Kilroy Realty Corporation (KRC) Earnings Call Transcript & Summary

All right. Thank you, Shannon, and thank you, team. By the way, about 2 days ago, this was a warehouse, and I want to thank Shannon Kenneth and her marketing team and all the folks that support her to make this an event possible. I hope you enjoy yourself. This is a spectacular day. Just a little bit about strategy. So I think all of you know that we take a lot of pride in what we do. And as you can see by this little movie we just watched, it's all about Activision, activating spaces for people, we're humans. We like to be around people. We like outside spaces. We like beauty. We like the ability to congregate both inside and outside meetings inside, outside. And strategically, as a company, we've made a decision years ago that we wanted to separate ourselves and differentiate ourselves from our competitors. And I think we're doing that in scale. And that's going to be a theme that you see all along today. The real estate that we have, what happened there? Shannon? Was that me? Did I touch something? Okay. We're rebooting Excuse me. So do I -- is this where I do the -- okay. So I'm going to do a little dance for you. Well, I was telling you about the technology. If it's -- if man makes it, man can break it. But just while we're waiting for that to start, I'm going to go through our strategy kind of capital allocation and a few other things, talk a little bit about our people. And then Eliott Trencher is going to go through a couple of slides with regard to the metrics and some of the things we're pretty proud of, and we think helps to differentiate Kilroy. This is not going to be a big presentation, a big slide show. We just had our 3Q conference call. We're going to be meeting with a lot of you at NAREIT. We will have a Q&A at the end. But we have today something that I think is going to be really great. We have an individual who I won't introduce because somebody else is going to introduce him, but he's responsible for more companies moving into Austin than any other single human being on earth and you're going to love hearing from him. And then we've got a couple of great panels, 1 on Austin and another 1 on KOP, Kilroy Oyster Point, and some of the people that are involved in leasing that and designing it and implementing it and executing it. So you're going to learn a lot about KOP and then we'll have the Q&A. Okay. So I just -- you've seen this slide before, it doesn't go back to 1997, like it used to. There's too many years that have lapsed. The screen is not big enough. But I think what you see here, and I made reference to this in the recent quarterly conference call, there is a time to buy and there's a time to sell and there's a time to develop and there's a time to be patient and get ready for the next group of opportunities like we did back in 2008, '09 and '10. And this shows basically that strategy graphically. Landscape in today's environment, obviously, there's uncertainty. I'm not going to get into all the politics, maybe there'll be a question, I'll answer that. But I think everybody knows, I've always said on the macroeconomic side, that's what scares me the most over the years. And I think I can say that I can't really see too much gray air out there with the lights of my eyes. I could see a couple of people. Gary, I think you're here. But I have more gray here in more years than most of you, maybe any 2 of you combined I've been through these cycles before. They are all different, but they all have a similarity. They do end. They do end. And when they do, you have to be positioned for opportunity. Today, we have a much different kind of workforce. We have computers, we have cell phones, everybody can work that way. The office configurations have changed and whatnot and yet the office has become ever more important, at least to the tech companies and some of the others we work with because COVID has shown that you need to bring people together. They want to be together, they want to collaborate. Ideas are generally best achieved or thought about when people are working together and in front of one another. Political initiatives, we can always talk about that. So I get to do the really fun part, and Elliot is going to do all the math stuff. We had the little -- the little video, but these are some of the slides that show projects that we've developed mostly in this cycle, meaning from 2012 to now. This is Netflix on the left. Netflix online, that's their new film Campus Down in Hollywood, and then you'll see the 350 mission up in the upper right. And in the lower right is I can't say the name of a company, it's a fruit, and it's their global AI headquarters up in Seattle. And then, of course, our residential, we'll have a slide on that in a minute, but this shows the tower there online, always about people, always about people. When you're marketing it, you're going to talk to 2 of the top brokers in the area, well, here and also in Austin, and I think they'll substantiate that people want to be in great spaces that are amenitized where they make their lives simpler. There's got to be a reason. You got to have a reward for your commute. And an athleticism and wellness and whatnot, obviously, it's become a huge focus for Kilroy rather than have the little gems that some people go to and they always go bankrupt. We have a lot of inside outside things going on. We bring in different groups that are bringing in different kinds of whether it's taekwondo or meditation or whatever it might be, and this shows a couple of examples of that. And then collaborative outside space.inside, outside, terraces. And you're going to just You've heard it be talk and others from Kilroy can really talk about this forever. We do it everywhere, inside, outside, terraces. And you're going to just see more and more of that as we go along and then immersive retail. Whether -- we're not known for retail. We don't do retail centers. We do them when they're part of a mixed-use project like down at [indiscernible]. But this gives -- these are all pictures of reality, okay? That upper right hand, you're going to have an opportunity to see it. It's called Anecdote. It's the restaurant that's over in Phase 1 of Kilroy Oyster Point. And think of that level of quality and it's interesting. It's fun. You want to go there. It's not the old little microwave thing that was in office buildings forever. And then vibrant residential communities. These are the kind of rooftop terraces in special areas within our residential projects and you'll hear about residential. Eliot will probably talk about that, but we're crushing it. And then this is the last slide I'm going to talk about. You cannot in anything, whether it's sport or a company, unless you're a one-person sale of [Dinni] or a one-person company, you cannot do it alone. Everything is about the people you surround yourself with the people you collaborate with and bounce ideas off of the people that keep you in check, the people that help you through tough times. This is just a small group of this illustrative of Kilroy. And you'll notice the guide that is on the second to last row, second from right we had to do we had a long Musk in there originally, but we thought that might be a little litigious. So we put Warren in just for a fun thing, but I'm very prideful of our team, and we have a terrific group I don't know how they all got so smart because all of them are a lot smarter than I ever was at their age. And is that me -- do I stop here? Okay. Well, great. With that, please welcome Eliott Trencher.

Thanks, John. So in John's section, we touched on a few elements of our strategy. high-quality assets, best-in-class balance sheet and really savvy capital allocation. So in my section, we're going to go through 2 of those. The asset quality and capital allocation and just give everyone some data around these 2 pillars, right? We can say we have the best assets, we can say we're really good at what we do, but you're all going to judge on your own. So why don't we give you the information that you need and then you can make a decision. We're not going to do that on the balance sheet. Our balance sheet speaks for itself, our low leverage, our maturity schedule, there's not a lot of -- there's no variable rate debt. So we think that's pretty self-evident. So starting with asset quality. How do you quantify if an asset is good. So we looked at 4 different things. We looked at the age of the portfolio. We looked at the locations. We looked at the types of tenants we're attracting, the company that we keep, and we looked at sustainability. So let's see how it plays out. So age. This is Slide 14, for those following along on the audio cast. We've talked about this before. We have the youngest portfolio. We looked at a subset of peers in the office and life science space, but our average age of 11 years, well below where other office companies. So we said, let's take this to further, okay? How would we compare against a cross-section of REITs outside of the office sector, right? Are we just good because the other companies that we're comparing ourselves to or how do we stack up against REITs in general? So we looked at a cross-section of blue chip, high-quality REITs and different property types. You can see that we're very -- we have a very young, modern portfolio irrespective. So we think that this kind of just substantiates our point of high-quality assets, young assets. That's great. But if they're not well located, what difference does it make, right? You have to be in the right locations. So we tried to quantify that as well. We took walk scores. And we did it market by market because it's very difficult to compare Del Mar and San Diego to downtown San Francisco. They're just 2 different markets. So we said, all right, taking our portfolio in San Diego, a lot of Del Mar, Little Italy, a little bit in UTC. How do our walk score locations compare to other public companies in San Diego or 30 points better. And you can see in 4 of our 5 markets, our walk scores are higher meaning our portfolio is more centralized, it's more amenitized than others. So if we have a new portfolio. If we have a well-located centralized portfolio, we should be attracting the best-in-class tenants. So here, we looked at everyone's top tenants in the office and life science sector, and we said, how many of them are investment-grade companies. 31% of ours -- of our portfolio based on top tenants are investment-grade, high-quality credit companies, the highest, as you can see. No single company makes up more than 5%. So it's not getting skewed by anything. If you were to look at our entire company, we can't speak for others, over 50% of our portfolio is investment-grade credits. So we have the youngest portfolio. We have a very well-located centralized portfolio. We have the highest concentration of investment-grade tenants. And then finally, sustainability. I mean this is something we've been talking about for the better part of a decade. We are always highest in the GRESB rankings -- we have the highest proportion of platinum developed buildings. We frankly developed nothing other than gold and platinum office buildings since 2015, one of the first to be carbon neutral. I mean I think our track record really kind of speaks for itself. So you might be asking yourself, that's all great, but how does that help me as a shareholder. We think Slide 19 answers -- starts to answer that, right? We have -- we took margins. And this is over a long period of time. This is 2015 to 2022. Our margins are higher than anyone else. Our occupancy is above the peer group average, right? So we are getting a disproportionate share of tenants, and we are generating good margins on those tenants. CapEx. Anyone that's gone to any of our properties knows that we are investing in our properties. That said, our CapEx ratio as a percentage of NOI, still below average, right? It's high-quality assets, require less capital, tenants that are making long commitments require less capital. And for those that remember, we actually looked at this ratio in a few years back at one of our prior investor events, our numbers come down since then as we continue to improve the quality of the portfolio. And then finally, rents. Rents should be growing if we're doing our job. So we've talked about a mark-to-market of 10% to 15%. So we tried to break that down for you a few different ways here. In the past, we've talked about by region, and you can see here all of our regions, rents are below market. Property type. Now that we have more life science, how does our life science rent mark-to-market compare. Office has it, life science has it, and we did it by building age as well. The point here is that there is nothing -- there is not one or 2 assets or 1 or 2 markets that have generated that rent growth. It's pervasive throughout the entire portfolio. So now let's pivot to capital allocation, okay? We're going to look at the period from 2015 to 2022. And we chose that period because everyone here that's followed us for a while knows that what we did in the beginning of the last cycle in 2010 and 2011, buying early in the Bay Area, buying early in Seattle. We don't need to rehash that. And frankly, we're not a one-trick pony, so we're fine cutting that out and judging us on what we've done for you recently. So these are just some highlights of what's happened over that period of time. We got into Austin. We've done nearly $900 million of life science acquisition and development/redevelopment, right? This is not new to us. We have been doing this -- we've sold the largest asset in San Francisco when we sold the exchange last year for over $1 billion. We did a $900-plus million joint venture with Norges. By the way, we did all of this while also delevering 1 turn from 7x to 6x. So these are just words, right? Let's give you some data on what happened and how that actually translated into the company. So 2015, at the end of the year, 92% office, 8% life science. Yes, we had life science. This is not, again, something that we've just done lately. We're not a Johnny come lately to it. concentrated in San Diego and a little bit in Seattle. So today, when you fast forward, Life Science has more than doubled. We have 5% high-quality retail and residential, 1,000 residential units, 94% leased, high-quality retail projects in One Paseo and the Sunset in West Hollywood. And our office has gone from 92% to 75%. But you really need to break this down a little bit further and what has happened to that composition of office. So when you look at the office that was 10 years or older in 2015, it was over 40% of our company. Today, it's 17% of our company. So nearly 85% of our company, it's high-quality residential and retail, life science and office that is 10 years or younger. So what did we do over this period of time to get there? We sold $3 billion older assets, less amenitized locations, higher CapEx burdens. And we reallocated that capital into acquisitions, $2 billion and developments $4.5 billion, which you can see are younger, more centralized, less CapEx intensive. So when you put that together, what did the company look like in 2015 versus 2022? Okay? Well, 7 years later, we got 1 year younger. Our sustainability scores went up. our portfolio became more amenitized and centralized and our CapEx ratios went down. So again, all of this is great, but you might be saying, guys, anyone can buy good assets and sell less good ones. That's not that difficult. How are we helping shareholders. And it's a fair question. The answer really goes back to that chart that John showed in his slides, when to buy, when to sell, when to build and when to do nothing. If we can get that right, we're going to create meaningful value for everyone. So let's see. From 2015 to today, earnings grew 45%, meaningfully outperforming our peers. Our NAV is per Green Street meaningfully outperforming peers. It was up, whereas peers have actually been down. And our dividend up 54%, outperforming our peer group by 38%. And -- this doesn't happen by accident, right? There's a lot of thought. There's a lot of strategy put into how can we have thoughtful capital allocation, strategic capital allocation that's going to create value for shareholders. That's my -- that's what I've got. Hopefully, the data here has convinced you that we think we know what we're doing. And now I'm going to turn it over to Rob to introduce our next speaker.

Thanks, Eliott. Welcome, everyone, to our 2022 Investor Day, as John said and Eliott said, I'm really pleased to be able to announce our next guest, our featured speaker today. But before that, I do that, I want to set the stage a little bit. As all of you can see here in California, we have a lot of great things going for us. We have the Golden Gate Bridge. We have the San Francisco Bay. We've got great weather. We have beaches. We have the Lakers. We have the warriors. We have the 49ers, but we still hope they'll get there. But one of our other regions has Austin. And Gary Farmer, who I'm going to introduce right now has been such a tremendous for us in Austin. He is what has created the Austin you see and know today. So when you've come to visit us and indeed or visit Fernando Erica, our regional head and hear about what we're doing in Austin, a lot of what you see in the geography around the companies that have come, et cetera, are due to Gary's efforts, tireless efforts. And Gary is a very interesting fellow. He is the President of Heritage Title, President and Founder; and he's also Chairman of Austin Opportunity, which is the group he runs that has been so successful bringing companies into the Greater Austin community. And I think on a more personal level, 1 that I know John shares with me and a lot of people in our company from the day we closed on indeed tower, Gary opened his doors to us in his time and has helped us measurably with getting to know people there, helping us establish our business and our toehold. And last but not least, he's also a tenant, so at indeed Tower. So we're very pleased to have Gary there. On a personal front, he's dedicated to his wife and daughters. He's an avid hunter and fisherman. In fact, so avid that I stopped sending in pictures of the salmon I would catch after going to his office and seeing the pictures he had displayed around his office. So with that and without further delay, I'd like to have Gary come up and talk to you about Austin and yourselves in this is going to be a good one. He's got a great sense of humor.

Thank you, Rob. Thank you very much, Rob. I appreciate the introduction. John, thanks for inviting me here. I'm pleased to be with all of you. I apologize. I don't know what's going on with my voice. It's a little scratchy. I apologize for that. I cannot apologize for this urban sophisticated accent that you will enjoy for the next 15 minutes. Let me say this very quickly. As Kilroy has come to Austin, their approach to managing office buildings has manifested itself in very fruitful ways. They are an incredible landlord and the degree and level of service, the approach to making tenants feel welcomed and make sure in a new building, by the way, which always has a few things going on, but they have addressed those head on. And so we are very thankful for the Kilroy touch as it manifests itself in Austin. So to set the stage without any question, I am a homer for Austin. I am unabashedly biased about Austin. But I think that is for a good reason. And that's really what I want to talk to you about today. I recently in a presentation, not unlike this but to Austin nights, I made a very positive declaration about Austin. And I had been in, by the way, in May, I've been in a small group setting with Jamie Dimon. And Mr. Dimon said, I don't know what's coming. I don't know if it's going to be a minor storm or a major storm but it's sitting out there and it's heading our way. And to the extent that Mr. Dimon is right as he typically usually is, we've got some stuff coming our way. And so my declaration to this Austin group was no matter what comes Austin, Texas will lead this country out of the recession. And a friend of mine, who's old like me and who had watched the movie True Grit like Lucky Ned Pepper said to Rooster Cogburn from the back of the room said, Matti Bold talked for a one-eyed fat man. Actually, it is Matti Bold talk. So why would I put myself out there? Why would I subject myself to the potential a failure of being wrong. And it is because I believe it. And I believe it passionately and firmly because of what we do. Let me give you a little history about Austin over the longer arc of time. Austin, was a very lose fair place. I mean we're a state capital, big university town, liberal politically, left of center. Governor Perry used to call us the blueberry and the bowl of tomato soup and he was right about that. And so economic development was not a theme. We did not do that. Not that we didn't do it very well. We didn't do it. If it happened, great, if it didn't, okay, fine, we all lived in Austin. People were happy. But that created very lumpy economic cycles. Hard to predict, hard to project if you have no base and you have no effort. So in the early 2000s, when the dot-com bust or tech rec happened, a group of business people got together and said, Surely, there must be a better way. And so we put together a plan which was not like past Chamber of Commerce plans, which relied on Jargon and buzzword to create the illusion of economic development, we created a real plan, a plan with goals, objectives, metrics, implementation strategies, a plan that would hold us accountable. And it's a plan that is run by and funded by businesses. We don't rely on the government. We work with city government, county government and state government, but we are funded by the private sector. And with those funds, we set up a 5-year plan, so we're now in the fourth 5-year plan. The fourth year of the fourth plan or the 19th year of execution. And this plan focuses on 4 primary objectives: recruitment of traction of new businesses to the 5 County region around Austin, retention, expansion of existing businesses. Now that's economic development 101, any economic development plan in any city, anywhere has recruitment attraction, retention expansion. We go a step further and we put about 1/3 of our budget towards primary and secondary education, keep these kids in school cause them to graduate, create a pathway for them to go to postsecondary education. Because at the end of the day, whether you're recruiting or expanding, it's all about talent. It's not about the hills and the Lakes in Austin. It's not about the music scene. It's not about keeping Austin weird, although if a number of these companies have contributed to that fact, it's about the talent. And then ultimately, it's about the place we live, the place we call home and the infrastructure necessary to accommodate the growth. So those are the 4 areas that we focus on. Let me tell you how we've done in those 4 areas, recruitment attraction. Over 18 years and 10 months, we've recruited 815 companies to the 5 County region. Those would include Oracle, data center first, way back in the early 2000s, we now have their headquarters. Apple, big campus. Now they're building a $1 billion campus to accommodate 15,000 employees, Tesla now the Tesla headquarters, Charles Schwab and so on and so forth. Big companies and little companies from around this country. As you probably know, California is our leading donor state, 252 of those 815 companies from California, followed by 112 from Texas, although we don't recruit taxes, they know us. They are our neighbor. They can come if they want. An interesting thing, 108 companies of international origin. And that's without a great deal of effort on the international scene. We will include international economic recruiting in our next 5-year strategy. So California, Texas, international, New York, Illinois. No surprises here, California, New York, Illinois, 3 high tax regimes. We have no personal, no corporate income tax in the state of Texas. So it's a very good place to locate. 1,417 expansions pretty good, all in all done in 18 years and 10 months. We've created 577,000 jobs. On a cumulative basis, that's an 85% job growth rate. That makes Austin, Texas the most prolific creator of jobs in America on a percentage basis. And we think that's pretty good. We're proud of that. And those 577,000 jobs have created about $44 billion of new wage, primary jobs bringing wage to our economy. You pick the multiplier you want. I don't care. It's big, okay? So we're happy about all of that. Education. We have helped over 113,000 kids get $1.2 billion so that they can matriculate to postsecondary education. We think that's very strong. We have changed the direct high school graduation to college entrants by about 6% in the region. Like I said, it's all about talent. The talent we have there and the talent that we can attract there. And by the way, we are attracting talent. We have been and continue to be the #1 domestic in-migration market in the country. And those end migrants by a rate of greater than 50%, have a 4-year college degree. So those end migrants are accretive to our workforce, both quantitatively and qualitatively. So we're glad to have them. I just saw the other day, we were the #1 millennial and migration market. With regard to infrastructure, in the last 18 years, we've developed a variety of different road rates, but about $20 billion of infrastructure capital to create roadways. That doesn't count the $7 billion now allocated from the state for I-35. So I think on a per capita basis, we've probably put more money into roadway infrastructure than anybody else. I'm not 100% sure of that, but I would bet on it, pretty good. So that's just a snapshot of what we've accomplished in the last 18 years. We will start this Thursday, creating the next 5-year strategy. That process will take 6 to 8 months. We'll raise the money, private sector money next fall into the spring, but we will be able to move out of this strategy into the next 24 through 28 strategy unabated. The community is excited about it. If we're going to go into a downturn just like we were going into a downturn in '08, we actually grew our number of investors and grew the amount invested because people recognize in a downtime, you need the effort perhaps more than in an uptime. So I'm very excited about what we have going on. Sorry about my voice. I'm very excited about what we have going on. We have headwinds, of course, our own headwinds and traffic is still a bit of an issue. Affordability is a bit of an issue. We need our city government to be better. They can be -- let's just say a challenge. They can be a little bit of a challenge. Our land development code is -- I like to describe it as being [indiscernible] team. It's way over its useful life yet there continues to be a healthy tension in Austin between growth and no growth. So what does that mean? Well, number one, it means those of us in the real estate business are better than we would be without that tension. It also means if you own an asset, you really have something because the next guy can't just come along and decide to do something in a real easy, simple, efficient manner. It takes professionalism. It takes expertise and it takes capital. So I like to say it keeps the dentist down of the business. That's an inside joke if you're from Austin, you wouldn't understand otherwise. But it's a great market. I think the opportunity -- we've spent 20 years in essence, building a base. When we started, we thought we were a tech town. A lot of other people didn't know we were a tech town. But today, because of the effort that we've put forward, we have tremendous economic verticals in tech. Tech can actually be divided, advanced manufacturing or semiconductor and then software IT, cyber, 2 sectors, not 1. We now, because of the development of the Medschool, we have a life sciences sector. It's nascent for sure, but growing rapidly. We have a financial services sector. We recruited Army Futures Command. We now have a national defense sector. And then in June of '20, Elon dropped the big ball on us. We now have automotive manufacturing in spades. So all of a sudden, a brief 20 years. We've grown from having 1 economic sector to rely on now to 6. The diversity means sustainability. I think our economy is 1 of the more sustainable, and I think it's going to present opportunities for us to grow and to lead the country out of recession. I've got exactly 20 seconds left, so I thank you very much for having me.

Gary. We've got it covered. So now we're going to go into 2 panels. Our first panel is going to be an Austin panel appropriately following Gary. So can everybody stand up and Fernando Urrutia, our regional lead in Austin will lead that.

Hello, everyone. Can everybody hear me? So my name is Fernando Urrutia. I joined Kilroy in March of this year. I came to Kilroy from Milestone investments, where I was there for 11 years, did acquisitions, leasing, asset management, and was recruited by Kilroy very excited about the opportunity. And so as part of my prior career, I covered Texas and covered Austin. So very familiar with Austin, manage about 3 million feet in that market and what -- to bring full circle about 20 years ago, I graduated from UT. So been following Austin, very excited to move there and seen the exponential growth that Gary alluded to a moment ago. So that's a little bit about me. I'll introduce the panel. We've got Wendy from Page Sutherland. She's a principal there. She is a market lead for Austin, does commercial interiors and hospitality. We've got Troy Home, who is a Vice Chairman at CB is responsible for about 5 million feet of square footage in Austin. So it's got a lot of purview into the market. And then we've got Jeff Chesnut, who is the acquisitions lead for L.A. and Austin and the deal lead for the 2 indeed tower and stadium tower. So we've got a robust panel to just kind of talk about the market. But before we get into Austin specifically, we thought it would be good to kind of start at a very macro level and talk about office and then tie that back to the Austin market. And with that, I'm going to start off with a question for Wendy. Wendy, just because you've got the benefit of talking to a lot of tenants have been in the Austin market for a long time. As you think about the tenant shifts that have occurred due to COVID and as you think about what's permanent versus what's temporary, we would love your perspective on that.

Well, we have a -- I have a very loud voice on from West Texas. I also am afflicted with whatever we brought in with us, probably the allergies. That's maybe the only dirty little secret about Austin. My perspective on office is actually twofold because we are 1 of the newest tenants at indeed as well and very excited to be on 1 floor there, and we're going through our own best practices as we talk to ourselves, our staff. We're now 1,300 people in 13 markets, and some of the shifts that we have been seeing are very true to what's happening in the market. We were looking at office space that needed to be more flexible and more diverse within its type of spaces. And that -- the gas -- put on the gas pedal with that. So flexibility is a really important one, both and the ability of people to come in and out of the office and then what is happening within it. So that's a big one. Individual control kind of goes hand-in-hand with that. That's also a big one. And then the third 1 is that incorporation of kind of exterior and amenity spaces, and it's 1 of the things we're so excited about with Kilroy's really commitment to that within all their projects.

Great. Troy, would you have an opinion on that?

Yes. So we've seen sort of a shift. I mean, this is no realization to all, but the employee is king, right? The employee is king to all these tech firms. There's a stat, Gary could probably correct me on this, but there's something like, I think, 100,000 white collar, over $100,000 a year jobs and only 40,000 qualified applicants for those jobs. So we have a surplus of good paying jobs that are just not getting filled. One of our big pushes is obviously recruitment. So partnering up with companies to use your office building as a vehicle to entice these tenants -- these employees to choose those companies to be in those locations. So we spend a lot of time on a lot of time and indeed tower has been on the front end and just what do the tenants want? What do we need to do? Obviously, we talked about it, walkability is huge. Our downtown unlike we saw yesterday, our downtown is actually pretty vibrant in the sense of having that demographic of a 25-year-old or 35-year-old who is a pretty high wage earner. And so in de tower, for example, it sort of encompasses everything that they're looking for. We've had a little bit of struggle during pandemic. We had a big sublease drop onto the market that was 20% less than our building. But ultimately, we've come back from that, and we should be -- I know I know this is quoting thing, but we should be about 86% leased by the end of the year.

That's correct.

On your point about being able to have that highly amenitized space to bring people back in the office, the announcement of -- to our staff of moving into indeed, got people so excited to be able to sort of have the pride of where they are. And then also they can't wait to sort of dive into what that space does for them as a worker.

And it's pretty easy, right? It's just all about if you're at home working, what drives you to go in the office, right? Yes, sometimes is people and the relationships. But for the most part, it's hey, what do I have an office billings a lot better than I have here in my house, right? Commodity office in Austin right now, commodity suburban office is down viciously down. You're going to start seeing some numbers come out in the coming quarter here by the fourth quarter and first quarter of next year that are going to be a little bit staggering on just what the deals look like in some of the vacancy rate coming from other areas other than the CBD other than the domain Broadmoor uptown area, which is where Kilroy has 1 of their projects. And then really CBD Jason, those are the 3 really strong submarkets in Austin right now.

And Fernando, I don't think it's a mistake or a coincidence that both of these purchases were off market because once we had identified Austin market for us because of all the great set of facts that Gary talked about, the next step was identifying buildings that long term really met the needs of the market. And the way we went about finding those was through a pretty dedicated off-market search because we weren't finding buildings that check those boxes that were being widely marketed at the time.

Yes. And something else just to mention is that in detailer is the only trophy building in all of Austin. I don't know if you guys know that with Six Glad at lupus another billing that we finished in the next year or so, but it's the only building. So it's a good time to have a higher end, highest end building for us we're seeing a disproportionate of activity at any tower than we are in other assets that we represent.

Troy, if you could elaborate on the activity that you're seeing, who's kind of been active in this.

Yes, that's a great question. So like anything, when we originally -- I start before Kilroy with original ownership with Trammell Crow developing and the idea was to -- it was all about recruiting, but it's always on the tech side. And hence, a little bit bigger floor plate. But we first got the Indeed deal, and then we followed up pretty subsequently since then, it's been really professional services. So it's been law firms, it's been architectural firms. It's been a lot of financial services, it's in consulting. We see that. That's actually helped Austin in the last couple of years. When tech sort of our big tech sort of has gone on pause, we've seen other industries sort of take the helm and sort of step up not as meaningful as big of pockets or taking down as bigger pockets, but we already have the indeed anchor. So it's been really helpful. And these next subsequent deals will be financial services and engineering.

And as you, Troy talked to tenants and just kind of figure out like when you say, hey, what's really important to you, given what's going on in the world? What are the kind of the key themes that you hear from tenants on their decisions?

Yes. It's funny when we do get to sort of present the C-suite, we're now seeing the Head of HR as being a voice or being definitely someone who's articulating the needs of the tenant because it's all about recruitment, right? Once again, I know we've been laboring this, but it's all about how do we get these people back? What is it considered to be back? Is it 3 days a week? Is it 2 days a week? Are we going to do a hybrid or we're not going to do a hybrid? So that's key. And then so normally when we present to them, we're saying these are the reasons why someone would come to this building, right? It's the main driver. And then, of course, we're looking at -- Gary made a really interesting comment about all of the large, the Teslas of the world, the Oracles of the world. But Austin, for the most part is -- has been historically organic growth, right? So we -- I did the first Google, I think probably 10 years ago and 20,000 feet. And then I did them again at 100,000 feet, then I did them again at 300,000 feet and so in different buildings. And so we'll see that. So part of that is working with these HR folks to understand the growth. The growth now -- when will we see the growth, the growth beyond. So they're trying to cover all the angles, and it's really kind of difficult right now.

And Wendy, from your perspective, as you're talking to clients, customers, anything else like that performance is important?

I think some of the things that even John and Eliott started off with are things that we're really seeing. So number one, there's no more either/or. I mean, it's cleaner to develop a single building type on a single piece of land. That's a very clean deal. But when you look at what tenants are wanting, they actually want mixed use. They want reliable and interesting retail. They want residential that's nearby. They want office space that is modern, that has exterior and is amenitized. So that is huge. And when we see some of the bigger deals that are happening, they're happening in areas that are really vibrant and are integrated with all of those other types of things, whether it's a walk score or an amenity level. So that's big. And then we're also seeing increasingly, our tenants are really interested in sustainability and what's the sustainability play because the HR group and the operations group and they're really working together to create a healthy workplace. And so having the building be a tool in that toolbox is really valuable and having -- being able to kind of lean into that versus having the building kind of fight you on those things is definitely something they're looking for because they have to spend -- they can spend less money to be able to kind of help achieve their corporate goals. So I think those are 2 big ones.

It's interesting the sustainability is that -- sustainability was a need by many, many companies, and we heard about it a lot for a certain amount of time, but -- and sort of pre-COVID for a while there just sort of died out. And -- but now just recently, it's become part of the dialogue and the narrative again. Part of it is the millennials are much more eco-friendly and they're much more environmentally conscious and they are looking for that. It's a question that comes up. So it's been pushed not only from the employer, but from an employee standpoint. It plays into some of our bigger things of we're seeing more and more -- I want -- I won't deviate from my main role here, but I spent a lot of time dealing with investors that are coming in, and we're seeing a lot more foreign capital, especially from Europe right now. And we're seeing it, I think -- they're thinking that we're going to have a little bit of a reset or some opportunity for them to get into Austin. And one of the first things I ask about is sustainability. Obviously, scores we have, things like that. But it's going to be interesting to see that future capital and what it kind of changes and what it does for Austin.

Yes. One of the last questions is, when do you've had the opportunity to work in Ashmore for a long time. One of the things that appealed to me about Kilroy is having a new perspective come to the market. So that's what got me really excited about the job, but I'd love to hear from you as you've worked with Kilroy on Stadium Tower and how Kilroy approaches a project very different from the local developers. I would love for you and Jeff to talk about that perspective, the thesis and what we do differently.

I mean that site is incredible. It's at the edge of the domain, but it actually has all of these other factors that are great about it. One of the interesting things is when you think about retail and you think about planning and you think about that exterior amenity space, we had some good bones there. But when Kilroy brought their lens into it, they really amplified some of those great pieces of that building, reimagining that stack so that your plan can actually accommodate a major anchor and a meaningful multi-tenant base that taking that idea of exterior amenity and expanding it to the whole building. So now that you have this sort of equity of amenities within the building and now you don't -- it's easier to lease that because you don't have 2 classes of space within that 1 building. So I think all of those things were great to see them kind of leaning into.

Yes. On our side, it was really fun during the diligence process. It was a lot -- it was focused around can we add these tariffs that you see above me. And I'm not sure if this will be on the online slide. But we looked at -- there was a lot -- I mean, the building was so flexible and so well designed and just great floor plates, all the kind of pieces of sustainability and flexibility, we're built into the building. I think looking at what we've done on the West Coast and our portfolio, we got together with Page who's been a great partner on this. And it was pretty fun and pretty quick, and I think [indiscernible] was possibly going to get into that too more. But it's been a fun project. And all the components were there and we kind of came in with, I guess, a blank slate or a different way of looking at it and say, "Hey, we can do this." And then the area itself to echo what Wendy said, there's about 900 units within half a mile just today. There's 60,000 square feet of retail, again, within just a 0.5 mile radius today, another 90,000 square feet or so retail coming. So we look at this area as your [indiscernible], which is an ongoing project. They broke ground on the station earlier this year and should be wrapped up in '23, which will provide great kind of public transit and connection. You look at all the multifamily that's there and then what's coming, all the retail that's there and what's coming and then the enthusiasm for Austin FC. It's a pretty exciting district, and we think it's going to really take what's great about the domain and there's some great parts of the domain, but really bring it into a more modern setting that is a little more interesting in the different components of that development work with one another a little bit.

There's also -- I think, Gary, you didn't flash the pie charts today, but one that he shows and he did talk about is really just this incredible diversity within Austin of business types and of people and educational background. And I think that site in particular, it is such an incredible blend. It's really going to leverage. People can live near their work and they can go to the game near their work and they can go to Brewpub after -- it's a really fun side to see.

Yes. As we were looking at Austin, we've been looking for the better part of 5 years, probably longer than that now at that market. That was one of the first things we had to get through, is it just one sector that it's dependent on. And it's really interesting, Gary hit on it. But as you start peeling back the layers to the onion, there's a lot of growth, and we've seen it [indiscernible]. I mean -- and the tenants we've been talking to there are from a lot of different industries.

Yes. I wanted to touch on something that's probably more factual, which is at Stadium Tower, that domain market is 99.6% leased. There's no direct space in that market whatsoever. There's just -- and there's not actually a lot of subway space coming up that we know of. So most of the deals have been done. Big tech is predominant there. And when we look forward, this is something to understand about Austin in general is that there's not -- so Texas is known -- so I'm 50 years old. I think I've been hearing for -- and I started my career in L.A, I moved to Austin 16 years ago. But from the very beginning, 25 years ago, it was always that Texas has these high highs and these low lows. And that is partly true when you talk about Houston, somewhat degree, you talk about Dallas, most about Houston, but Austin, since the recession out of recession of 2008, 2009, we've really -- and Gary knows this the best is we've -- time after time of that last 15 years, we've really shown people that the real institutional factors of how well Austin does through the cycles. And some of the blips that we have Austin tends to plateau, right, and then starts to shoot back up again. And so that's what we [indiscernible] will happen. Our rents are higher now than they were pre-COVID. I want to tell you guys also that we went through 37 quarters of positive absorption up to COVID, right? 37. So almost 10 years of just growth. Then we had a couple of 2, 3, 4 quarters of negative absorption. And then second quarter of this year, we were positive again. Third quarter we're sort of flat. So our road hasn't been like others, right? We have shot many, many holes into the idea that there's high highs and low lows in Austin particularly.

So as you're counseling clients, Troy, it sounds like you're feeling -- as you think about going to this -- Gary alluded to the kind of the headwinds in the market, how are you kind of talking to folks? I mean, like you said, you're pretty bullish about long-term option and how are you kind of thinking about the next 12 to 24 months?

I think we'll see in Q4, I noticed already in going into Q1 that we are going to have an increase in subway space. But -- and this maybe given the time I'm saying here, I can't go into do deeply. But the subway space is a little bit of a concern for many. But when you start seeing how much term left on the subway space, when you start seeing the idea that like a big portion of this will come from 1 or 2 companies, maybe a social media company specifically, I can't talk about. But the idea is some of these companies, too, don't know what they need to do right now. I'm not sure. So they put space on the market. Whether or not they're going to transact, they have to do certain things, like I give you an example, the social media company has to build up. They take the whole building down in downtown. They got to build all the amenities, right? So they're not going to do a 100,000 square foot deal. They're going to have to do a 300,000 square foot deal, spend the capital to build the [indiscernible]. And the likelihood of that is probably less likely. So I think we're going to absorb. Austin is known to absorb subway space pretty quickly. We also, by the way, didn't even track subway space barely for 5 to 6 years because we had none. So we're not immune. So don't get me wrong, we're not immune to what goes on in the United States, what goes on in the world, right? But when it comes to odds, I think I would bet Austin all day every day as long as you wanted to be in the office market, in general, you want to own office buildings, I can't see another place you possibly want to be.

That's great. So that's it for the panel, folks. I know there might be some Q&A as it relates to the market, but that's it for our panel.

Now we're going to do our life science panel, and that is more than just me. So please come up here. While they're getting seated, you can see why we're so excited about Austin between Gary's comments and then the panel that you just heard from. And I think what I really love about these panels are twofold. One, we learned from some of the industry experts we work with, but it's also a terrific way to showcase the talent that we have at Kilroy, that I and others are fortunate to work with. And it's truly an invigorating environment. And I think you can see by the passion and depth of knowledge with the experts we have that this company is a driving force in the fields we move into. In life science, we are equally as excited about it. It's a very important component of our business. Just quickly to briefly introduce our panelists, Scott Miller, with Jones Lang LaSalle is a nationally recognized life science broker has done more large transactions than anyone I can think of and is very knowledgeable in the space. Next to Scott is our own Bianca Doerschlag, who is a superstar at Kilroy. She leads our design group and an interesting factor to on any given weekend, she may have run a marathon or decided to run from the south room to the north room of the Grand Canyon and shows up at Monday conducting her Zoom design calls promptly at [indiscernible]. Nelson Ackerly, I don't think is running any marathons, but...

I barely made it up here.

Nelson is also a star of ours, who runs our Southern California leasing -- and I think one of the things that he's really been -- for those of you that have met him over the years, I think he's been with us now 6 years, 7 years, has done a tremendous job reestablishing our San Diego office, bringing in new team members and really helped growing the market. So with that now, I'd like to get into the life science area. And I think the best way to do that is, Scott, maybe start with you and give us an overview sort of maybe a little bit nationally, but what are you really seeing here where we are now in Oyster Point in South San Francisco in terms of the life science market. What does it look like? What does it feel like today?

Yes. Thanks, Rob. Sorry, I don't have a lapel mic, but hopefully, you guys can hear me. I'll start macro to your point, and then I'll hone into the micro. I'll be as brief as I can. So on the macro life sciences climate nationally, as many of you in the room know the XBI stock index is down, it's the biotech stock index. It's a great barometer, a great bellwether of the general health of the life sciences real estate market nationally. When you look at the carnage so to speak, that we're seeing nationally, it's really impacting kind of the mid-emerging preclinical pre-commercialization yet to enter the clinic or just have entered the clinic pre-IPO companies, which is largely the largest concentration of a lot of the R&D markets you see nationally, Boston, Cambridge, San Francisco, Seattle, San Diego, RTP. It's -- I won't say that big biotech, big pharma is immune to what we're all experiencing in the public equity markets right now, but a lot of our demand is driven by big pharma, big biotech. With some standard deviation, there's 20 big biotech -- big, big biotech, big, big pharma groups out there that are in disease states that you know of that are advancing humanity, creating cures, doing great things for our populus and 10 of them, 10 to 12 of them already come to the Bay Area into specifically South San Francisco. So that leaves arbitrarily about 8, 9 or 10 who are yet to come here. They absolutely will come here. They have to come here from the marketing perspective, from a branding perspective, from an identity standpoint. In the next 3, 4, 5, 7 years, the balance of what we call big pharma, big biotech, will come to South San Francisco implant their West Coast biologics flag in the ground. And we think Kilroy Oyster Point is masterfully positioned for that impending demand when it comes. We talk about this a lot as a team, Rob, just to answer your question again. We often forget that we are off on that kind of mid-emerging sector I was talking about kind of the small-cap, mid-cap pre-IPO preclinical precommercialization type of company. Nationally, we're down on demand. We're down 20%, give or take, 1% or 2% here. We're down 45% in Boston, Cambridge, which are the 2 largest markets in the nation. And we often forget that while we're down, we're back to pre-pandemic levels, which frankly was a pretty darn healthy time in 2019, Advent of COVID 2020. So if you look at it from that lens, it adds some perspective on where we are. We had a crazy bull run. And now we're back to kind of where we were pre '19 -- sorry, pre-pandemic in '19 and '20, which is not overly unhealthy. Last thing I'll say and then we'll continue to talk about Kilroy Oyster Point is we are positioned very well for when the market comes back. There is some signs and some signals of some good and great expectations to come. I talked about the XBI Stock Index. A lot of us have prognosticated that we've hit the trough, hit the bottom of that in June, July or August of this past summer. So we're on the way up. If the Fed seizes rate hikes in the impending couple of months and inflation starts to stabilize, we've got $1 billion of dry powder in the big pharma, big biotech side. We've got a lot of companies positioning. We're tracking the private money, the public money and we are looking at kind of coming through this micro correction as our team calls it probably into Q2 of next year. I think that's a common belief, and we all kind of are hanging our hat on that. So it could be a frothier 2023.

So maybe I can just build on the Kilroy Oyster Point a little bit, coming off of that market overview and just talk a little bit about our excitement with the site itself. So Oyster Point is -- or Kilroy Oyster Point is a 50-acre site. This makes us especially excited about all of the opportunity here. You guys all drove in, in soft Phase 1, which was completed about a year ago. And now we've got Phase 2 coming out of the ground, [indiscernible]. It's a very exciting time for the site. Just greater image here because I get the pretty pictures. Since we've got a 5-phase site here, we've got up to 4 million square feet of potential development that we can enact on. The site has the incredible benefit of having a mile of coast line. This is such a rare thing. And one of the great things, especially here is that [indiscernible] is right adjacent to the Bay trail and for those of you who aren't San Francisco native or Bay Area native, the Bay trail is potentially up to 500 miles of connected trail around the Bay currently about 350 completed and it's a resource that we see used almost every -- every day out here at Oyster Point between recreationalist, tenants alike. It just offers so much -- so many great attributes to it. It's an amenity in itself, and it's something that we really capitalized on when thinking forward about how we were going to develop Oyster Point. Health and wellness, something that I think we've all been hearing as a hot item out of the pandemic. It's something that at Kilroy, we've been thinking about far before the pandemic itself. And it's something that we really bled in throughout this campus to think about we've got, on 1 side, all of this great opportunity of a heavy robust life science building. On the other side, we've got this incredible matrix landscape opportunity within that 50 acres that we could really capitalize as an additional -- or when thinking through that amenity program for our tenants. I'll lean into Scott later on in the panel to talk a little bit more about our tenant base. But for us, we think that the sheer opportunity from the scale and the adjacencies here on the Bay really makes the site something that's extremely valuable, not just at this current time, but for the future markets for our life science client base.

That's great. So 4 million square feet of scalability here as a point. But I think as Eliott said in his comments, life science isn't new to Kilroy. And in fact, I should have said this earlier, our Life Science Lead, [ Peter Daly ], is not here today. He works very closely with Nelson, but also me as well, but Nelson, particularly in San Diego, where we have a large life science portfolio. His wife is due any minute, and we thought it might be nice if he didn't get called off the...

It's a really polite way of saying I was a second choice.

No, no, no. Would have had you both on it. But Nelson, why don't you talk about Kilroy's Life Science platform on a broader sense and some of what you've seen going on.

Sure. Before I jump in, I mean, a couple of things. One, it's always, even sitting on a panel, fun to listen to Scott talk a little bit about San Francisco because when we talk about Kilroy Life Science is Bay Area and San Diego. That's where our life science presence is, and I can talk a little bit more about that, too. But Scott can give a summary on what's going on in the life science in the Bay Area. And it's very similar to San Diego. As I'm a lifelong San Diego guy, I'm like you are Gary with San Diego, I'm the biggest advocate in the entire world. But usually, we came -- when you guys visited me 10 years ago in San Diego, you weren't asking a tough questions, you were writing off trip with your family and asking where to go to dinner after SeaWorld, right? So to see how far we've come with life science over the time in San Diego and to see how interchangeable the ideas are between our stuff in San Francisco and San Diego is completely aside in the question, but very, very interesting and compelling. I'm not going to throw a lot of stats out. Eliott did that. I think you see the growth in our portfolio from 8% of NOI to 20%. I don't like doing that because he's a much better stack guy than I am. I think he's still mad at me because I cheated off on him in an eye exam once, right? So I don't -- I'm more of a leasing guy who likes to round up. I do want to drive home 1 thing. Life science has gotten so red hot lately. We've got a lot of people jump on the bandwagon, a lot of people that are new to it. And to Rob's point, we are not new to this space at all. We have been in San Diego for 40 years. And for most of that have had a life science presence. Back when I was trying to address like Kurt Cobain and getting denied by girls at frat parties, John Kilroy was literally at -- in [indiscernible] and other markets buying, acquiring and leasing life science space. We've been in this space for a very, very long time, and we put the same financial discipline and patience in life science that we do in any of our other product types, even though it's 20%, possibly going to 30% of our overall NOI. Focusing on San Diego, kind of where we are there we'll talk more about Oyster Point. The other part, both in San Francisco and San Diego, that's worth pointing out is not only that we're in San Diego, where we are. We are in the core markets of San Diego, both with UTC, Del Mar Heights gone out to 56% with our Santa Fe Summit project, 600,000 square foot development that Bianca give another panel on another time. We are in the core parts of those markets as well. We've been in it a long time. We're established in these markets. We've got really good tenants in Cytokinetics, 23andMe, a couple you'll see on the tour, for those of you tour later today, but also down South Acadia, we've got Abbott. We've got a lot of big names, not to regurgitate a lot of names into it. This is a very established practice for us.

Great. Can I touch -- I'd like to touch on a point or 2 and maybe Scott, you and Bianca can kind of riff off each other. But Bianca, as a designer, when you look at 50 acres on the Bay, I mean what inspired you when you sat down and started putting pen to drafting table and not that we use drafting tables anymore, but what inspired you with the site? And then Scott, maybe you can blend into that. What is it that modern tenants in the life science space you're looking for?

Yes. Rob, you paint such an artistic picture. We are really -- the opportunity that we had at this site is really encapsulated by an entire team vision. We have a Class 18, not just within our own staff here for Kilroy, but also and who we've engaged on the project site. So we're working with James Corner field operations in DGA, James Corner field operations, the leading landscape architect and DGA leading in our leading life science architect and really creating the vision amongst others for this campus. Right off the get-go, the opportunity to bring in our experience that we've had with amenitizing from a tech perspective and merging it with the newer way that we're seeing life science lean with a very amenity-heavy campus we were right in our wheelhouse. This is our bread and butter. Phase 2 specifically, which, again, steel coming out of the ground has a vast amount of amenities to it. We've got a 400-person amphitheater for all hands. We've got an F&B and you'll walk anecdote today, the F&B and Phase I to see what that really means is. We're talking about creating space that will offer us a unique dining experience it down or grab and go. We've got a North amenity conference center that's going to be a part of Phase II, all sitting and embedded within this dense matrix of landscape amenity. I think it's something that's going to be such an incredible resource and Scott, I'd love for you to go into the tenant base, but 1 thing that we've been iterating on in the past and kind of talking through is -- we're talking about a tenant base that is coming out of academia, a tenant base that's used to the campus lifestyle. A tenant base that is going to come on to the KOP campus and recognize that it's very similar. We are offering this outdoor indoor workspace. We've got the robust life science buildings that really provides a place for them to technically excel. But we're also taking a second to think about these people as people, the employee, as King as Troy mentioned earlier, in saying, we're offering amenities that will offer them break time, that will offer them collaboration time, creative free-form time. It will offer them recreational head space clearing all things that are, I think, extremely important to this tenant base now more than ever and will really reinforce the active endpoint of what these tenants are looking for, the creation of their own -- what is it? It's the ability for them to do what they do best.

So I've deliberately set up our practice group in the Bay Area as give or take, 50% occupier tenant representation and 50% developer representation. So I've had a front row seat for the better part of 25 years on hearing where occupiers and tenants are wanting to be, especially as we get into a return to work environment. And what I applaud Kilroy for is I've had the pleasure of representing AstraZeneca in town, Merck, Amgen, Mammoth Bio and Citro, Genentech, who is right next door. And we've put forth informal and sometimes former focus groups asking these occupiers what do you want to see? And we often notice and by distinction, other developments in town you can't find on the West Coast 50 acres, scalability for 3 million square feet, floor plates as large as we've designed for Air Beach, Marina, Harbor, the amenities that Bianca just talked about. Genentech made a funny comment that we spent 40 years designing something that our rank and file will do to stay on campus and Kilroy design that in 2, 3 short years. It's unbelievable to see and -- we're -- like I mentioned, the -- call it, the barbells of our marketplace, you've got big biotech, big pharma, then that mid-emerging kind of preclinical populist that's down on demand right now. And then you've got company formation stage, which those are the -- company formation stage as well as big biotech and big pharma are the drivers of our marketplace for now. On the company formation side, one of the coolest things about the life sciences industry is today's scaling a little biotech company could be tomorrow's market mover and it can happen at lightning pace then they can be in a collaboration agreement with big biotech. Big biotech in our market is unique, big pharma is unique. We're actually in conversation with a couple of groups as we speak, just given that we've been so prescriptive and put forth exactly what we want or what the occupiers want in this marketplace. -- which I will say, other developers have not been as thoughtful. You look at other developments and they're just more compressed, and this is a more urban, suburban environment that the occupiers want to be at. It's helpful for recruiting, it's helpful for retention. As all of these biotech companies enter the war for talent, particularly again, as we return to work, we're just very well situated for this next run in given conversations we're actively having, we're thrilled on the momentum even on what's considered a "temporary micro down market."

Yes. Scott, if I can 1 thing that I remember a conversation that we recently had with a tenant kind of thinking through innovation. And they -- innovation, not just on our campus, but also their own innovation. And I think it's safe to say we're all well aware that these life science tenants, tech tenants like are innovating within their own product, they're innovating within their own marketplace, but they're also innovating with their employees, and they're innovating on what workplace looks like. They're innovating on what amenity looks like what they want to offer. And it's -- what's so exciting to me is that we have Phase III, IV and V upcoming, we have 10 acres of Marina that we have available as a resource ship. All of which we can innovate on and push further in our own abilities and offerings to really meet the innovation of our tenant base. [indiscernible] preview of an early concept of what we're thinking about with -- in our Marina, like I said, it's 10 acres of waterfront -- on water site and what is exciting with us is we went out and started up working with big out of Copenhagen and New York and they're one of the leading architects and on-water architecture. And we sat down with them and brainstormed between them and some tenant-focused groups on where can we go with this? And there's so much possibility within the Marina alone and where we can go to think about the innovation on transportation, the innovation on amenity, the innovation on how we use our workplace, how we think about our site. So there's a lot of excitement here still left to come that we can continue to develop as we push forward.

It looks like we're running out of time, but really, really quick, just to maybe tie some things all the way starting with John's speech and coming all the way through in terms of activation. What's been interesting, not only on big scale ground-up developments like Oyster Point here, Santa Fe Summit down south at some point. We've been very successful in a bunch of conversions. And a big part of that has been the lessons we've learned in office and activating and creating all the stuff that Bianca speaks so much more eloquently than I do to in life science came a long time ago because that was Kilroy's special sauce and other product types to as well. So when we are doing these conversions, and we're getting a really good return on it, a big part of it. And even a lot of our office space now as it rolls, the life science space is wanting those very same things we saw in the office space. And it's become a big -- in a crowded life science development space. It's become one of our big competitive advantages in really driving home exactly that people's spaces Bianca is talking to right now, and Scott.

So speaking of competitive advantage, I think this will probably be the last question. We've got the floor plates going back to KOP. We've got the floor plates. We've got the building structure. We've got the things that support science and research. We have the amenities, the [indiscernible] trail, everything you've talked about. But Scott, is our delivery time frame also a competitive advantage? And can you talk a little bit about what the environment looks around the time we're delivering for occupancy?

Yes. So we've -- there's invariably -- and some will go and some will not go, but the market is suggesting there's invariably 3 million square feet of entitled supply coming into the market in the next 3 to 4 to 5 years. our Phase II, which is just under 1 million square feet, falls into a time frame where for a period of time that we predict, we're timing perfectly in terms of when things will come back in Q1 and Q2 of next year will be about the runway time of when a lot of these larger users or even kind of half building users or buildings are rough numbers, 300, 300, 300, there's 3 buildings in totality, it's almost 1 million feet. But we've got a window of time, call it, within 9 months, where I hate to say it this overtly, but we're kind of the only game in town other developments have been pushed out, delayed, haven't decided to go back and we're really in a perfect place with the mousetrap that Bianca described to capture a lot of the impending demand and the demand that's out there today.

Okay. Well, I think thank you all for preparing and being on the panel. And hopefully, we answered a lot of questions for everyone. We are going to have a Q&A session so you can ask more questions to either John, Eliott or me or the panelists. So thank you very much. Thank guys.

Okay. Before we start this, I got to tell you that there's a lot of rock stars at Kilroy and a couple of them are -- a bunch of them are in this room. Will the Kilroy folks just stand up for a second? That includes you. Come on, that includes you. Well yes, as -- the new models are so much better than the old model. Okay. Sorry to steal your thunder there.

No, no worries. Well, I'm Taylor Friend. I am the Corporate Treasurer, and we are now entering to the last panel, which is the Q&A forum. So up with me on stage to my left, everyone knows is John Kilroy, Eliott Trencher and Rob Paratte. And before we get into this Q&A form, I just wanted to say thank you for all the engagement and participation for the question submissions. We had a ton of questions. And I can assure you that when I went through and prescreened them, I wasn't just going to throw softballs at you guys. So let's get into this.

So the first question comes around headlines about tech sector layoffs and relevant -- and downsizing plans. How is Kilroy thinking about this dynamic as it relates to broader office demand across Kilroy market?

I'm going to have Rob deal with that in a second, but I want to remind everybody that you never know when it makes sense to develop or not. You're always prepared to develop. And so far this year, as we've announced, I think most recently on the last quarterly conference call, that there were 2 major projects that we have put on hold. One was Santa Fe Summit that we anticipated being under construction on sort of midyear. We have -- we're fully entitled. We have our permit, that 650,000 square feet down in San Diego, 2 phases. And in stadium tower, where we're ready to go, we have building permits and so forth, and we put that on pause as we watch what's happening in the market. So number one is making sure that you feel good about building into a market that's strong versus the opposite. And Rob, do you want to talk about the rest?

Yes. I'd say a couple of things about layoffs and how we look at them. I mean we -- obviously, it's a serious thing, and we consider it deeply. But using Amazon today, for example, who announced something up to 10,000 people looking through what the employee announcement is. It's one thing what the headline says. But then when you look through with the employee announcement to employees is that a lot of it's HR staff. A lot of it is related to retail. Some of it's engineering and it's hours old. So it's very hard to determine what that is. I think the big headline grabbers have been Twitter and they've been Meta or Facebook. I would say those are unique to those firms. I mean there could be other firms that end up in issues, but you have one where a billionaire bought the company, took it private. And the other, you have someone's vision at Meta for a metaverse and poured a ton of money into that vision and it wasn't generating profit. So I think in those cases, which have been big headline grabbers. You have to take that with a grain of salt. No doubt there will be space on the market. I'd say the last thing, and we -- these are very fresh conversations I have, John has them, is that no doubt with these layoffs, it's putting, so to speak, the fear of God back into employees. And what we've heard already preliminarily is that some of the layoffs happening are guess what? The remote workers, the 100% people that are remote working somewhere in a totally different state than where their company operates in. So I think there's going to be a lot of good information that flows out of this. But I think, and I know John believes. The biggest driver of bringing people back to work, I think, is going to be the fear of losing jobs.

Yes. So the next question is, how is Kilroy thinking about capital recycling opportunities. And specifically, would we rather sell a good asset at decent pricing but then have a reduced overall portfolio quality? Or would you rather part ways with lower quality asset at more challenged pricing levels.

Kind of a trick question. Just quickly back that, I don't know what Rob said on the last thing. The most -- I always talk about a portfolio being both offensive and defensive. Offensive when it's a great market, people are going to want to be there and pay the highest rent. Defensive, it's great product. They want to be there and you get a choice whether you want to make -- meet the market or not. With regard to the disposition or the asset sales side, Obviously, you'd always rather sell the lower end of the portfolio. But that wasn't the case when we sold the Dropbox buildings, arguably the best building in all of the city of San Francisco, or certainly one of them. We couldn't see how we would add more value there. And as time has gone by, I think all of us have recognized that their financial position, well, it's still very good. It was a laggard compared to most of our high-quality institutional grade tenants. So it makes sense to sell a fabulous building. And of course, that was at an all-time high price. We will look at selling assets. We prefer to sell assets that are no longer strategically important to us. as specifically with regard to do we sell top-flight well-leased, high-quality tenant buildings that are relatively new. It's not my preference. And remember, we do have something else. We can't call it sales, we call it ventures. And we have a number of assets that we're looking at with the prospect of doing ventures. So more to come on that. We do not feel that we have any pressure on us where -- Eliott can talk about maybe that just with regard to the balance sheet.

Yes. So on John's point, and as we've thought about funding where we went into this year and we told everyone, hey, we're going to sell $200 million to $500 million of assets. And ultimately, we sold $50 million and we pivoted. So why did we do that? Well, we surveyed the landscape and said, this is not the right environment for us to try to get a lot of sales done, we don't think that's in the best interest of shareholders. And it kind of goes back to where John started it, we try to come in with a flexible and open-minded approach to everything we do. If we're going to be overly dogmatic of it has to be this or it has to be that. I think that's where you're more prone to make a mistake. And so same thing on the asset sales side, on the funding side. So as we looked at the lay of the land, we said, "You know what, better off to try and raise some capital via a term loan, which Taylor and his team kind of led those efforts." Had very successful execution there, more than replicated the liquidity we would have generated from our dispositions at a better all-in price, we had the balance sheet to kind of withstand the incremental debt and now 75%, 85% of our development pipeline of projects under construction, we have between a cash and term loan proceeds. So we think we've set ourselves up in a way to maintain that flexibility and have that optionality for whether it's how we fund something or how we raise capital, it just gives us more options.

Great. So going on the next question. Can you talk a little bit about the Flower Mart site and how that project fits into your future developments?

Well, everybody knows the Flower Mart was a very difficult project as were all the others in that Central SoMa area to get approved, were approved for roughly 2.2 million square feet of office space fully improved. There's no more discretionary approvals or anything else that are necessary. So we have the largest developed -- our largest approved project in the city. It certainly doesn't make sense to go build a spec building, whether it's in San Francisco or anywhere right now. During the COVID period, we very successfully were able to work with the city and receive full approvals on a rephasing plan. So there are four buildings in that project, and they're all plus or minus 500,000 square feet. Before there was one -- there was three buildings and one of them was a roughly 1.1 million square feet. Is that right, roughly 1 million square feet. So we're able now to do bite sizes, which we like. We are in the process of building the new Flower Mart for the vendors, and that will be done, Bianca? Roughly. Late '24, something like that. And then we'll -- or maybe it's earlier than '24. And then we scrape the buildings that are the current Flower Mark between Fifth and Sixth on brand and we're ready to go as soon as the market dictates. So it's like we do on all of our properties. We want to be shovel-ready entitled know what we're going to build, know it's the right kind of product and be able to go. And that's exactly what we did back in 2012. We started preparing ourselves in 2009, 2010, 2011, to be able to really hit the gas on development when it made sense. And that's all the development that you saw on the screen that I was presenting earlier.

And just keeping on the Flower Mart side, has there been any specific design changes brought by the pandemic or any shifts in design or shifts in demand that we've catered to with that project?

Well, I just spoke to the fact that we went from three to four buildings demand-wise, I mean we can do Life Science there. I don't know the Life Science wants to be there at this point. I'd ask Scott. Our view is optionality. So we can do projects for office. We can do projects, and that's tech or other. We can do a Life Science if that became the need. But other than that, from a marketing standpoint, Rob, you can talk about that.

Well, I think back to the point John was making the redesign that we've done and looking at more bite-size pieces, if you will, although 500,000 feet is not really bite size, but by having smaller units that we can build allows us to go after what we think the market will be like when things start to improve and come out. And there have been -- I'll finish. I mean you can never discount San Francisco. It has had its rough spots over time, but then you look at Google just taking 300,000 feet of sublease space for their cloud services in San Francisco. So things happen quickly. They just haven't happened yet.

I had a meeting a couple of weeks ago with one of the top most highly recognized VCs, they asked for the meeting and all their inquiry was wet tell me about the Flower Mart, when will it be ready? I don't know what their plan is. We didn't get into that, but we'll see what happens. We always said it could be this past cycle or it could be the next cycle. And so we're well-positioned for it, and we're going to mark it to companies that make sense and that have balance sheets. I love companies with balance sheets.

Great. So shifting over to the Austin market. Post the Indeed acquisition, how does Kilroy feel about the broader market fundamentals and approaching new investments in the market.

So I mean, you heard us talk a lot about Austin clearly, it's something we're excited about. We wouldn't spend this amount of time bringing all of you here to have folks like Gary and others address the market if we didn't really believe in it. So in a very short period of time, right, we bought Indeed in June of '21. We followed that up with stadium acquisition in March of '22. We found a path to 1 million-plus square feet of high quality and as Jeff mentioned, off-market transactions. We think that's a pretty good playbook. And if we can find more of those when the time is right and the value is right, we're going to do more. Again, it goes back to there's no target number for how big Austin is going to be. We're not going to just buy buildings there to put another picture on our presentation. But if we find transactions that make sense at the right values, very committed to getting bigger in the Austin market.

Just one add-on to that. You've heard us speak a lot about quality and the kind of workplace people want in the physicality, the amenities and so forth they want. We're not going to be buying buildings that don't have that kind of locational advantage and the bones. There might be an older building that you can fix at a reasonable cost. But if they don't have the bones to become a modern space, we don't want them. And I think -- and as I look in Austin, it is a -- like a lot of markets, it's much more mature now than it was 20 years ago when it was building buildings. And I think a lot of those commodity style buildings will do well when the tide is always high they may not do as well when the tides are a little lower. And I can tell you that in the context of the stadium, we're in discussions with somebody that wants it all, and they happen to be in an older building and they just go it's -- we can't compete long term for the workforce that we want with the facilities we have, we need the kind of thing that you're going to develop. So I want to say one other thing about Eliott, I guess you were saying about we've done two buildings so far. We're ahead in Austin, where we -- compared to San Francisco, Seattle, San Diego, way back when we bought there. We're ahead in the context of what we have and what we control and that, more importantly, the team that we have in place. Fernando is new to the team, but one of the brilliant guys -- some of the people in the market said to me how did you ever get Fernando. And I don't want to put too many feathers in your cap. He's a very modest person, so I don't think it will go to his head. Well, with regard to the construction development group, with regard to asset management. We've taken people from -- and by development office, life science, we have taken people that are -- were embedded in Kilroy that are fantastic superstars headed for, I guess, all our jobs at some point. And we have that embedded in Austin. We're not there to be a one-off or two-off. We're going to grow over time significantly in the southwest, maybe the Southeast. We're not there to play. We're there to win.

Well, thanks. I think that's a great way to end the Q&A panel. So we're good. Thanks a lot.

Is that it. Okay. I got to stand up to say this because I want everybody to kind of not look at these young guys, look at me. We've had some amazing speakers today, very prideful of the group on the Kilroy team, but I'd like to give a resounding applause to Gary Farmer and to Troy and Scott and Wendy. Okay. So Shannon, we've got a few other little things that go on. Somebody earlier said to me, "Gosh, remember that really cool thing you had in L.A. and the Fender Guitar and all that kind of stuff, and I just had to resist smiling. So Shannon Canu, do you need me anymore or ...

Sure. You do. Okay. So that concludes our audiocast portion. Thank you for those that joined us.