Douglas Emmett, Inc. (DEI) Earnings Call Transcript & Summary

Hi. Welcome, everyone. I want to welcome you to our session with Douglas Emmett Properties. My name is Jamie Feldman. I'm the office REIT analyst here at BofA, and we are delighted to have with us today the team from Douglas Emmett: Jordan Kaplan, Chief Executive Officer and President; Pete Seymour, Chief Financial Officer; Kevin Crummy, Chief Investment Officer; and Stuart McElhinney, Vice President of Investor Relations. So as we've done with all of these sessions, we're going to have the company give a brief overview and update on anything they want to talk about at the conference. And then we will have the opportunity to ask questions if you want to add them to the Veracast portal. So I'll be monitoring that. And if you -- we do like these to be interactive, so please add any questions you have. So without any delay, I'm going to turn the call over to Jordan.

Okay. Thanks a lot, Jamie. So I'm going to give a little summary of the company. We're -- obviously, we're an office and residential REIT. We have 18.2 million square feet of Class A office space focused in the best submarkets of Los Angeles and Honolulu. Our office portfolio is 87.3% leased, down from 93.3% pre-pandemic. Probably one of our fastest slides. We have 4,300 apartment units, which are essentially full. We have 2 development projects under construction right now that are at -- will add about 700 more units. Bishop Place, which is in Hawaii, we've completed and fully leased 194 units out of 500 that are being built there. We are pre-leasing units now at Landmark with delivery in Q4, which is way ahead of schedule, actually a couple of quarters ahead of schedule. And we expect people -- as I said, we expect people to be moving in, in November. Our future development pipeline is thousands of apartment units on land that we already own. In terms of an update, last quarter, we had record leasing volume. Our leasing in Q3 right now remains pretty healthy despite this sort of resurge of Delta. There are less move-outs in the second half of 2021. So it should be easier for us to split the curve and get positive absorption out of the second half of the year, stop losing position. We have had very tenant-friendly ordinances in our markets, and that's created headwinds for us on collections and a number of other things. Right now, they're set to expire September 30. But that's happening -- I mean we don't know what will happen. They can obviously extend them and you can see people doing that in other places. Our acquisition pipeline for office is relatively slow, but we are starting to see a few more multifamily deals. In the last quarter, we refinanced about $740 million of debt at an average rate of 2.13%. And we now have no maturities in the portfolio till 2024. And we hope this year to do a little bit more refinancing because we love where rates are and we like to lock them in for a long term. In terms of the future, we still are extremely bullish about our markets. The supply-demand equation in our markets is very favorable. We don't see any meaningful new supply coming on in the horizon. We have significant demand coming from some very strong industries. Entertainment, tech, health care, health care research, the university system, foreign trade, tourism as it returns, green tech manufacturing, all in -- are upswing industries. We feel like our market share and unique operating platform give us really significant competitive advantages. I can talk some more about that. We operate primarily with smaller tenants in our markets. So we've been very successful at increasing our cash flow by reducing turnover costs. We continue to see meaningful avenues for portfolio growth through acquisitions, continued development and a number of repositioning projects that we keep just -- we finish them and we have new buildings. So that's a very quick summary. And I'd probably go for a lot of questions, but I can give you a start.

That was a great way to start things off. I guess this -- the debt refinancing, can you just talk -- so I assume that's pretty accretive to numbers. Can you just talk about the earnings impact?

Well, in general, those loans were already at relatively low rates. I think one of the loans, maybe it's a 20 basis point. I think on average 20, 25 basis point pickups in rate, extended way out, locking in that rate for much longer. So I don't -- I mean you may not see a huge impact other than if you expected rates to be higher, as they have been for the last few years. We happen to do those alongside at a good time. And now we actually beat the rates that were in place.

Okay. That makes sense. All right. I just wanted to get that out of the way since that was new information. I guess, so taking a step back, big picture, people think about your portfolio as kind of smaller tenant or it is smaller tenants. How should we be thinking about just how business conditions feel right now? You had the -- we're seeing more pick -- more -- we're hearing about the flexible office providers are getting more active in LA. There's a lot of questions around do smaller tenants really need their office. Are they rethinking being in the office through the pandemic? How would you just characterize how the business seems to be coming through the downturn and what we can see over the next 6 months or so?

So I think like in the depths of the -- whether the pandemic last year, people have a very strong opinion that small tenants would vanish, that their credit would be inferior, et cetera, et cetera. What we've seen is that the small tenants were the first to come back, continued utilizing their space throughout the whole time. I think the credit profile, as I've said for quite a while, now turning out to be more than accurate, will be less than a 2% default rate. And as people came back and started leasing again for the first -- for the third and fourth quarter of last year, all our leasing was dominated by small tenant deals. First quarter started getting to be a little larger tenants. In second quarter, now it's all small and large, all doing deals. And they've all come back. We haven't seen any indication that small tenants are going to pull away. We have seen that in our markets, because of the small tenants, we're getting higher utilization rights -- utilization rates than I think most other markets are getting.

So what is the utilization rate in the portfolio? And where did it go over the last 1.5 years?

So at its worst, 20%, then somewhere -- back in 2020. Then we started moving up to the 30%, 30% to 40%. Then when people were feeling much better at the beginning of this year, we got to 50%, probably plus 50%. Then I think Delta backed it up a little bit, and now you can kind of feel that it's recovering again.

Okay. And you talked about -- maybe to help people understand, like how would you characterize the average tenant? I mean what kind of business is it? Is it professional services? Is it medical? Why would that be a stickier tenant as people are rethinking whether they even need to be in the office going forward?

Well, the combination of our tenants are buildings or locations. So most of the tenants in our buildings are making a quality of life decision. They live near where they work. And by the way, most of them live in houses where they could easily like have their office in their house if that's what they wanted. Matter of fact, they probably paid a price for their house that's far above what they're paying in effective rate for the space they're leasing for us. But they choose to have an office. They choose to have the people together in an office. So I think that, first of all, kind of amenities and quality and location play a large role here in our -- especially in our West LA markets, which means we're not always competing on price. And I think that they're here for all the good reasons, maybe it being by the university or whatever the case may be or being by where they live or for the other amenities in the area, that are reasons that were pre-pandemic and post-pandemic combined. And so I just don't see there being any change in terms of utilization. And in fact, what I really think I'm saying is that people are very anxious to get back into the office and get out of their houses.

And when you think about the flexible office providers that could offer a pretty similar size space, and it sounds like WeWork is back off its back and trying to become profitable again, how do you think about that competitive -- the competition from those types of providers? Are tenants at all interested in using that instead?

We have not gotten competition from that. I know WeWork did a couple of large leases in spaces, one space they have in Beverly Hills and other space they have in, I guess, West Hollywood. But in general, we haven't been competing with that. Our average tenant size is around 5,000 feet. I mean our median is like in the 2,000s, high 2,000s. So we're not really competing with those tenants. And separately from that, to the degree we ever do have large spaces available, they tend to move pretty well, because there's such a shortage of them on the West side.

Okay. And you had mentioned before, you think based on fewer expirations in the back half of the year and your leasing pipeline occupancy can start to recover. Do you think it will be up by year-end? And what kind of magnitude are you talking about?

Well, we -- like many REITs -- I mean we've had 3 primary impacts from the pandemic, right? One of them is which you don't think -- you wouldn't have thought of, but one of them is a huge loss of parking income, which you're not going to be able to -- when people come back to the office, we'll get the parking income back. But you can't recover it. It's gone, right, because no one was paying for parking during that time for not coming in. The second impact we have had is these moratoriums that have allowed people not to pay. Maybe at the end of the day, we'll collect most of that. It's kind of an interest rate thing, it's aggravating, but I think we'll collect it for the most part. So the big impact that you're left with is the loss of occupancy, the lease rate. And so I think the question you're asking, it's like the whole issue here is how quickly not only can we turn from having negative absorption each quarter, which has dragged us through 5 quarters and we've lost almost 600 basis points, but how quickly can we turn it and get back to where we were and beyond. Remember, going into the pandemic, we were at 93.3% with everybody, including us, projecting that we would be up closer to 95% relatively soon, right, with great looking positive absorption on the horizon. Instead, we gave up that leasing. It's a primary cost of the pandemic for us. And so we have -- over the last few quarters, we have reduced the negative absorption to -- like last quarter, I think it was about 40 basis points, maybe it was 30-something basis points. So it wasn't that much. Our hope and now as against big headwinds of move-outs, our hope is that over the next few quarters, which are much more forgiving in terms of move-outs, that we can turn that. And you know what, we'll see at the end of this quarter and fourth quarter whether we've turned it positive. And then the question is how positive can we get it and how quickly can we recover. I'm hopeful, having looked back at the activity that we're seeing, if that activity that -- we'll -- we won't get the activity we had second quarter, by the way. That was tremendous. But if the activity gets back to anywhere close to reasonable and if you look at the move-outs over the next few quarters, we should do pretty well in terms of positive absorption.

Okay. And you had a deterioration in your leasing spreads during the pandemic over the course of the quarters. When do you think you start to get pricing power back? Or how are you negotiating rents at all at this point?

So we've looked very hard at what's happened to us during -- in terms of rental rate during the pandemic. I will tell you that my feeling is that in terms of face rate, right, I think we lost -- at our worst, we lost between 12% and 15%. But because during the pandemic and continuing actually, then last quarter, you saw that our leasing costs kept going down for a couple of reasons. One that people weren't so [indiscernible] TIs, right, although it just translates even to new deals. Second, we've really increased our kind of outreach, our direct outreach to tenants. And it's now very easy to view space, lease online. I mean I encourage everybody to check our website. It's as easy as renting an apartment. And making minor adjustments are easy, too, and we have a ton of space that's kind of ready to go. So that reduced our costs. Obviously, we have a lot of people doing direct deals through the website. That reduced our cost. So as a result of all those things, our net effective, I think, was somewhere -- loss was somewhere between 5% and 8% at its worst. Now since then -- like if you look at last quarter, I think those numbers have improved, backed up about 1/3. So I think that we picked up some -- maybe the transaction flow, but it has already reversed itself a little bit. So that's good. But I don't believe until we get back up closer to 90% will we be able to really like push rates again, although I don't think we lost as much as at least base rates would have made you think. And we've even recovered some of that.

So if you were down 5% to 8% net effective and you've gotten back 1/3 of that, you think now you're down 5-ish percent?

Probably that's right. And by the way, you saw that, because we published our roll up, roll down, whatever. And you saw a bunch of quarters with negative cash roll-down and negative straight-line roll down. And then all of a sudden, last quarter, our cash flow down was reduced, but our straight line was positive. And it's very hard for us to overcome negative cash roll-down until rents are really moving up fast, because our leases have 3%, 4% bumps in them. So the end rate in our lease tends to be very high relative to the average rate of the lease. So that's a very tough hurdle. We've made that hurdle many times. But it's a much tougher hurdle than making a straight-line hurdle, which we've already crossed. So that shows you that compared to prior quarters, we've improved. And I feel like as we continue leasing, that improvement will continue.

And are you still getting 3% to 4% even in new leases?

Yes.

And there's been no diminution in your ability to put that in leases?

Well, maybe diminution in 4%, but not 3%, but we are still getting 3s and 4s. I think the rates you see, we're not big on free rent or any kind of -- any sorts of inducements like that. So the rates you see are the rates. I mean we don't have any reason to play with it in order to like jack up rates or selling the building or something because we're not doing that.

And what about other lease terms? I mean are you seeing any change in duration or early outs as people come back and are maybe a little bit less visible on how much space they really want to use?

I think that -- first of all, I think we went through that, which is why we're at 86% or we're at 86.3% where we're at. But secondly, that's in terms of the outs. But more importantly, I think lease duration, you saw these duration shorten a little bit in the depths of 2020. Then it kind of picked up to average. Then it extended to being longer than average, which I think primarily is a function of the fact that we started doing deals again with larger tenants, and larger tenants are longer leases, and that extends the lease churn. I think the smaller tenants are back to their comfort zone, which is those 5-year terms, mostly because if you're just -- I think they're signing on their leases. And so that's like their level of risk that they're willing to take.

And if you look at your vacancy and even your leasing pipeline, how much of it is the larger tenants? That could be pretty chunky if you were to fill some of those spaces.

I don't think we have bad chunkiness coming up. I actually think we have a good glide path to make some gains. Now we've got to do the leasing to match it. But as I've said a number of times, I think the next few quarters -- I don't want to promise anything, because I didn't think Delta was going to turn things around the way it did. But same stuff you're looking at, quite frankly, over the last few quarters would tell me we should be able to do pretty well.

Yes. So -- I'm sorry, go ahead.

Or at minimum, we should be able to turn the thing positive either next quarter or the following quarter.

Yes. So someone is asking, you mentioned leasing volume won't be as strong this quarter as the record quarter you had last quarter. But what can we expect on the cash gap rent roll-downs? Can we expect a continued quarter-on-quarter improvement there, even with the lower leasing volume?

Well, I'm hopeful. I mean I don't know. I don't know the numbers until they do a bunch of work to figure them out at the end of the quarter. So I don't even have a sense of that other than I can tell you a lot of what drives -- first of all, I think in general, like the market has improved a little bit just in terms of deals. But also, it's driven a bit by which market you do the most leasing. So like a lot of times, it's the reverse of what you'd expect. So in a market like Santa Monica, where rents are high, you tend to be able to hold on to cash roll-up because it's always a good market, so rents just keep going up. And in markets where rents are low, sometimes they stay weak and you don't get the roll-up. So it depends on where we do the most leasing.

And if you think about your leasing pipeline, I mean, which submarkets are the most active? Is there any change from what you would have thought coming out of the pandemic of where people exactly want to be?

No, I don't think I could say that. I could say the one change that really stands out is that, and you know this as well as anybody, I spent I don't know how many years making excuses for Hawaii, and now it's our best market. So that took a while, but best market through the pandemic, too.

You just started to convert the rest of the LA office.

I guess so. Yes. I mean that shows that a 4.5 million square foot market when you take 500,000 feet out and then another tenant takes another 250,000 feet out, we get pretty good paying for your rental at that point.

How much can Hawaii really move your numbers if things are really getting that much better there?

We have a little over $1 million -- like $1.3 million or something there. So it can be meaningful. The residential can also be more meaningful. I think Hawaii, in general, all of it, residential office, the whole thing is about 15% of our portfolio. So whatever, 15% can move something by.

Okay. Okay. So there's been, I mean, clearly more optimism at this conference, especially from the office companies than we've heard in a while just in terms of things feeling better. So Kevin, what does that mean for your appetite for investments? Are you guys willing to get a little -- take a little bit more risk here? Are your partners willing to take a little bit more risk here? How should we think about the investment sales market and what you guys are working on?

We have been aggressively looking for opportunities all through the pandemic. We believe that these are long-term solid markets and anything that comes up that fits into the profile of what we want to invest in, we're aggressively pursuing. Unfortunately, the things that have been coming to market tend to be -- on the office side tend to be long-term credit leases. And we're looking for opportunities where it's multi-tenant, where we can apply our operating platform and turn around an asset and make it perform better. And those opportunities have been very, very few and far between. I was hoping, by this time, we would have seen some more things, but Delta kind of set us back. And I think we need a little more clarity on the fundamentals and a little bit more national bullishness towards office space for sellers to really have conviction to put their assets back into the market. And as Jordan mentioned earlier, we are starting to see a couple of multifamily opportunities come out. So we've been pursuing those. We'll have to see how it turns out.

I would think multifamily has got to be pretty pricey right now, given the fundamentals have come back so strong.

So it is, it is. Everything in our market is pricey. But that's because of the overall fundamentals of our market. We're supply constrained. We have great industries and a really, really positive long-term glide path. But just because something might be pricey, I mean, you've seen us pay up in the past. And then we apply our operating platform till we generate a lot of cash flow from it. So we individually underwrite every opportunity in front of us. And if it makes sense, we pursue it. If it doesn't, we don't.

And are your partners getting more aggressive, less aggressive, what [indiscernible] in office?

Our partners are in and out of our office all the time, are on the phone, and they are looking for more opportunities in our marketplace. So they feel like we do that long term, LA is a great place to put their money and that would do for opportunities.

Okay. And how are you thinking about returns? I mean, as we're -- has your expected returns or required returns changed or have theirs?

Not really. I mean we're dialing down some near-term growth expectations and some other things, looking at it on an individual basis. But everybody kind of views long term that LA with our industries and the supply constraints, it's going to be better than inflationary growth. And so it's -- our starting point might be a little different on the rent. But overall, our underwriting is pretty much the same.

Okay. And what are you -- how have you changed your assumptions in terms of occupancy and rents, I guess, like the same-store outlook over the near term?

So I don't -- I can't give you the secret sauce here. But we have made some fine-tuning around the edges. Nobody has got better insight into what's happening in the market on a deal-by-deal basis than we do. And so we apply all of that knowledge that we've got internally towards our underwriting and our expectations for filling the properties.

Okay. Makes sense. And are you seeing just more aggressive buyers coming in? We just -- we had an investor panel, it still feels like people are just not that interested in office. I'm just wondering, are the contrarians starting to show up at all, especially in LA, which as you said, it does feel like a better long-term market? Has that profile changed?

Well, in our markets, there have been very, very few opportunities. And the 2 that got a lot of play and aggressively went off at some very, very high price per square foot numbers, where deals where 1 had 2 tenants, the 9.5-year lease term; and the other 1 had 12 years on the lease term. With tenants that you could look at if it wasn't credit, you could look at the brand name and feel pretty comfortable with it. And so those traded at very low for cap rates, where people are borrowing somewhere in the high 2s and were betting that their residual feel pretty good. That's not our play. We don't like to buy in-place cash flow. And so the market came up very, very aggressively for those 2 operators. We haven't seen the high-profile multi-tenant office building to really gauge what people's conviction is towards West LA. But I think that from conversations with my peers, people are pretty bullish on West LA like we are. And so I think if something comes out, that you will see a lot of people pursuing it.

Okay. And then, yes, I guess, shifting gears a little bit. As we think about the short-term income loss, whether it's parking, whether it's any kind of impairments you guys took and then also the residential moratoriums, what's the trajectory here in terms of timing of starting to get some of that back? And I know -- I'm not asking you to make a call on when Delta gets better or if there's another strain. But just what -- over time, how does that start to look if we do, in fact, start to see people come back? How long before you can start re-straight-lining rents or recognizing some of the short-term income is not impaired?

I -- first of all, it's not a residential moratorium, it's everything moratorium, office. I don't even know why office is in the moratorium, but they're in it, okay? So it's -- everybody is having a moratorium. I think that we're about $60 million is owed to us. And I suspect that once the moratorium is off, we will collect the super majority of that money over like 4 to 6 quarters. I don't know that they'll necessarily follow the exact -- I mean residential, I think, has a year. Office, I think, has 6 months, something like that. But we'll go in and make deals and get our money. We -- I will tell you, we've stopped -- that number stopped growing. It's actually shrinking a little bit, because some people are just paying back. Some people still aren't paying, some people are paying back. So I feel pretty confident that we'll get that money in. And we haven't -- through all the collections we've done so far, we've given up virtually no economics, nothing meaningful at all. We've just been collecting.

Yes. And I think on the straight-line question, somebody who hasn't paid us for 6 quarters, we're going to have to see a pretty good pattern of payment before we start thinking about re-straight-lining?

Okay. So can you just remind us like what are the dates now on the different moratoriums that will impact you?

Well, the big California that's having a more -- and I'm not sure whether like when the California one rolls off. If it rolls off September 30, then there's like payoff periods for the local ones that then that triggers their payback period. But I'm -- as I sit here, I'm not so sure that the Governor is not going to extend it, but we'll see.

Okay. But even if the California one rolls off, then you have the local -- you know when LA, is that...

Well, no, I think if it -- I don't know. Frankly, I don't know that anybody knows, all right? So they were all empowered to put the moratoriums in place by what the state government -- what the state did, right? Cities aren't allowed to just take their own decision, you don't have to pay your rent. So you have to be under an emergency order on the state, and so that all comes from the Governor and the state legislature. So if they say now no moratoriums off, I think -- I suspect if they do that, they'll say, it's all, but every local district's repayment period, that's what you're going to follow. So if Beverly Hills has a 3-month repayment period, they'll go, yes, 3 months at Beverly Hills. If LA has 12 months for residential and 6 months for office, that's going to be what you're going to be subjected to there. And they'll let those periods unwind in whatever way those city councils or those counties determine they wanted to do it.

Okay. And do you expect to have to negotiate a lot of this? I mean as you're talking to your tenants or -- you're not going to be even having the conversations really?

We are. We're questioning upon the money, and I do expect to have to negotiate it. When you say have to negotiate it, they're going to owe us a lot of money. And some are just bad actors and we could -- we -- look, all the negotiating we've done up to now has, in an odd sense, been almost positive. I mean people didn't pay us. They realize they're going to owe us the money. You make some kind of deal with them, you get the money back, you extend the lease, you do all kinds of stuff, not bad, right? Now that will get better once they don't even have the moratoriums protecting them. And so once moratoriums are off, if they come and say, all right, I owe you whatever, some big amount of money, now do you want to do this. And we'll go, well, here's what you can probably afford, here's what we're looking for in terms of an interest rate on that money. And here's what we're looking for in terms of -- a lot of these leases, they've signed on them. It's not like they can walk away. I mean they're making decision about their house. Like do you like living in your house? Because if you're not going to pay us, then I get it, you're not in the space and you're also not in your house. So we'll just make all kinds of deals with people, but I don't think we'll lose any money over it.

Yes. I mean that's what I'm wondering, like how much are you willing to just kick people out if they're not going to pay in full?

I think they will pay and it's just a matter of over time and what else we get. Do we get a lease extension? Do we get a good interest rate on the money to give them more time? Do we get -- maybe they decide they need more space. I mean I've seen all those types of deals happen. I've seen expansions, I mean everything.

All right. It sounds like you'll have a busy year.

Well, it's been busy also up to now.

Yes. That's true. It looks like we're just about out of time here. Anything we didn't cover that you guys wanted to get across?

No. I think you've been like -- I think you've been really zeroing in on the big question, which is kind of leasing, pace of recovery, pace of rate. I mean that's the whole thing. I could spend some time telling you about our development projects. And I hope that people join your LA tour because we're anxious. It's been a couple of years. Probably this isn't the case for all the REITs, but it's been a couple of years since anyone in mass, certainly on the public side, has been out here. And we just think, aside from meeting at the headquarters here and showing you the stuff locally, we'd love to show you some of the buildings we've redone in the last couple of years, the new buildings, which we've built. We have a lot of good stuff to show. So I hope you show up with a lot of people.

All right. Great. So do I. Thank you for the plug. We always appreciate that. But it will be a phenomenal tour. So hopefully, people can join us that week of January 10. So we're just going to wrap up here with the questions we've been asking every company. The first one is, which of the following is the greatest challenge facing U.S. public REITs today, Fed action and higher rates, supply chain issues causing -- which include labor and logistics, causing inflation or flows to non-traded REITs?

For us, it's political environment. So just can you put that on your list?

Yes.

Because I think it's a political environment like, I mean, Fed -- I mean everyone can make prediction about the Fed and whether they're going to respond to inflation or whatever they're going to do. And flows to non-traded REITs, they're not going to bother me. And I don't know whatever your third one, supply chain has cost us. It costs -- we wanted to finish The Landmark residential. We saw that we had a chance to go a couple of quarters early and get it open. But supply chain, we had to pay like way more to get the stuff. I mean the stuff sitting in boats, I could see it out my window, 60 giant freighters out there waiting on all their stuff. So to get what you need, it's almost -- you guys send scuba guys over there to get it.

Just rent a boat and go get it.

Yes. It's politics for us, I'm telling you.

Okay. That's fair. Over the next 5 years, which markets will outperform, urban, coastal or Sunbelt?

I think coastal markets over the long haul have been outperforming for 100 years, I mean, or more. That's easy.

And then for your company's office plans post-pandemic, will you have no change for pre-pandemic, leave it up to your individual teams, offer hybrid or go full remote?

Jamie, we're an office company. Seriously, we're an office company.

There are some that are going...

You're asking Steve Jobs if he has a Google phone. I mean that's crazy. We are all in. We've been in -- we were only -- we went out in end of March like everybody. We -- by the end of the summer, everyone was back. We've been back 100% back, like...

For over a year now.

Yes. We're back. Everyone's in.

I will say even most of the office companies are giving people maybe 1 day or a little more flexibility. You'd be surprised at how many of the office companies said we're doing a little more hybrid.

What the heck? That's crazy. That is crazy. I'm not kidding, that's like Steve Jobs having a Google phone, an Android. That's nuts.

Well, how many of your employees have a long commute that may be Fridays, they'd rather -- it would be good for them to be home? I know your -- I know that your portfolio is positioned for the short commute, but I assume that's not everyone.

I think commutes are a big problem, I agree with that. But I also think how do you run a company and a team and be competitive without your people in the office. How do you think we achieved the leasing and all the stuff we did over the last year? Everyone's been here working. How do you train people? How do you move them -- I mean I don't understand -- let me say it differently. If you have jobs that you think people could be home, then they may as well be home in Mumbai. I don't know why you're paying them to be home in West LA. Because it's a lot cheaper to employ people out there and they'll do the work overnight, and you can have it all ready for you in the morning. That's nuts. I do not think when -- I think right now, the only reason you're hearing people say, getting type of work from home is because the labor market is so incredibly tight because we've done this crazy stimulus of paying them, paying them to stay home, telling them they don't have to pay their rent. I mean, of course, apartment tenants' credit has gone up. They haven't had to pay their rent. Let's see what happens when everyone, like, goes back to earn money to do stuff, and then we'll see whether they're coming in and working and getting jobs.

Right. All right. Well, I appreciate the color, especially towards the end here. That was good to hear your perspective. I was surprised myself to hear some of the office companies say a little more flexibility. But I think it's really about the commute more than anything.

I think...

Give people a little more leeway.

I think commute can be an issue, and there's things being done to work on that. And I understand it's an issue in like whether you do want to go on the subway or whether it be in San Francisco and going on [indiscernible] whatnot. But I just don't think you can run a company effectively. Remember, less than 2 years ago, 2019, every major tech company was saying, we need everyone together for collaboration space because the way we innovate is everyone being -- coming together and happenstance meetings in the hallway. How can it only be 18 months and also like, nobody needs to talk to anybody. Make a phone call to contact them. I mean what a switch? That's crazy. And by the way, they aren't walking their talk. They're buying giant office buildings and doing giant leases. So they definitely think people are coming back in.

Yes. No, it's all good points.

All right.

Okay, guys. Well, we really appreciate your time and your participation in the conference. Good to see all of you. I definitely look forward to seeing you in person in January and continuing a discussion with you and watching these things hopefully get better here.

Thanks a lot.

Thank, Jamie.

Take care.

All right.