Good afternoon and welcome to Boston Properties second quarter earnings call. (Operator Instructions) At this time, I would like to turn the conference over to [Arista Joyner,] Investor Relations Manager for Boston Properties.

Good morning and welcome to Boston Properties second quarter earnings conference call. The press release and supplemental package were distributed last night as well as furnished on Form 8-K. In the supplemental package the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg. G requirements. If you did not receive a copy, these documents are available in the Investor Relations section of our Web site at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website. At this time we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements. Having said that, I'd like to welcome: Mort Zuckerman, Chairman of the Board; Ed Linde, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. Also during the question-and-answer portion of our call, our regional management team will be available to answer questions as well. I would now like to turn the call over to Doug Linde for his formal remarks.

Good morning everybody. We really apologize for the delayed start. The conference call company was unable to dial out to us and so for that they should be apologizing. Also, the regional managers that are on the phone, could you please mute your lines because I have a suspected feeling that you are on live and if you rattle or type or do anything like that it's going to get bled through the call. Thanks for joining us, and I guess we're the first company to report this quarter, which for us is pretty extraordinary because normally we're in the middle to the last portion of the filing. So hopefully we will have some interesting things to tell you and get the REIT season off to a good start. You've heard us speak about the dependence of the office market, at least in general, on job growth before, and we're going to take you through in a few minutes the importance of looking at the specific markets locations and billing characteristics, in addition to simply the jobs themselves. Mort put an editorial out there in the Wall Street Journal last week, which I suspect many of you saw and he discussed his views on the state of the overall economy. The employment picture continues to be pretty challenging and as office owners dependent on job growth by knowledge-based companies, primarily in the service sector, we recognize that the employment rate hasn't peaked and that we, broadly speaking, will not see growth in the office business. And by growth, what I'm talking about is growth in rental rates. Until the later stages of a job recovery. A major contributor to increases in unemployment has been the magnitude and the speed of the cost cutting that has occurred in the businesses across…

I just want to add a couple of comments to Doug's discussion on the leasing. We are very encouraged with the increased level of activity, as is evidenced in our statistics and also in tour traffic on our available space. While we are completing a number of deals with minimal tenant improvements, in some cases the concessions have increased and depending upon the quarter, we may see large variability in our concession costs. This quarter our average transaction costs were approximately $38 a foot. And to give you a little more detail, our activity included a handful of larger new and expansion leases with average transaction costs of close to $60 a foot, while the remaining leasing was a diverse pool of both new and renewals that were under $20 a foot on average. Looking forward, we will actively pursue the use of prebuilt spaces and use our construction management capabilities to manage installation costs by offering turnkey build out services where appropriate to best meet market demand. On larger deals, the tenants who have options are pressing for larger contributions. That said, we continue to see a high level of renewals and shorter-term deals with low transaction costs. Overall, we expect our leasing strategies will result in increasing our hit ratio but new transactions will be evidenced by higher than historical transaction costs. Getting to our first quarter results, last night we reported FFO of $1.32 per share. Excluding the impact of the additional share count from our equity offering, we exceeded the midpoint of our guidance for the quarter by approximately $12.0 million, or $0.08 per share. If you pull out a couple of significant one-time items, such as termination income and an impairment charge, we still exceeded our guidance by about $0.04 per share. The first major…

What I think we are, a transitional period and the interesting thing is going to be, of course, which way the economy goes. I did write this article in the Wall Street Journal last week and it really got a remarkable reaction. I think because it sort of expressed in some detail what a lot of people were concerned about with respect to the economy and if you saw Bernanke's testimony to Congress just yesterday, what he was talking about was pretty much the same thing, which was his concern with the unemployment numbers and what that might do to the economy in terms of additional foreclosures, additional savings that would reduce consumption, additional, not just home foreclosures but defaults on credit cards and what that would to bank lending, etc. And that is one of the key issues that we face. I think what has happened in terms of the world of finance, which is a part of the world that feeds a good part of our own office activities, is that the world of finance is, in a part, reflecting what's happening in corporate America. Corporate America is cutting costs dramatically and widening profit margins and therefore their earnings are doing a little better than a lot of people anticipated and the stock market is having a very nice rise to reflect that. It was oversold at some point and it's not perhaps being over bought, but it's certainly heading in the right direction, in part because of the fact that the earnings, I think, are going to be better than a lot of people expected. That, frankly, is going to have a fairly good impact on the kind of space that we have, because what has always been the case, not just in this downturn but in…

We will now open up for questions and answers.

(Operator Instructions) Your first question comes from Michael Bilerman – Citigroup.

Mort, you obviously painted a little bit more of a bleaker picture for the economy on the employment side, and from Boston Properties point of view things appear to be probably a little bit better than expectations. While they are difficult, there seems to be momentum. How do you factor in some of the positives you're seeing in this business relative to your views on the broader economy and whether there are things that you're seeing on the ground, within Boston Properties, that potentially could paint a maybe brighter picture for the economy and the employment situation.

That's a very good question. That's a very difficult thing to correlate, I have to confess, because I do think that the broader economy and the consumer economy is going to be much tougher than the government is portraying. I do think there is a sense of they are focusing in on confidence and the attempt to retain and even to build confidence. I think they're going to, in some ways, lose their credibility as a result of that, because I think it's going to be worse than they have expected. In fact, it is worse than they expected. I mean, it's not only that they predicted that there would be an 8% unemployment rate, but now they're saying it's going to above 10%. And I think it's going to be closer to 11%. Nobody knows what these exact numbers are. As I said, it's unprecedented. But again, let me just say to you, we have always in these situations, when you invest and develop for the long-term, you have to anticipate that there are going to be downturns. And in terms of sort of developing a business strategy, we try to come in to sort of a construct that in a sense where we think we're going to do fairly well. Anybody who has heard me on these talks in the past will remember that I keep on saying we do better in downturns, relatively, because of the fact—a) we're in a supply-constrained market, b) we're in the upper end of the office building market so that when there is a decline in rental a lot of tenants who want to be in the higher quality buildings now feel they can afford the space and will move in, it may be a little more expensive but they are prepared…

On leasing, you talked about your mark to market essentially being flat. You talked about doing a lot of early renewal builds and tending [inaudible]. One thing is just related to the deals you're doing, you talked a little bit about your trends on TI, capex, Mike talked a little bit about that being higher, maybe the length of the deals, whether you are moving more towards shorter term either renewals or leases, and in terms of free rent or other concessions that you're giving so that headline flat mark to market in the reality may be a little bit more negative given the additional capital that you're putting in, higher free rent, and things like that.

This is going to sound like a cop-out answer, so I apologize in advance for that. But I would say it's everything that you just described. In general and in the District the types of deals we're doing are long-term deals, long being more than five years. And the suburban transactions we are doing are generally involving no tenant improvement allowances. They are involving brokerage commissions and brokerage commissions are on a percentage basis. And in the most part they are a reflection of what the current rent is and if, for example, we have a lease that's expiring in 2010 and the current rent for that space is $37 a square foot and the existing rent is $41 a square foot, we are acknowledging and allowing for a short-term rent reduction, on an as-is basis, but with an escalator. And so by the time you, from a GAAP perspective, you get to look at where the rent is on a mark to market basis, it's basically flat to slightly a positive. On vacant space, there are sort of two broad extremes. The first is space that we are basically pre-building. And those pre-built suites are generally the smaller tenant spaces. And building that vacancy, those spaces, depending up on the marketplace, are costing us somewhere between $65 a square foot and $85 a square foot. And those are then being done on an as-is basis, and our hope and I guess at least our path evidence has born this out, because we did it at 7 Times Square when we did that build up, these spaces generally don't need much in the way of retro-fitting when these tenants move out. So while we may be signing three-, five-, six-year leases, they generally have a life that's probably ten+ years. And so then the second time around you don't have to put any additional capital in. On larger spaces that are vacant, depending upon the configuration of the space, we are not giving much in the way of tenant improvements but we are giving some free rent, depending on the market. So a market like New York City, the Lehman Brothers space, quite frankly the TIs are relatively limited. In some cases they're as-is and in some cases it's $35 a square foot to $40 a square foot. But because the market is what the market is, we may be giving seven, eight, nine, ten months of free rent associated with that transaction, as part of the economics. So I think that unfortunately, there really isn't a specific generalization I can make about all of the markets. I can only sort of make it on the types of spaces and the variance, the installations. I will say that the better installations are getting more activity and they are allowing us to capture vacancy at a much more rapid rate than space that really is a gut rehab where you're going to have to start over from scratch.

Let me add one thing to what Doug said, which is that when you're talking about forward leasing of roll that may exist, that may come about over the next six months to a couple of years, we are taking advantage of the fact that in a lot of these spaces not only did we put in TI investment, but the tenant put in major TI investment. So there's a real incentive on the part of the tenant, if the space was done correctly, which many of these were for the tenant's use, for them to stay there. And which gives us an advantage in discussing what the appropriate rental rate should be and what the appropriate terms should be going forward.

Your next question comes from Mark Biffert - Oppenheimer & Co. Mark Biffert - Oppenheimer & Co.: My question is more related to the use of cash, you have a significant amount of cash available as well as your line completely available, and I'm just wondering if you're planning to keep that powder dry for acquisition opportunities, as well as are you seeing opportunities for acquisitions or development opportunities, or would you use some of that to pay down some debt if you could attractively go back and pay it off early?

The answer to your question is unfortunately not a simple one. I would say overall we are not uncomfortable with our current capital structure. That does not mean that to the extent that we were able to negotiate a discounted pay off of some debt or relatively speaking a high yield on that investment, that we wouldn't consider doing some of that work. And even improving our capital structure. With regards to acquisition, I would love to tell you that I thought we were going to be doing acquisitions that would have an impact on our use of capital in the short term. I think that it's going to be a bit of time before that happens. As I think I sort of suggested there, there seems to be a very wide disparity between bid and ask rates on the sale side. A lot of it has to do with the availability of third-party secured debt and a lot of it has to do with it seems to be an inability for the various participants in the capital structures on certain assets to figure out what direction they want to go in and/or for some group of parties to recognize that the valuations have changed and it's time to move on and they need to sort of look at what's right for the asset, not necessarily what's right for their own particular balance sheet, whatever they are, a bank, an insurance company, pension fund advisor that runs an open-ended account, etc. And I think that that stuff is going to take a little bit of time, but as I suggested, I think maturities are not going to be the driver, I think it's going to be frictional transactional activity that's going to get that stuff unglued sooner rather than later because as assets have capital requirements or leasing requirements that are necessary, those parties are going to have no choice but to get together and start to realize what situation they might be in and that's going to cause an action and hopefully that's when these types of assets that we are interested in will be moving in a direction where we can use our capital in a very accretive and value-creation, positive manner.

You asked about development as well, and clearly it's very early in the cycle to be thinking about development because of the imbalance between cost and rental rate. That being said, we are looking at, and have done, as the Princeton experience illustrates, build-to-suits. And there may be situations, and we are pursuing them as they come along, where build-to-suit is possible, even though the normal market might not be ready for development, and where we can lease at 100% or close to 100% in advance. Mark Biffert - Oppenheimer & Co.: I guess added to that, are you seeing—I see what you are saying on the development side, but from a land perspective, have the opportunities—I think Ray had mentioned previously that you were looking at some opportunities in the D.C. metro and I was wondering if any of those had progressed along, as well, if you can talk a little bit about if you've changed your return hurdle that you're looking for, either for acquisitions or that land opportunity.

There's nothing that has percolated to the point where there's much in the way of commentary that we can make to the investor world on asset land purchases or other types of endeavors that we would want to make. To answer the last question on our return levels, clearly, return levels have gone up. When there was an expectation that cash was plentiful and you could do financings at 4%, 3%, 5%, 6% and you could get 90% financing, that obviously had an impact on overall returns. And when you're, on a secured basis, maybe able to get 50% financing—maybe—and that financing has got a coupon somewhere between 7% and 8%, that clearly affects overall return levels. In addition, the growth of rents had a pretty meaningful impact on what you thought return levels might be in short term versus the overall long term, and if you don't think rents are going to be appreciating at 30% or 40% over a period of time, it probably has a pretty significant impact, again, on what your overall return threshold expectation is for the next three to four plus years. So the answer is clearly our return levels have gone up. I don't have a number I can give you. It depends on the investment. It depends on the profile of the asset. It depends on the replacement cost, and it depends on the submarket. And is the return we might be prepared to take on a building on Park Avenue that we could buy for $700 a square foot may be very different than what we would be prepared to take for a building in Reston, Virginia, that is vacant and we might be able to buy for only $200 a square foot. Again, it's very, very different, depending on the particular opportunity. Mark Biffert - Oppenheimer & Co.: The GM lease that you have in the GM Building, has their intent changed or would there be an opportunity renew that lease or is their expectation still to exit that space next spring?

We can't speak for the tenant. All we can say is that General Motors, unfortunately, put themselves in a position where they had the ability to bankruptcy to reject the lease at 601 and they have a lease that goes through the beginning of 2010 and we will see what happens with them. We really don't have anything we can say about that.

Your next questions come from Jay Haberman and Sloan Bolen - Goldman Sachs.

Back to the question on capital structure, maybe for Doug, if you think about leverage and perhaps even further reducing leverage, are you factoring in cost of capital such that obviously looking at opportunities, either with the converts or your line of credit maybe, even out to 2011, that with a lower leverage profile, you can maintain obviously a lower borrowing cost as you think about revenues remaining challenged for the next couple of years.

If you're asking do I think that my overall leverage is going to affect my cost of capital from an unsecured bond or convertible bond perspective, I'm not really sure that overall the market is thinking about it that way. I think that relative to where we are today and our coverage ratios and our overall unencumbered asset base, which is really they think about the world, that's primarily what drives, I think, the ratings outlook for the bond investors. And whether we're where we are today or we have a billion dollars left of debt, I'm not sure materially it would impact our access to the markets and the coupons that we would have. I guess if you look at the various types of issuers out there, there are issuers who have ratings levels and debt levels that are significantly lower than ours that are having a much more receptivity buy from the market because of the business lines they're in. And so I'm not sure that there would be a meaningful change unless we had a total change in our capital structure and basically paid off the vast majority of our debt. So I don't think that would have a major impact.

Can you speak a bit more about the Lehman spaces. You mentioned the 200,000 square foot potentials there. Can you give us a sense of how far those discussion are coming along, given that you talked about them a couple of months ago as well.

Yes. So as I said before, there are sort of three levels. We are negotiating leases and when you negotiate a lease that means there are legal documents going back and forth and as I think Mike described, things are just taking longer today because people don't feel a pressing need to do something, but there are certain companies that really want space and they are aggressively trying to get leases done. There's the proposal stage, which is people have come to us and said they were interested in our space but not ready to make a decision as to which particular space they want or which building they want. And then there are the we're in the market and we're looking for space. And I would say we have all three of those types of situations at 399 with regard to the Lehman Brothers space, and quite frankly, I wouldn't be surprised if we get some leases signed in the short term. But we never say something is done until it's done, unfortunately, in this business.

Back to the leasing question. You spoke about the different buckets for TI spend. Do you have a sense, or just maybe a budgeted amount of capital you would spend for leasing over the next year or two? Or how should we think about that?

We don't allocate, as a company, well, we're going to spend $35.0 million on leasing in Manhattan and $40.0 million of leasing in Boston, because it's obviously based upon with the lease rollover that we have. We think pretty analytically about the world and we look at net effective rents and we look at return on invested capital and we look on the various opportunities we have and at certain times we chose not to do a transaction because we don't think it makes sense from a capital investment perspective. That being said, we think one of our advantages is our ability to adequately put capital to work and get, on an incremental basis, a pretty good return on that money, depending upon the tenant credit and quality and the location of the buildings that we're putting it in. So if you said to me you needed a number to figure out your cap [inaudible] for distribution, what's the right number to be using for tenant improvements overall in the portfolio, I would say it is going to be in the high-30's. I'm guessing. But like I said, there are going to be quarters when we have a 500,000 square foot lease that we're renewing and there's no tenant improvements and we do 600,000 square foot of leases and you're going to see a $5 or $10 average TI cost because of the quarterly impact of those big skewing. And there are, as we described in Washington, D.C., some very significant transactions that we are working on that are going to have very limited, if any, tenant improvement dollars.

Your next question comes from Jordan Sadler - KeyBanc Capital Markets.

Just coming back to the opportunity that may be in front of us, you mentioned types of assets that you would be interested in, maybe by market or just asset class, would it be the same quality as the existing portfolio and would you pursue other markets?

I would say if there's one thing we're going to do is that we're going to be very clear in our strategy, which is that we believe that our advantage in our operating perspective is best suited to the high quality buildings in the existing markets that we're in. And while there may be some real attractive opportunity from a return perspective that might at least elicit an interest level to do something outside of that, I think that by and far what you see us do is participate in the recapitalization of assets in our core markets that have a similar quality and a similar, at least, opportunity from a market perspective to be high quality, class A, suburban, and urban buildings within the very distinct submarkets that we're in, i.e. Midtown Manhattan, not lower Manhattan, and Reston, Virginia, not the Dulles Corridor and Tyson. And 128, not 495 in metro Boston. Things like that. I don't you're going to see us going askew and trying to become an opportunity fund that is looking to take advantage of the gross reduction in values and hope that the momentum goes in the other direction so that we can sell these things and not have an expectation that we're going to be long-term holders of assets.

I'll add just a further refinement. We'll be on the upper east side of New York, not on the west side of New York. I mean, just again, it all goes to the same idea and we believe we've been able to do this in good markets and bad markets. There will be opportunities to develop properties and opportunities to purchase properties and that's what we're going to focus on in those particular markets and in the highest quality of those particular markets. Otherwise we will not go forward with acquisitions.

Mike, maybe just a clarification on the occupancy guidance. I think you're still guiding to 91% occupancy by the end of the year, which is what you said last quarter. But you said last quarter that you needed to do about 1.0 million square feet of leasing for the rest of the year to get there. Now you're talking about 850,000 square feet of leasing. I mean, you did 600,000 square feet this quarter. So the numbers seem to be skewed up maybe 100 basis points plus, just by the math that I'm looking at. I'm just curious if you could reconcile it.

Well, the 600,000 square feet of leasing that we did doesn't all start this quarter. There is a roll over that is occurring in the portfolio as well. So we can try to go through it in more detail with you off line but there is not a significant change in what our leasing projections have been. And as I said, we still believe we will be in roughly the same occupancy place that we thought we were last quarter.

What do you have for a place holder within the 850,000 for the Lehman space?

We are not assuming that we lease any of the Lehman space.

Your next question comes from Ross Nussbaum - UBS Securities.

Doug, you just used a phrase to answer to Jordan's question. You talked about participating potentially in a recapitalization of assets. And that lingo would suggest to me that you're looking at opportunities, not necessarily at the equity level of the capital stack but up higher. So does that imply that you think the opportunities over the next 12 to 36 months are going to be Boston Properties inheriting existing distressed mezz in first mortgage positions and/or writing new loans to recap those assets?

I think you make me sound more sophisticated than I am. When I describe recapitalization I mean that you have building that have more capital stack in them than they're worth. And the participants of that capital stack are, theoretically today, equity owners, mezzanine debt owners, sometimes subordinated debt, and then first mortgage debt. And there has to be a come to Jesus session, a capitulation, whatever you want to call it on that value because none of those players have any value in their particular positions. Now, that doesn't mean that we wouldn't consider, depending up on the asset and the particular situation, participating in the appropriate place in that capital stack. But I wouldn't suggest that we are going to be active buyers of tranches of debt with an expectation that we are going to become the party that is pushing forward for the recapitalization effort. We will get in the right place at the right time in the right situation if we think there is ultimately going to be an opportunity to become the overall equity owners of the building.

And what kind of unlevered IRs are you thinking about in terms of getting the company excited about putting capital to work in the current environment?

I tried to answer that question without answering the question when it was asked before so I'll do it again, which is it really depends on the opportunity. As I said, if an asset on Park Avenue became available at $700 a square foot and the cash-on-cash returns were 8.5% and the leases were stable for the next few years and they were all written between $50 and $75 a square foot, we might think that IRR on that was significant enough in terms of what the upside would be to jump at that. On the other hand, if there were a vacant building in a suburban market and we thought it was going to take us two years to lease up that property but we thought it was a great asset, it has a different risk adjusted profile and it probably have a higher overall return expectation. So I wish I were smart enough to be able to give you a specific number but I can't. The only thing I can tell you is that people are going to be doing this on a weighted average cost of capital basis that is accretive after debt. So if you think your cost of debt is whatever it is, the IRR is going to need to be higher than that.

Mike, can you talk about your strategy on real estate taxes? I would assume that you are aggressively fighting every bill that comes in the door. How successful have you been on that? What kind of reductions are you seeing versus the original tax bills that you're getting?

I really can't quote on specific reductions. I can tell you that we systematically review our tax bills and tax exposure in each of our markets individually every year. And we go to the taxing authorities and seek to get reductions. We have been successful. We've been successful this year in gaining reductions in a couple of our markets and some of our markets we haven't. But it is something that we do constantly in each of our markets.

Your next question comes from Jacob Strumwasser – BCC.

Mort, you gave a pretty straight shooter view on your feelings on the economy and you often are considered to have a lot of Street credit when it comes to talking about these things, so on that vein I wanted to ask two specific questions. What do you see going forward for LTVs and do you think that AFFO for you is going trend lower?

Doug, why don't you deal with the FFO question and then I'll deal with the LTVs.

We've already provided what we expect our guidance to be.

We are conservative in those estimates going forward, I would say.

So we expect to achieve that guidance. For 2010 we've given you some information to utilize to assess what our results will be in terms of what we expect our occupancy to be and where we expect to be impacting with our development pipeline coming on line.

On those numbers we have made certain assumptions with respect to space that is currently vacant staying vacant, rather than assuming any of our lease negotiations are going to be consummated. So I think that is sort of a standard practice of ours but we always try and realize the leasing opportunities we have and we still intend to do that. LTV matter, I mean, I think we're, in an overall corporate sense, going to continue to try and stay in the [inaudible]. It's a very interesting question now as to what is the best capital structure for a publicly traded REIT and a lot depends in terms of what our availability of credit lines would be that we could have, but I think the equitization that took place already, where we raised in effect over $840.0 million, is a step in the direction that maybe the predominate sort of structure for publicly held companies. The problem we have with all of that is the capital markets at this stage of the game are so fluid and they are intimidating at this point, in terms of both rate and availability and terms, but that may change. And there are two ways it may change. It may change on the basis of securitized financing but it also may change in corporate terms, in terms of rate. And if that becomes a more attractive option I'm sure we'll do some of that as well as other more conventional forms of financing. I think in our own minds, we're going to stay, as a company, in the range of 50% loan to value.

Your next question comes from Alexander Goldfarb – Sandler O'Neill. Alexander Goldfarb – Sandler O'Neill: On the impairment, it sounded like the rent conditions were the driver of the impairment on the value added fund. If we think about the GM building, how would rent impact that? Is it signing new deals in the market or is just constantly assessing the marks and the building versus where brokers think the space would lease for today?

Just to refresh what I said earlier, our view is when we did our impairment analysis at the end of last year, which it really wasn't the end of last year it was just prior to the beginning of March when we file, we sort of had a view on where on where rents were and the various markets. And particularly in Manhattan. We really haven't seen much evidence of reason to change our perspective on those rents. Number two is our perspective on rents for a building like the General Motors Building is one with a very, very long duration. Our expectation of where rents are on a building like Circle Star in the north peninsula market of San Francisco is a very different one. And so when you're doing you valuations, which are purely academic exercises, unfortunately, the length of your period of hold and your view on where rent's going to be over that period of hold makes a very significant difference in how those valuations occur. So we really didn't have any reason to make changes to our input assumptions on our New York City portfolio. Alexander Goldfarb – Sandler O'Neill: And to Mort's comment on New York, acquiring in New York, it almost sounded like he was thinking about acquiring on the upper east side is where you would focus on acquisitions. So does that mean the west side is only for development or would you consider also properties along the Sixth Avenue, etc. corridor?

I think we would consider properties on the Sixth Avenue corridor. I guess I've always, Sixth Avenue was on the east side. So you're absolutely right. But the west side, I'm talking ninth, tenth, those kinds of further, where frankly, there are opportunities for blocks of space to be assembled. But I just don't know that that would be where we would focus our investments. Alexander Goldfarb – Sandler O'Neill: With all the news out of Washington and focus on taxes, etc., from your tenants, especially tenants who have been around for a while, is there any sense that they may alter their decision making or is their view that Washington constantly goes through these cycles and they just roll with the punches and continue on with their businesses?

I don't know that we have any sense of any—nobody is happy with what's going on in Washington in the business world, for sure. By and large I think there's a real dismay in terms of the ineffectiveness of the stimulus program, the fact that it was turned over to the Congress, and now you have the health bill going through that is being rushed through, with most people not even having read the legislation, which is like over a 1,000 pages of each version. And the House proposing dramatic increases in taxes. I don't know whether that's going to come out. I don't think that's going to help anything myself, so I think we're in for an administration that is going to be taking, shall I say, in general, not a pro-business attitude and not a pro-investment attitude, and not a pro-entrepreneurial attitude, whatever they say. The substance of the programs, I think, is going in a very different direction. Whether they get the health bill through or not, I don't know. I think they are thinking in popularity and I think that popularity is going to continue to go down, primarily because I think the unemployment rate, as I indicated before, I think is going to go up and stay up. Certainly through next year. And so come the Congressional election next year, that administration is going to be in a very different place politically to be able to get some of this legislation through, which is part of the reason why they're trying to jam it down now. But they are, and I've said this before, they are in effect, they're trying to boil the ocean. They're trying to do way too much and I think there's a very real apprehension in the business community about what's going on, and a justified one. And frankly, I supported Obama in the general election, but I must say I'm very dismayed by the approach that they're taking to legislation.

Your next question comes from Michael Knott - Green Street Advisors.

You mentioned the possibility, or the hope, to acquire on Park Avenue at 8.5% cap on sort of a stable rent roll. Do you think the odds are good that you'll have the opportunity to do something in that range over the next one, to two, to three years, or do you feel like that is not likely to happen and therefore you'll have to either pass on adding to Midtown, or have to lower those hurdles a little bit?

I don’t know. I know, for example, that there's a condominium interest on Park Avenue that's trying to be recapitalized right now. And the equity pref on the thing is going to be somewhere between 8.5% and 9%. So there sort of deal brewing right now in that range. But honestly, it's going to depend on the individual asset, the individual capital structure, and if somebody had a big mortgage on an asset and that mortgage is clearly the vast majority of the capital structure and it has a refinancing date impending and there's a recognition that the mortgage is going to have to be cut in half and it was a $700.00 million or $800.0 million mortgage or a $400.0 million or a $500.0 million mortgage, I think those are where those types of opportunities are going to avail themselves. So we're optimistic, we believe that the capital structure for private owners of real estate in large markets, like Midtown Manhattan, are going to change and there's going to be a significantly enhanced requirement for equity and there are going to be relatively few organizations that have the ability to raise that equity and the ability to operate those buildings, and we believe we're one of them. So I think we're hopeful that we're going to find those types of opportunities.

Let me add one other thing to that. There are now a number of major pools of capital that are looking to invest in some of these markets, not on their own, but in partnership. They have certainly approached us to see if they could, in a sense, joint venture with us on acquisitions. And that will, I think, further enhance the opportunity that we will have in those very special situations, which Doug said, are going to be particularly crystallized by the possibility of financing that's going to be coming due. And I think that is what everybody is worried about in terms of the commercial market, which is that there is going to be a lot of CNBS paper that is going to come due and people are going to be able to refinance because the financial markets, the credit markets, are much worse than the equity markets. So those people who have the equity, and particularly if those people can attract additional equity, which we can, I think are going to be in a position to have the best opportunity to make those purchases. The question will be that is that we don't even know what all the financial structures are but one of the things that we are doing, of course, in the various markets that we are in, since we're one of the people who are relatively well capitalized, is we're trying to sort of look around each one of these markets to see which properties might become available and to see if we can sort of get prepared for that possibility, or even to, shall we say, be proactive in those particular situations. So that is I think the general makeup. But most of this is just happening in our heads at this point. There have been just been very few situations that we know are literally either in the market or on the verge of going into the market.

And the JV comment tied into my last question, which is as you contemplate how to finance future external growth I would guess in a significant way, over the next two or three years, are you more inclined to use asset-specific joint ventures like you did with the Macklowe purchase last year rather than sort of an opportunity fund as it's been reported that some of your peers are considering.

I don't think we're going to do an opportunity fund. We don't want to have a conflict between the opportunity fund and what we are doing and we just think we ought to keep things simple and clear and clean. I think there's a real issue in those opportunity funds as to who you're serving. We have shareholders and that's our principal concern and we don't want to be in a position to have that possibility of a conflict of interest.

Your next question comes from Jamie Feldman – Bank of America. Jamie Feldman – Bank of America: Doug, can you walk us through the largest blocks of space that are in your June 30 occupancy percentage number that are either vacant or under-utilized or on your credit watch list?

Not quickly. Just because I don't have the information sitting at my fingertips here. But we can get on the phone and we're happy to do that for you. I would say that for the most part, occupied space as of June 30 has limited, if any, major blocks of "shadow space" or unused space. Even an organization like Citibank that has significant space in our portfolio, in 601 Lexington and Citigroup Center, is still utilizing the vast majority of that space. That doesn’t mean that if someone came along and said they would like 300,000 square feet at 601, they wouldn't be able to get out of it in six months. Because they probably have external space in other parts of their portfolio that they can move people into. But as we go through our portfolio, there really is, that I'm aware of, very little "non-used" space that is occupied today. Jamie Feldman – Bank of America: So if you think about pending big blocks for New York, it's really the GM Building that's the big question mark?

Well, it's not the General Motors Building that's the question mark. It's 601. 601 is where, unfortunately, General Motors had a lease for 120,000 square feet and we no longer have 120,000 square foot lease. Jamie Feldman – Bank of America: I'm saying their March expiration.

Oh, you mean in terms of what the future expiration? Jamie Feldman – Bank of America: Yes, in terms of what's to come. Exactly.

Well, you ask the question about what was not being used as of June 30 and I can you right now that the General Motors Corporation is fully engaged in those three floors at the General Motors Building. They're chocked all over each other there. So there is no vacancy in that space. Jamie Feldman – Bank of America: And to follow up on your comments on the unsecured market, what gives you comfort that it will stay open at the prices you quoted?

I think that you never know what is going to happen to that marketplace. The volatility that it experienced from mid-last year until kind of April of this year was pretty unprecedented volatility. We don't have a crystal ball to know if that's going to happen again and if spreads are going to widen out again. What we attempt to do is, as I mentioned, maintain to all of the capital markets so that if one is unattractive to us or unavailable to us, we have other places to raise capital. My sense is that the winds are blowing in the right direction for the unsecured debt market right now and it has moved in over the last six to eight weeks, which I view as a positive thing. And if you talk with investors, they take great comfort in the credit characteristics of companies like ours, where we have a significant unencumbered pool of assets where the quality of those assets, the occupancy of those assets, and the rollover criteria of those assets give them great comfort. That they can look for a relatively long term and have comfort with what they have as their collateral, effectively, even though they're unsecured, they see that as their collateral.

I also will answer the question in a sort of negative way, which it's the lesser of all evils. Relative to all the other markets, I see more hope that the unsecured market will remain open than I do that the secured debt markets in the form of securitization, or the bank market in the form of large syndicated loans, is going to be open and accessible over the next period of time, defined as nine months, twelve months, eighteen months. So relatively speaking, that market seems to be, because of its breadth and the constituents of who those bond holders are and the relative covenant-type protection that they have in terms of how those companies are structured that are borrowers in that marketplace, I think it has the best chance of all the markets of functioning more normally than everything over the long haul.

I also think that that market has taken great comfort in the re-equitization that has occurred in the remarket and all the equity that has been able to been raised. And that's part of the reason that that market has improved significantly. Jamie Feldman – Bank of America: The numbers you quoted for 399 Park, in terms of asking rents, the 60's and I think you said high 80s, where would you put that on a net effective basis?

Do you mean what are operating expenses? Jamie Feldman – Bank of America: Operating and then SRTIs and free rent.

When we do a deal, if we do a deal on a as-is basis, there are no TIs so it's a question of what the rent is and how long the lease is for a brokerage commission perspective. So it's very variable. All I can tell you is operating expenses in Midtown Manhattan are generally in the high-20s. So you can do your own calculation as to what you think our various level of transaction costs might be, but as I said, depending upon the deal, there is between zero and $40+/- of TIs that are sort of on the better lease space. And free rent is a really interesting way to think about it because if there is no tenant leasing the space, I'm not sure your free rent calculation should or shouldn't be, depending upon your perspective, part of your NER calculation if you don't think you have another alternative to lease that space. On the other hand, if you do think you have another alternative or you think rents are going to be moving up or down, you have to factor that in to how you think about it. So it's not an easy analytic one-number type of a decision analysis that you can come up with.

Your next question comes from Nick Pirsos - Macquarie Securities.

The government's bank stress testing earlier this year assumed considerably lower unemployment levels than are today. Couple that with your more dire assessment of the job picture, are you concerned that commercial bank stress testing needs to be revisited, which could potentially offset some of the gains we're seeing in financing conditions for commercial real estate.

I don't know what gains you're seeing the financial conditions for financing commercial real estate. I think they're very, very limited to date. And I think a part of it is that the commercial banks have a huge amount of credit card loans outstanding. Fortune magazine did this article on the four major banks, they have $3.6 trillion in credit card loans, both business and individual, student loans and auto loans, and some home equity loans, etc. And they are going to be faced with a soaring default rate on those credit card loans. And I think that's going to affect the credit ability across the board. They're just going to have to hoard cash in order to deal with that. You saw that in the reports of several of those banks that just came out within the last few days, where they all made comments on their soaring losses in credit cards. I think it's just beginning. So I think the commercial banks are by and large, and especially the large ones, are in serious troubles with that. The number of business credit cards went from 5.0 million in 2000 to like 29.0 million last year. This is for small businesses. And they're defaulting at a rate even more rapidly than the individual holders of credit cards. I think that's a huge exposure to the banking world and I think they all know it and I think it's going to constrain their lending. So I'm not looking, I can't imagine that there's going to be much in the way of commercial bank financing of commercial real estate. Bank financing commercial real estate I think is very, very limited and will continue to be very, very limited and I think as we say, on a secured basis, I think that financing is very, very difficult to come by on terms that are, in our judgment, reasonable. If it's true for on an individual basis then the REITs, who have been able to raise equity money, and who are in good financial shape, who are going to be able to have opportunities that would come up over the next period of time. So the banks themselves, I think are going to be out of the market in terms of the commercial real estate for at least as far as I see. I think we're looking at not months, but years.

Given just the overall absence of job growth, how would you characterize the leasing activity in the recent quarter? Are there increased market shares, is there strong or pent-up demand?

It's a very good question and I'm not quite sure how to do it, but as I say, the market is different for different buildings. And different locations. I wouldn't want to be downtown today in terms of having to lease space, or indeed some of the west side of the city of New York, just to pick an example. I'm sure we could go through our individual market. But where you have the best buildings and the best locations, there will be people when these rents go down, and they have gone down, who are saying they would just as soon be in 399 Park. And there are people moving up from downtown into our buildings, or at least we're talking to them very seriously, into moving into those buildings. That's why I think the more conventional space is not going to do as well as the quality space, in this kind of a downturn. It may sound counter-intuitive but it's what has always been the case in the past and is clearly happening again this time around. So I think that's sort of the way I read the market and I think I can characterize what has happened to us. And I think it's going to continue. There are always tenants moving around. It's just in the nature of the beast. Leases come up, some tenants are doing well, some tenants are doing better. Law firms which have the big bankruptcy practice are a lot busier than those which have the big corporate practice. So you will always find tenants and some of those tenants are going to be in the zone where they can say they would rather be in one of the more prestigious buildings and pay a little bit more for, not a huge amount…

There are no further questions in the queue.

We apologize for the length of the call but obviously people wanted to hear what Mort had to say about his views on the economy and we didn't want to cut him off. And given that there was nobody us on the REIT side after us, we appreciate your indulgence on sticking out if you stuck it out.

This concludes today’s conference call.