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Edited Transcript of CXP.N earnings conference call or presentation 29-Oct-20 9:00pm GMT

·30 min read

Q3 2020 Columbia Property Trust Inc Earnings Call Atlanta Oct 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Columbia Property Trust Inc earnings conference call or presentation Thursday, October 29, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * E. Nelson Mills Columbia Property Trust, Inc. - President, CEO & Director * James A. Fleming Columbia Property Trust, Inc. - Executive VP & CFO * Jeffrey Kirk Gronning Columbia Property Trust, Inc. - Executive VP & CIO * Matt Stover Columbia Property Trust, Inc. - Director of Finance & IR ================================================================================ Conference Call Participants ================================================================================ * Piljung Kim BMO Capital Markets Equity Research - Senior Real Estate Analyst * Richard Wynn Skidmore Goldman Sachs Group, Inc., Research Division - Vice-President * Sheila Kathleen McGrath Evercore ISI Institutional Equities, Research Division - Senior MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to the Columbia Property Trust Third Quarter 2020 Conference Call. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the call over to Matt Stover, Director of Investor Relations. Please go ahead, sir. -------------------------------------------------------------------------------- Matt Stover, Columbia Property Trust, Inc. - Director of Finance & IR [2] -------------------------------------------------------------------------------- Thank you, operator, and thank you, everyone, for joining us on our Third Quarter 2020 Columbia Property Trust Investor Conference Call. On the call with me today are Nelson Mills, President and Chief Executive Officer; Jim Fleming, Executive Vice President and Chief Financial Officer; Jeff Gronning, Executive Vice President and Chief Investment Officer; and other members of our senior management team. We released our results this afternoon in our quarterly supplemental package, which can be found in the Investor Relations section of our website and on file with the SEC on Form 8-K. We also filed our 10-Q with the SEC this afternoon, and an audio replay of this call will be available by this time tomorrow. Statements made on today's call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our most recent Form 10-K and Form 10-Q, which includes specific risks pertaining to COVID-19. Forward-looking statements are made based on our current expectations, assumptions and beliefs as well as information available to us at this time. Columbia undertakes no obligation to update any information discussed on this conference call. During this call, we will also discuss certain non-GAAP financial measures, and reconciliations to comparable GAAP financial measures can be found in our supplemental financial data. With that, I'll turn the call over to Nelson Mills. -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you, Matt, and welcome, everyone, to today's call. During the third quarter, our team has continued to navigate unprecedented market and operational challenges to produce solid results. Our rent collections have been quite strong, reflecting Columbia's well positioned portfolio, and we are again able to raise our full year guidance this quarter. We maintain a sharp focus on both financial performance, and on serving our tenants' needs, including keeping our properties safe for reentry. During the third quarter, we built upon our track record of year-over-year growth with normalized FFO of $0.42 per share, up from $0.39 per share a year earlier. This was supported by a 2% increase in same-store NOI on a cash basis. While physical occupancy is down across the industry, Columbia's lease rate remains above 96%, and we've already collected nearly 98% of third quarter rent. These sector-leading collections reflect the premier portfolio we've assembled and our impressive tenant roster. On the leasing front, we continue to have minimal vacancy and limited near-term expirations. Despite the challenging market conditions, we have continued to actively engage both existing and prospective tenants, and were able to advance several key leasing negotiations during the quarter. There will certainly be pressure on tenant demand in the near to intermediate term. But we believe that, on average, there is substantial embedded rent roll up opportunity across the portfolio. In a moment, Jeff will tell us about some of the encouraging activity we're seeing in terms of demand for our available space. At Columbia Property Trust, we've always focused on optimizing our portfolio to create and capture value for our shareholders. Even during this unprecedented year, we've been strategically active, and I'd like to walk you through a couple of recent transactions. Earlier this month, we announced the expansion of our joint venture with Allianz Real Estate to include 221 Main Street in San Francisco. This is a property in the South Financial District that we acquired in 2014 and then fully modernized and leased to a terrific group of tenants, including DocuSign and Prosper Marketplace. Our sale of a 45% stake valued the building at $400 million, well above our book value of $250 million. As Jim will discuss, we used the proceeds to pay down our line of credit and reduce interest expense. In essence, we were able to partially monetize this investment at very close to its pre-pandemic value and further strengthen our balance sheet so that we're poised to execute on future opportunities. This is a strong affirmation of our strategy and execution capabilities. We find well-located properties with great potential, invest appropriately to maximize appeal and win over dynamic tenants at attractive terms. As the 221 Main transaction demonstrates, this focused and discerning approach benefits our shareholders even during periods of market turbulence. Another value-creating transaction during the quarter, smaller in dollar terms, but strategically important, is the extension of our ground lease at 116 Huntington Avenue, our well-leased building in Boston's Back Bay neighborhood. This is a prepaid ground lease that had a remaining lease term of 58 years. We made a $10 million payment to the ground owners, the Massachusetts Department of Transportation, to extend the lease to 99 years. We view this as an opportunistic win-win given the state's need for cash and a significant enhancement to the value of the property. Columbia's vision for the future remains fully intact even while navigating this challenging environment. As I have described on earlier calls, there are many compelling reasons for our confidence in Columbia's ability to create shareholder value. One of these is the quality of the modernized portfolio we've assembled. We have well-located and unique assets in the most vital gateway markets. Our buildings accommodate flexible floor plans and allow for less crowded elevators, permitting greater social distancing. We continue to attract some of the most dynamic and financially-resilient growth company in the world, whose success is driven by their culture of collaboration. Of course, work from home and other potential trends could have an impact on the level and nature of demand but our uniquely positioned portfolio, powered by our creative and committed team is well suited to meet these challenges and prosper. Our proven full-service platform positions us to capitalize on the changing office landscape. And our financial strength, which benefits from a high lease rate, strong collections, extended lease durations and a solid balance sheet, equips us to capture value creation opportunities. Our third quarter results and revised guidance are strong indicators of this favorable positioning, our team's capabilities and our hard work. Always focused on investor performance, we also continue to prioritize environmental, social and governance initiatives and are committed to advancing diversity, equity and inclusion in every aspect of our business. As I highlighted on our last call, we recently published an ESG report that reflects our emphasis on D&I initiatives, which have grown even more important for our team. To further discuss our progress with new value creation opportunities, I'm going to hand the call over to Jeff, and then Jim will provide further detail around our results and our guidance for the year. But first, I want to again acknowledge the dedication of my teammates here at Columbia Property Trust, who continue to demonstrate why they're the best in the business. I also want to thank our shareholders for their continued support and confidence in our successful approach to long-term value creation, and I'm very much looking forward to what we'll accomplish together. With that, I'll hand the call over to Jeff. -------------------------------------------------------------------------------- Jeffrey Kirk Gronning, Columbia Property Trust, Inc. - Executive VP & CIO [4] -------------------------------------------------------------------------------- Thank you, Nelson, and it's a pleasure to speak with everyone today. I'd like to focus my remarks on what Nelson just touched on, which is our commitment to value creation. As you know, we had 5 projects either under development or in the predevelopment stage. We are well underway with the ground up construction of 799 Broadway in New York City and the construction of 3 additional floors at 80 M Street in Washington, D.C. Additionally, Terminal Warehouse and 101 Franklin, both located in New York City are in the predevelopment phase. And lastly, following our negotiated lease termination deal with WeWork at 149 Madison Avenue, we are evaluating re-tenanting options. 799 Broadway is a best-in-class ground-up development where we are creating highly attractive boutique office space in the superb Greenwich Village Midtown South neighborhood. Since our last call, construction has continued to progress and tour activity has resumed. We currently anticipate the property will deliver in June or July 2021. The initial feedback from prospective tenants and brokers is very positive, specifically in regard to the building's outstanding design and location and its brand-new health, wellness and other building features designed for a post-COVID environment. Given the renewed tenant interest, touring activity and discussions we are now having with prospects, we are confident that 799 Broadway will outperform the market as we look to emerge from the effects of COVID. We also continue to make great progress at 80 M Street in the Capital Riverfront District of Washington, D.C. We're working to complete an innovative 105,000 square foot, 3 floor vertical expansion that will make this office property the first in Washington, D.C. and one of only a very few across the country to use environmentally-friendly mass timber construction. As previously announced, we've already pre-leased 60% of the new space, and we look forward to completing construction by the second quarter of 2022 and leasing up the remaining availability soon. As I previously noted, our projects at 101 Franklin Street and Terminal Warehouse in Manhattan represent the next phase of investments that will deliver long-term growth and value creation for our company. Currently, we're working with our partners to prudently position these projects for redevelopment so that when the time is right, we are ready to execute on Columbia's proven strategy of creating high end workspace environments for tenants that are seeking a highly differentiated product and office experience. To elaborate more specifically about the near-term plan for these 2 assets, we continue to work towards finalizing the design and development drawings for both properties. We are working on the detailed marketing and leasing strategies at each and we have started some of the on-site preconstruction work, including interior demolition and abatement. We and our joint venture partners at Terminal Warehouse have also initiated a marketing process to refinance the existing predevelopment loan for the project with a new construction loan, a necessary next step in the development process. Meanwhile, 101 Franklin is in an earlier stage of predevelopment. Most of our time there is being spent refining the design specifications while we continue to evaluate leasing market fundamentals from quarter-to-quarter. While overall leasing volume in our markets remains at low levels due to the pandemic, the ongoing interest we're seeing in our new and renovated neighborhood-based projects and our team's continued success in maintaining a high lease rate are a strong testament to our proven approach and our vertically integrated platform. We have the team, the assets, the relationships and the discipline to make the most of evolving market conditions and emerging investment opportunities. As active market participants, we continue to track new opportunities across the multiple real estate markets where we invest and operate, whether it's traditional direct investments, distress or other opportunities to transact with motivated sellers, we have the financial strength and resources to capitalize on situations that will position Columbia to the next upcycle in real estate. In addition, we are continuously evaluating the existing portfolio in order to identify opportunities for additional value-add or to recycle capital from low return assets into higher growth situations. With that, I'll hand the call over to Jim. -------------------------------------------------------------------------------- James A. Fleming, Columbia Property Trust, Inc. - Executive VP & CFO [5] -------------------------------------------------------------------------------- Thank you, Jeff, and thanks, everyone, for joining us today. As you heard from both Nelson and Jeff, we're having a very good year financially and continuing to make meaningful progress despite difficult market conditions. And as you all know, this takes a lot of focus and hard work from the team. During the third quarter, despite recent dispositions and the obvious challenges of 2020, we produced normalized FFO of $0.42. This beat the second quarter's $0.40, which had been our highest quarterly result in 2 years. Our same-store NOI based on cash rents at $49 million was also slightly higher than last year's number for the same period. As Nelson mentioned, although we didn't lease any new space, we renewed 15,000 square feet of expiring leases during the quarter with an average new term of 5 years at a slight roll up on both a cash and GAAP basis. Our lease percentage at the end of September stood at 96.3%. Our collections have remained very strong. We've collected nearly 98% of total rents for the second quarter. We've also deferred about 1.5% that we expect to receive in the future, resulting in write-offs to date of less than 1%. And October collections have also been strong, with over 96% collected to date, a higher percentage than we had achieved as of the same date in September. Our high-quality tenant base, long lease durations, limited exposure to street retail and transient parking and limited rollover, all serve to support our strong financial performance. Our balance sheet remains solid, driven in part by the financial performance I just outlined. We also used proceeds from the 221 Main Street joint venture to pay down our line of credit, reducing both debt and interest expense going forward. We have substantial liquidity today with just over $300 million in cash, plus $325 million available under our bank credit facility. We were in a strong financial position at the end of last quarter with net debt to gross real estate assets of 35.2%, net debt to adjusted EBITDA of 6.7x and a fixed charge coverage ratio of 3.6x. Our latest Allianz joint venture further strengthened our balance sheet, bringing our net debt to gross real estate assets down to 31.5%. We continue to have more than $4 billion of unencumbered properties with our only debt maturities before 2022 being modest loans at our share on 799 Broadway and Terminal Warehouse. As we move ahead, we will continue to be disciplined about allocating capital to existing and new projects. We remain active, and we'll continue looking for opportunities. But our goal is to use our balance sheet to maximum advantage, so we are being patient for the time being. For this reason, we continue to refrain from repurchasing shares recently. We consider our stock a compelling value and share buybacks certainly remain an option, given our strong liquidity and the $143 million remaining under our repurchase authorization. As you heard from both Nelson and Jeff, we view our strong balance sheet as an advantage during uncertain times and one that will allow us to capitalize on future investment opportunities, leveraging our expertise, our team and our track record of value creation. Before I discuss guidance, I want to point out a few things driving this year's numbers that may not be repeated next year. First, we received the termination fee on the Winton Capital space at 315 Park Avenue South in the second quarter and a termination fee from WeWork at 149 Madison in the third quarter. These terminations happen from time to time, but we don't currently expect any significant ones in 2021. We will also take back 174,000 square feet of space from Pershing in Jersey City in mid-2021. And in addition, future earnings may be a bit lower since we sold 45% of 221 Main to Allianz and used the proceeds to pay down debt. Of course, we can redeploy the capital from 221 Main when we find a compelling opportunity, hopefully, at a higher yield than 221 Main. And we expect to re-lease 149 Madison, which should produce more income than the 10 months of rent represented by the WeWork termination payment we received this year. Furthermore, as Nelson mentioned, we're working hard to lease other space, including 799 Broadway, the Pershing space in Jersey City and the remainder of 80 M Street in D.C., which will add to our earnings. So in the longer term, we expect meaningful earnings growth, but our FFO in 2021 may be somewhat lower for the reasons I just outlined. Turning back to 2020, due to our continued solid performance, we're increasing our full year guidance ranges for FFO, same-store NOI and year-end lease percentage. We're raising our normalized FFO outlook from the range of $1.46 to $1.51 to a new range of $1.51 to $1.54. Our same-store NOI on a cash basis, we're moving from 7% to 10%, up to 8% to 10%. And our year-end occupancy range moves from 94% to 97%, up to 95% to 97%. In addition, while we're keeping our anticipated range for corporate G&A at $35 million to $37 million, we are trending toward the low end of this range, and we're taking a hard look at our G&A to see what we can further reduce going forward. Market conditions may remain volatile, but we're confident in our new higher expectations. In closing, Columbia Property Trust had another solid quarter despite the challenges of 2020, reflecting the strong platform we've built over many years. We have the properties, the tenants, the financial foundation and the business model to succeed over the long term. Along with all our peers, a year like this has put our operating philosophy to the test. We are proud of our performance, and I especially want to add my thanks to all our colleagues at Columbia for their hard work. At this time, operator, if you could, please open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question cost from the line of Sheila McGrath with Evercore. -------------------------------------------------------------------------------- Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [2] -------------------------------------------------------------------------------- Nelson, I was wondering if you could give us a little more insight on that ground lease extension in Boston. Is that a precursor for you to consider marketing that asset for sale? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- Sheila, no, not specifically, not at this time. We are convinced that we added substantial net value in that transaction. As we said, it was a win-win, that the state needed capital. We think the value that was created -- we're confident that the value it’s created is much more than the $10 million we paid. When you get down to under 60 years of ground lease term, it starts to -- some sellers won't even look at that, and it certainly impacts the value. So it was an open window for us to take an opportunity and do that transaction, but -- and we took it. So it wasn't directly in connection with preparing for a sale. -------------------------------------------------------------------------------- Sheila Kathleen McGrath, Evercore ISI Institutional Equities, Research Division - Senior MD [4] -------------------------------------------------------------------------------- Okay. Great. And then on 799 Broadway, would you characterize that there are active leasing discussions? And if you could just comment on what about that asset might position it to appeal to tenants in a post-COVID world? What are the characteristics that might have? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Sure. Sure. So as Jeff mentioned, we do -- we are very encouraged by the level of interest. We do have active tours and active discussions. We're still a long way from actually -- you can -- getting a lease signed, but we're very encouraged by the level of activity and serious activity, right? And it's led by a mix of prospects predominantly tech though. So a lot of interest in the property. In terms of the features of the building, already, its original design provided for -- it’s obviously very modern and a lot of outdoor space, interconnected with indoor space, that's even more appealing in a post-COVID environment. But -- and it's fully modern in every way. But we went an extra step and went back over the last few months and enhanced the property in other ways with touchless doors and destination elevators and those sorts of things and enhanced air filtration. So really state of the art in terms of addressing any COVID concerns. So -- and that -- and by the way, that's being received very well by these prospective tenants. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Your next question comes from the line of John Kim with BMO Capital Markets. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [7] -------------------------------------------------------------------------------- On ground lease payments, what does it show up on your income statement? It doesn't look like it has been recorded yet. -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [8] -------------------------------------------------------------------------------- Jim, you want to take that one? -------------------------------------------------------------------------------- James A. Fleming, Columbia Property Trust, Inc. - Executive VP & CFO [9] -------------------------------------------------------------------------------- Yes. It's not on the income statement. It's just a capital transaction. It was -- I'll look while we are talking and share if I can find it. But yes, it wasn't an income item, it was just an investment. -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [10] -------------------------------------------------------------------------------- It's essentially just basis in the property. When we bought the property, the ground lease sat about 63 years and had been prepaid. So we're not making annual payments. This was a onetime payment also prepayment. So there are no ongoing payments, but this would just be a capital item on the balance sheet. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [11] -------------------------------------------------------------------------------- Okay. From a cash flow perspective? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [12] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- James A. Fleming, Columbia Property Trust, Inc. - Executive VP & CFO [13] -------------------------------------------------------------------------------- John, if you look at the statement of cash flows, you'll find the $14 million. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [14] -------------------------------------------------------------------------------- Okay. The joint venture sale that you did earlier this month at 221 Main, how has that impacted the investment sales market in San Francisco? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [15] -------------------------------------------------------------------------------- Well, it's -- it was well received, obviously. I mean there have been a couple of other transactions with similar positive reaction. I think there's a bit of a bifurcation between assets like this, a well leased, well-performing asset, a core asset, if you will. I think those opportunities -- those types of assets continue to trade quite well. And I think anything with substantial lease or near-term [roll], there's a little bit more demand for that, it’s a little more tepid and a little more -- a little bit more worry about that. But yes, it was -- to say it was pre-COVID pricing would be a little bit stretched. Obviously, that impacted the valuation somewhat. But given the long-term nature of the leases, given the long-term hold strategy of Allianz and Columbia in our ventures, we took a long-term perspective on valuing it. So I think it was a great price. But I don't know if the market is -- we received some good feedback on it. I don't think it was totally shocking given the quality of the asset. Jeff, anything to add on that? -------------------------------------------------------------------------------- Jeffrey Kirk Gronning, Columbia Property Trust, Inc. - Executive VP & CIO [16] -------------------------------------------------------------------------------- No, Nelson. I would just add to what you just said. We feel like it was a very strong execution. Others have acknowledged that to us. And I do believe that these higher quality, longer weighted average lease term assets in San Francisco and other markets that held up price-wise very well certainly in comparison to assets with vacancy or rollover or more value-add type properties where there's a pretty substantial bid-ask as we sit here today. -------------------------------------------------------------------------------- Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [17] -------------------------------------------------------------------------------- And then my final question is on earnings growth because this year, you're, again, delivering very solid same-store growth, and you had some cash gains on dispositions. I'm looking at 2021, Jim, you’ve already walked through some headwinds to earnings growth, including Pershing downsizing. I'm just wondering, is 2021 the trough as far as earnings, and you're looking to focus on delivering earnings growth in 2022 and beyond? Or are there going to be more asset sales between now and then that might dilute '22 earnings? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [18] -------------------------------------------------------------------------------- Yes. John, let me take that generally, and then Jim can tack on. So it's hard to know. We have about 8% of our leases expiring next year, which is not that big of a hurdle, but it's hard to know exactly the extent and the duration of pressure we're going to have in the system in terms of new leases. And so we're all trying to figure that out. But from what we can see right now, I would expect '21 to be the trough. We do have some -- Jim mentioned, as you said, Jim mentioned how '21 could be a bit lower to '20. But there are also a lot of things, including these new development projects that should start delivering, at least on a GAAP basis, in '20 and '22 and beyond. So yes, that would -- obviously, we're not giving guidance on even next year, much less a year after that, on this call. But I think it's fairly safe to say that we expect '21 to be a trough year based on what we know now. -------------------------------------------------------------------------------- James A. Fleming, Columbia Property Trust, Inc. - Executive VP & CFO [19] -------------------------------------------------------------------------------- And John, I don't have much to add to that. I agree exactly with what Nelson said, and that's really why I mentioned what I did. I just want to make sure people -- I don't think I mentioned anything that anyone on the call wasn't already aware of but may not have been focused on. And so I just wanted people to realize our earnings have been very strong the last couple of quarters. We have had a couple of termination fees. We may see some of those next year. We got some income from 149 Madison, and we'll see how it goes. I think the key for us going forward is going to be getting some of these properties leased up. We have some good space available to be leased up. 799 Broadway, that can really make a big difference. As Nelson said, we're not going to give guidance at this point, it's too early to say, but that could really help. Certainly, re-leasing 149 Madison will help. There's some space in Jersey City. Those are ones I just wanted people to focus on. And by the time we get to next quarter's call, we'll have some guidance on all of that. But I agree with Nelson, and I think next year is likely to be lower and then we should have very solid growth from that point. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from the line of Rick Skidmore with Goldman Sachs. -------------------------------------------------------------------------------- Richard Wynn Skidmore, Goldman Sachs Group, Inc., Research Division - Vice-President [21] -------------------------------------------------------------------------------- Question just going back to 799 in terms of just the discussions that you're having in the question that John just asked about 2021. Given where we're at in the end of '20, could there be a tenant that could lease 799 and have that tenant improvement happening in GAAP revenue show up in 2021? And where are the discussions at in terms of feedback on 799 as well as 149? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [22] -------------------------------------------------------------------------------- Rick, that could certainly happen. We certainly hope that happens. We have some live prospects on income, having the building occupy-able and having a lease commence. So yes, I think it's very possible that we could have GAAP income on that property of 799, same with 149 Madison. We took the property back in -- around the fourth -- around the middle of the summer. And we've got a bit of work to do to ready that property, and we're just beginning to market it. So same thing. I mean our expectation would be at least, at least in part, we get some leases done and commence next year on that one as well. So the wildcard, of course, is this current market conditions and the reluctance of anybody to commit to leases these days. But hopefully, that settles down in the next several months, and we start to get -- we start to nail some of these opportunities down. -------------------------------------------------------------------------------- Richard Wynn Skidmore, Goldman Sachs Group, Inc., Research Division - Vice-President [23] -------------------------------------------------------------------------------- And then just maybe on 799, in those discussions, how does the leasing term compared to what you were thinking of from an underwriting perspective in those discussions that you're having? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [24] -------------------------------------------------------------------------------- Yes. Well, that's to be determined, obviously. Our ask really hasn't come off that much. I mean call it single digits, a deal we would do today versus our pre-COVID sort of negotiations. We might come off of our original ask about single-digit percentage maybe. At this stage, given the unique nature of the property, its location, the level of interest we're getting in the property, we wouldn't come off much more than that. And I'm talking net effective rent. So obviously, what's important is the -- not just the gross rate, but how much concession you have to get to get the deal done and free rent and so forth. And so yes, I'd say all that together, net effective rents, we'd be, at this stage, we'd be looking for something relatively close to what we’re looking at pre-COVID. Again, because of the unique nature of the property, more commodity-type buildings are certainly going to suffer a bigger discount than that. Fortunately, we don't have a lot of those in the portfolio, but given the unique nature, we're -- we should come out okay. -------------------------------------------------------------------------------- Richard Wynn Skidmore, Goldman Sachs Group, Inc., Research Division - Vice-President [25] -------------------------------------------------------------------------------- Got it. One other question, maybe shifting topics completely. In the Normandy acquisition, there were some real estate funds. Have you -- as you look at Normandy and look to leverage that, is there an opportunity there to -- and raise funds and be out in the market and maybe talk about a little bit of what you're seeing from an investment return perspective in those Normandy funds? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- Sure. I'll let Jeff speak to that. I'll just say, first of all, we do have 2 active fund -- 3 active funds that Jeff can speak to. And with that, some really terrific investor relationships and Normandy had a terrific performance record and reputation with those investors. And we certainly like to keep -- to do more with those investors. And so as we discussed on previous calls, our next fund per se is not in the works today, and there’s always a possibility. But we certainly aren't talking to those investors about opportunities, and we're -- and that's part of the plan, right? So Jeff, anything you want to add to that? -------------------------------------------------------------------------------- Jeffrey Kirk Gronning, Columbia Property Trust, Inc. - Executive VP & CIO [27] -------------------------------------------------------------------------------- Yes. I think that's right, Nelson. We have a great stable of investors who we were very active with, the Normandy Real Estate Management, that we would expect to be active with in the future as well. I would tell you that the nature of most of those capital relationships trended more toward value-add and opportunistic sort of investment style. And we had the opportunity. We've got a pipeline. And I would say that in recent weeks and over the last couple of months, we've started to see the pipeline build in terms of what we think are interesting opportunities to look at. We're not doing anything imminently as we sit here today, but we have been closely tracking the market, and we're starting to see a range of opportunities that include not only direct real estate deals that -- or of the profile that a company like Columbia Property Trust would want to invest and then own long term, but other high-yield situations that look and feel like the type of investments that we were making at Normandy when we came out of the last downturn that could be very profitable potential investments for what we -- used to be called Normandy Real Estate Management is now called the Columbia Real Estate Management as a business line, if you will, so that's kind of our approach. But we are seeing interesting deal flow. It's increasing, and we would certainly expect to capitalize on those types of opportunities as they come more into focus. -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. And just add to that, Rick, the opportunity for Columbia shareholders and Columbia is to invest a fairly modest amount of capital, GP capital in those deals being totally aligned with those investors, those partners. But obviously, that generates some fees. And for successful projects, which we hope they all would be, promote opportunity. So without a lot of capital from the Columbia balance sheet, it's -- we think we can create some real earnings opportunity there. As Jeff said, it's what Normandy has done very successfully for several years. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- At this time, there are no further questions. Mr. Mills, do you have any closing remarks? -------------------------------------------------------------------------------- E. Nelson Mills, Columbia Property Trust, Inc. - President, CEO & Director [30] -------------------------------------------------------------------------------- No. Well, first of all, thank you all so much for listening in and joining us today. And we -- as always, we appreciate the great questions and your interest in Columbia Property Trust. These are challenging times for all of us. But as Jim and Jeff and I have discussed today, the team is working hard at our portfolio and our balance sheet in all is in a great position to weather the storm, and we look forward to keeping you updated from quarter-to-quarter. We're always available. If you'd like to talk to us directly, feel free to call any time. Otherwise, we look forward to talking to you again soon. Thank you very much. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.