Question-and-Answer Session
Operator
(Operator Instructions) Our first question will come from Paul Atarata from BMO Capital Mortgage. Please go ahead.
Paul Atarata – BMO Capital Mortgage
Phil, in your comments you mentioned that you expect the stress that is out there in the marketplace to eventually lead to some opportunities. What did you have in mind, and how soon do you think that those opportunities will present themselves?
Phil Hawkins
I think there are going to be a number of opportunities, first and foremost probably leasing related. Undercapitalized developers and/or owners with shell buildings, or buildings that are going to a releasing, are under stress and create opportunities to acquire assets at significant discounts to replacement costs. For us to get excited about that, there has to be a significant discount, but also more transparency in the market from sales to lease which is why, I don't expect any material acquisitions on our own balance sheet from a value added perspective the rest of this year, as we let the markets settle out. Frankly the pain to strengthen a little bit, but that is one area that we could get excited about but not likely at least not at this point.
Jim Cochran
I would add that we think land is at a typical high right now, and if you think about it costs are continuing to rise, rents at best are flat and cap rates are up so something has to give if new products are to be delivered. That pressure, we believe, will be on land prices, which will probably go down. That will take some time to work it's way through the cycle. We're thinking sometime in late 2008, certainly in 2009 we will see some opportunities.
Paul Atarata - BMO
I believe you also mentioned that in terms of the attractiveness or the performance of large boxes versus small boxes; the small ones seem to have a little more resiliency. Did I hear you correctly?
Jim Cochran
In today's leasing, that is exactly the activity which we are seeing. My theory on that is that smaller decisions are easier to make in uncertain times, and therefore renewals, which is the easiest decision, and or small-sized spaces are next easiest its the bigger spaces that become more of a capital and operational commitment on the part of the customers when deferred, that’s what we’re seeing today.
Darryl Mechem
This is Darryl, We’re also seeing on the Big Box side though. Phil referenced the renewals; we are seeing the users on the Big Box showing a strong tendency to renew and had good activity this year.
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