've obviously implemented through Copilot and Google Cloud. Those two are working both on the website and also on the company side. I think, you know, from a commercial office standpoint, leasing tools have been very prevalent from our standpoint. We're spending a lot of time working through some leasing tools with Yardi, and I believe that we're gonna see some pretty impressive movements around that. We've not implemented a ton on the legal side yet. We're still relying on our third-party vendors for that. I believe in the accounting side, with Yardi and what we're doing there seems to be a lot of progression around that.
It's a moving target. It's absolutely efficient. It's not caused us to, you know, let go of people per se on that basis. I don't foresee that to be the case in the parent company. On the studio side, yeah, I mean, everybody knows what Sora's doing, but it hasn't launched to a point where we're seeing a tremendous amount of impact on the studio production world. These Micro-dramas that I mentioned on our call seem to be much more AI-driven, which is a positive. It's gonna be a whole new asset class, and we think that could be, you know, somewhere around a $10 billion-$11 billion business, annualized, in the United States.
Okay. Maybe moving on to some of our rapid fire before we get to the end here. What will Net Effective Rent growth be for the office sector overall in 2027?
Well. I think we're coming from a downside going to an upside, so we would maybe be a little bit more bullish, but I would say Net Effective Rent growth would be somewhere around 3%.
3%. Okay. Will the office sector have more, fewer, or the same number of public companies?
Same number.
Same number. All right. Then maybe just going back to AI in the last kind of 30 seconds here. You mentioned some of the leasing tools with Yardi. Do you think that AI, in terms of how it's gonna change the office sector, is it primarily gonna just increase the velocity of leasing? Do you think it's gonna change kind of, you know, just a lot of drafting of the documents or what's kind of the biggest overall change?
I think it's untold as to where we're gonna go with this, but I can tell you emphatically that the easy thing is the lease documentation's gonna get leaner, it's gonna get shorter, it's gonna get much more efficient. I mean, you know, we were at one point, you know, 80 pages, and I think we're gonna be down to.
This session has ended. The next session will begin in 10 minutes.
Objectively, we're gonna get down to, you know, 15 to 20 pages and maybe even better than that. I think the attachments and the amendments are gonna be a lot better. In terms of documentation, that's the main one. I also think just the access. Knowing what your peers are charging and what amenities are there and how you can do leasing, I think that's an invaluable tool going forward.
Great. Thank you so much.
Thanks for the time, everybody.