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Executives

Jeanne Leonard – VP, Corporate Communications

William Hankowsky – Chairman, President and CEO

George Alburger – EVP, CFO and Treasurer

Michael Hagan – SVP, Acquisitions and CIO

Robert Fenza – EVP and COO

Analysts

Sloan Bohlen – Goldman Sachs

Gabriel Hilmoe – UBS

Anthony Paolone – JP Morgan

Ki Bin Kim – Macquarie

Alexander Goldfarb – Sandler O’Neill

Brendan Maiorana – Wells Fargo

Josh Attie – Citi

Michael Bilerman – Citi

Jordan Sadler – Key Bank Capital

John Guinee – Stifel

John Steward – Green Street Advisor

Vincent Chao – Deutsche Bank

Daniel Donlan – Janney Capital

Liberty Property Trust (LRY) Q3 2011 Earnings Call October 25, 2011 1:00 PM ET

Operator

Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Liberty Property Trust Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Mrs. Leonard. You may begin your conference.

Jeanne Leonard

Thank you, Michelle and thanks everyone for tuning in today. You will hear prepared remarks from Chief Executive Office, Bill Hankowsky; Chief Financial Officer, George Alburger; Chief Investment Officer, Mike Hagan; and Chief Operating Officer, Rob Fenza.

During the call, management will be referring to our quarterly supplemental information package. You can access this package as well as the corresponding press release on the Investor section of Liberty’s website at www.libertyproperty.com. In this package and in the press release, you will also find a reconciliation of non-GAAP financial measures we referenced today to GAAP measures.

I will also remind you that some of the statements made during this call will include forward-looking statements within the meaning of the Federal Securities law. Although Liberty believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be achieved. As forward-looking statements, these statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from the expected results, risks that were detailed in the issued press release, and from time to time the company’s filings with the Securities and Exchange Commission. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Bill, would you like to begin?

William Hankowsky

Thank you, Jeanne, and good afternoon, everyone. Liberty had a very solid third quarter. We leased 4.5 million square feet which was our best quarter of the year bringing year-to-date leasing to 11.3 million square feet. This leasing was driven in part by a 66% renewal rate yielding 89.9% occupancy, up 40 basis points.

We continue to execute on our strategic investment activity. Year-to-date, we’ve sold $370 million, acquired $207 million, and commenced development on a $171 million with another $117 million in development to start in the fourth quarter. Mike and Rob will provide further color on this activity in a moment.

We’re now near the high end of our guidance ranges for each of the activities, sales, acquisitions, and development. And as we’ve said in the past if we see opportunities to advance our strategy we will take advantage of them.

The economy continues to be challenged. The unemployment rate has been stuck above 9% now for several quarters, while GDP growth is below 2%. Added to this weakness in the last 60 days, there seems to be an increased level of uncertainty and anxiety. We don’t know why. Starting with the debt ceiling debate in August has been fed by the daily Euro Greek concerns and now is fed by the belief that nothing will change until the 2012 elections at the earliest.

So we certainly escape with the split personality. On the one hand we continue to see leasing activity in our markets clearly stronger on the industrial side than the office side. But on the other hand today’s anxiety may translate into curtail 2012 business plans for our customers. And that’s what keeps us up at night. How this all plays out, we will take the next several months to see.

Liberty’s plan in this environment is to be very active, very alert, and very adroit to respond to both the challenges and the opportunities that will arise. As I said, if we can advance our strategy in this environment we’ll sell more suburban office and acquire more industrial product. We anticipate more development built-to-suit activity given the large pipeline we currently have. The largest we’ve seen in three years. And we will be very, very selective with inventory development in the few discrete markets. Rob will explain on this in just a moment.

Let me close by commenting on our continued strong execution on the balance sheet front with our recent Moody’s upgrade and our $500 million line of credit. Our balance sheet and our platform are poised and we will apply classic Liberty patience, discipline and hard work to take advantage of these unsettled times.

And with that, let me turn it over to George.

George Alburger

Thank you, Bill. FFO for the third quarter of 2011 was $0.65 per share. The operating results for the quarter include $1.1 million in lease termination fees, which is in line with our guidance that lease termination fees would be in the $0.04 to $0.06 per share range for the year.

FFO for the quarter also includes a $1 million gain on sale of land. During the quarter, we sold seven operating properties and the land I mentioned above for $75 million. Five of the properties that were sold were office properties and they accounted for $61 million of the sale proceeds.

Our strategy is clear; we are decreasing our investment in suburban office and increasing our investment in industrial real estate and metro office. We acquired eight properties for $104 million during the quarter. Five of the properties were industrial properties and accounted for $83 million of this investment.

During the quarter, we begin construction of 1.2 million square feet of property with the projected investment of $76 million. Three of the properties with the projected investment of $61 million are industrial properties. The remaining property with the projected investment of $15 million is a 100% pre-leased office building at Philadelphia Navy Yard. As of September 30, the committed investment in development properties is a $171 million and the projected yield on this investment is 10.2%.

Moving on to the core portfolio. During the quarter, we executed 3.6 million square feet of renewal and replacement leases. For these leases, rents decreased by 8.6%. Our guidance for the year is that rents would decrease by 7% to 12%. For the same-store group of properties, operating income decreased by 1% on a straight-line basis and increased by 0.7% on a cash basis for the third quarter of 2011 compared to the third quarter 2010.

On the capital front, last week we replaced our existing credit facility with the new facility. We didn’t change the size of the facility. It remains at $500 million and the facility covenants are essentially unchanged. We did change the term and the borrowing rate. The old facility was due November 2013. The new facility expires in November 2015 and there is now a one-year extension option.

Borrowings under the new facility are at a spread of 107.5 basis points over LIBOR. This borrowing spread reflects the adjusted borrowing rate under the new facility as well as the adjustment due to our recent credit rating upgrade.

One last item I want to cover is our earning expectation for the fourth quarter. Third quarter earnings include $1 million in land sale gains. We don’t anticipate any similar land sale gains in the fourth quarter. We sold $71 million worth of – $71 million of operating real estate in the third quarter and our investment activity was in development properties and not yet stabilized acquisitions.

This capital activity will reduce earnings until the development properties come into service or the acquisition properties are stabilized. This reduction in NOI for the fourth quarter compared to the third quarter will be approximately $1.2 million. As a result we expect that FFO will be in the $0.61 to $0.64 per share range for the fourth quarter.

And with that I will pass it on to Mike.

Michael Hagan

Thanks, George. The third quarter was an active quarter for us as far as investment activity goes. During the quarter we completed $71 million in sales. Our acquisitions for the quarter totaled over $90 million and subsequent to quarter end we closed on an additional acquisition for $61 million.

Let me start by giving you some color on our sales. We completed four transactions in the quarter totaling 654,000 square feet for $71 million. The largest transaction was a four building office portfolio in Milwaukee totaling 338,000 square feet. The portfolio was 94% leased at the time of sale and sold for $40.8 million or $120 per square foot.

In addition to Milwaukee, we sold 117,000 square foot office building in Greenville South Carolina. This building was 100% leased at the time of sale and sold for $20.1 million or $172 per square foot. With the completion of this sale we no longer own office product in South Carolina.

We also completed two other transactions totaling approximately $10 million. One of these was a flex building in South Florida, where a tenant exercises the purchase option. And the other sale was a vacant warehouse in Orlando, which we sold to a user. The combined cap rate on the sales for the quarter was 9.6%.

With the sales we have completed in the quarter, our year-to-date dispositions excluding land and JV sales totaled approximately $340 million. The cap rate on these dispositions at the time of sale was 9.1%. Our guidance for the year for dispositions was $300 million to $400 million.

Let me now review our acquisition activity. During the quarter we closed four transactions totaling over 1.9 million square feet to $90 million with an estimated total investment of approximately $104 million.

In keeping with our desire to increase our industrial footprint, approximately 1.7 million square feet of this was industrial. Our most active market was Minneapolis where we acquired 450,000 square feet of industrial building and 230,000 square feet of office. Rob will provide some Minneapolis market color in a moment.

Subsequent to quarter end we acquired a seven building portfolio totaling approximately 1.1 million square feet in Charlotte for approximately $60 million. With our acquisitions in the quarter and subsequent to quarter end our year-to-date acquisitions totaled approximately $185 million with an estimated stabilized investment of $207 million. These properties were 52% occupied at acquisition and we anticipate approximately an 8% return on stabilization. Our guidance for the year for acquisition was $100 million to 200 million.

Now let me give you some observations on the state of the investments, sales and market. Given the economic uncertainty we are operating in, the investment sales market is driven more by capital closed and fundamentals. Now capital flows which had widened are concentrating again. Fund-raising by private equity funds declined in the third quarter compared to the second quarter. The fund-raising focused on low risk core funds.

Also the debt market has been spay, given that loads to treasuries hit in the past few weeks some under stock quoting spreads and just quoted a rate. Other vendors pull out of the market having fulfilled their allocation for the year. This has had an impact on the transaction market. Sales are taking longer to complete and where once there was a premium for larger transactions these sales are now being broken up or pulled from the market. We will continue to monitor all this activity and as we have stated in the past we will continue to evaluate all opportunities on both the acquisitions and dispositions.

With that, I will turn it over to Rob.

Robert Fenza

Thanks Mike, good afternoon. As Bill mentioned, the third quarter was another solid quarter for Liberty. During the quarter, we executed 227 new and renewal leases for 4,450,000 square feet, our strongest leasing performance of the year.

Again Liberty out leased its competition leasing over four times our local market share and renewing 66% of our expiring leases. Occupancy continued to increase again this quarter rising 40 basis points. Overall prospect activity remains steady for Q3 with several markets activity slowing on the office side; while as some industrial markets continue to strengthen.

Let me now provide additional color on our markets and update the activity in our development pipeline. The office market continues to await significant business expansion and job growth. However, there are some opportunities in certain markets for real estate companies with development and management expertise.

The Philadelphia Navy Yard is a submarket that continues to be relatively immune to the downturn, due to its inherent quality as a new exciting environment and to our ability to carefully meter our product to meet demand without creating oversupply.

In the third quarter, we started another 56,000 square foot office building that we intended to provide a spec product for the market, but Liberty tenant Iroko Pharmaceuticals has leased the entire building. Overall activity in the Philadelphia Navy Yard remained very strong. The Navy Yard is outside the Philadelphia Central Business District, but the CBD is also in very respectable shape.

Yesterday we broke around on a $50 million high rise project office project for the University of Pennsylvania Health System. Penn Medicine has signed a 20 year lease for 153,000 square feet building and is investing $22 million in tenant improvements.

Another active market has been Minneapolis, where there’s solid demand for office, flex, and industrial product. Our strategic planned cost for increasing our industrial platforms in this market and we acquired three industrial buildings here during the quarter. The Minneapolis office market is creating some unique opportunities for the right real-estate. Although there is vacancy in the market large blocks of space are very hard to come by. And there are prospects with significant size requirements in the market today.

During the third quarter we were able to purchase an office campus containing three vacant office buildings, totaling 230,000 square feet well below replacement cost in an off-market transaction. We are working with five prospects that need in excess of 100,000 square feet and one of these is for the entire project.

Moving down to Houston, where industrial activity remains strong we are now 97% leased on a signed basis. During the quarter we started development on two inventory and industrial buildings totaling 212,000 square feet. We were experiencing very good activity with one lease under negotiation and more than 1.2 million square feet of prospects for the balance of the space.

As these projects lease up we will thoughtfully consider selective development on land we own to address the ongoing demand.

Another strong performer for Liberty is the Lehigh Valley in Central Pennsylvania distribution market. While during the quarter, Liberty’s occupancy on a signed basis increased to 99%. Currently our combined prospect activity for both markets includes 20 prospects who need more than 8 million square feet of space. To create much needed inventory and to be in a position to respond to this demand, we began construction of a 972,000 square foot, $44 million highway distribution project along the Interstate-81 Corridor in Carlisle, PA.

In the fourth quarter, we will begin another highway distribution building in the Lehigh Valley. This one totals 1.2 million square feet. Another market where we’ve been very active since the end of the third quarter is Charlotte. As you know, our repositioning strategy cost for selling North Carolina office space and increasing our industrial platform. Earlier this month, we acquired 1.1 million square foot industrial park and another off-market transaction.

The purchase includes, I’m sorry, the purchase increases our industrial footprint in this market and provides a 108,000 square feet of leasing opportunity. You may recall last quarter we purchased a substantially leased warehouse in Charlotte. An option the right to buy an adjacent improved say within four months we landed a built-to-suit for the site to construct a 156,000 square foot industrial building which is 100% leased to American Tire Distributors.

To summarize current development activity including recent activity in Philadelphia, Lehigh Valley, and Charlotte, we now have or will have underway by the end of the year a development pipeline of over 3 million square feet for an investment of $290 million of the new state-of-the-art product in five of our markets. Three of these are build-to-suit office projects, one build-to-suit industrial project, three inventory industrial flex projects and three inventory industrial distribution projects.

In addition to the three recently signed build-to-suits, we have a very encouraging pipeline of build-to-suit deals. In total, we are between the proposal phase, we’re in active negotiations with more than a dozen prospects for nearly 5 million square feet of space.

And with that I will turn the call back to Bill. Thank you.

William Hankowsky

Thanks, Rob and thanks Mike and George. Just wanted to remind everyone, we will be providing guidance for 2012 on a special December 16 – December 13 call. So we’re not showing guidance today. And with that Michele we can open it up to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sloan Bohlen from Goldman Sachs. Your line is open.

Sloan Bohlen – Goldman Sachs

Hi, good afternoon. Bill can you maybe just give us a sense, I don’t know you guys have spoken this in the past, but as we lookout to the next year thinking about the mix of office to industrial and thinking about how should we think about your FFO with regard to the cap rates that we are buying out and the cap rates you will be selling up and just maybe kind of give an sense in aggregate how much you could do on that?

William Hankowsky

Okay, I’ll comment a little bit about that – but we will give you a capital plan on December 13 which will lay out the year for next year, but I do think in terms of use our head, I mean our heads been pretty clear.

We will continue to look for opportunities to downsize the suburban office portfolio and we have indicated in the past I think I’m looking at Mike, between an eight and 10 cap is kind of where those numbers might fall, its where we think that product generally is falling. It depends market and how leased and agent obviously all those kind of factors. So that range kind of picks up. The quality of real estate, we Liberty are thinking of getting which markets were thinking to get the rid of them and moved it out.

We obviously are interested in industrial, this quarter I mean we brought we effectively were added about 4 million square feet between what we’ve got this quarter and the purchased after quarter end and the development we started. So, we want to build that up, and we will build that up both ways, we will build that up by acquisition. And I think in that world stuff is trading, six to eight, six to nine depending again on market quality et cetera.

So if you are in South Florida, data can be very expensive and if you’re in Carolina, it will be a different price, so it will range. And as Rob indicated, you now we build some of those industrial.

So, we’re going to continue this migration and the one product type not mentioning all of that is sort of metro office which we continue to have an interest in. So thinks like the Glaxo buildings, the Roco deal we just did the one that Rob just mentioned Propan. So, we’re going to see some office sort of come in that will have that characteristic when some of the suburban goes out. I’m not going to put numbers on it right now; we will do that in December.

Sloan Bohlen – Goldman Sachs

Okay. And then just on the buy side you guys mentioned a little bit marketing value over the last call 90 days or so. Does that change how you guys think about underwriting with the lease of time or how you get to stabilization on either development or your asset lease ups with regard to going on investing?

Robert Fenza

Sure. Let me put it this way. I think the answer is it can’t change the way we think about it. I mean we have historically always – if we’re doing a development we’re always in an inventory development.

We always add one year from completion, construction completion for lease up and we bill that carry and that expense into our underwriting when we think about the transaction before we even commence it. Now we basically do the same thing with acquisitions. We basically sort of – we’re going to buying this asset. It’s 50% leased. We think the other 50% will get leased over the course of the next 12 months.

This is the way we generally do it. If we think the market is more rugged, we will change those dates. So there have been acquisitions we have made where we have gone as long as two years and said to ourselves we don’t think this is going to get done for two years. But two years of carry into this and when we think about it, we’re going to that analysis, okay that analysis says to us, it’s still worth buying it at this price. That’ll make sense to us.

So we will vary it depending on where we think the sentiment is. I don’t think what’s happened in the last 90 days. At the moment have – would have us markedly changed that. But I think as we said in our opening comments it’s something to pay attention to. There clearly is a little bit of a – there’s something going on out there we need to just pay attention to it and we will, both from the standpoint of how we underwrite and candidly also we think about pricing and we’re pricing. They might comment as there’s been a little bit of movement in the market and we’ve seen some transactions pulled and changed around. And so it feels a little bit like something is going on and we’re going to adjust accordingly. That was my alert, but right comment. We want to be very careful here and very thoughtful. Every week an investment community, we’re going to decide and think about where is the world this week and how should we adjust to it. We’re not set – we don’t sit with rigid numbers for the year.

Sloan Bohlen – Goldman Sachs

Okay. And Bill do you think that from a tenant decision making standpoint if that’s, as I think for the business plans for next year, that’s something that you get clarity on at the end of this year, or is that 2012 type of data point that you get?

William Hankowsky

I think – I think the answer goes something like this. As Rob mentioned, we see this pretty interesting built-to-suit pipeline. So it feels like there are a number of companies who say to themselves, we’ve space needs. We need to solve them generally in a specific geographic location and with a specific square footage configuration. And if it doesn’t exist in the market, would somebody build it for us. But if it doesn’t exist in the quality of the market, we want it to be.

So on the one hand you find that encouraging, that companies are willing to make those as we know those built-to-suit are going to require somewhat decent term or for us to invest our capital and they are into long-term, because they are asking for something that’s for what they want in a place for their business. So that’s one data point.

The other data point is the fact that you’re just talking to businesses, you sense this anxiety, you hear businesses talk about I mean all of us have heard this publicly right, financial service companies talking about having a cut 30,000 jobs from Bank of America and other companies talking about having to pull back, well those things will play out in ‘12. They actually haven’t. It mechanically happened.

So our 2012 business plans going to have less requirements in them, are they going to have flat over 11, are they going to depend by industries, so the tech guys need more and the financial service guys need less. I think that’s all going to have to play out. I think we will have a little bit more clarity, because we talk to our customers a lot. And so I think by year end, we will know from some customers what their plans are for ‘12. And that will give us a sense of it. Yeah.

Sloan Bohlen – Goldman Sachs

Okay. Thank you, guys.

Robert Fenza

Thank you.

Operator

Your next question comes from Gabriel Hilmoe from UBS. Your line is open.

Gabriel Hilmoe – UBS

Hi, guys. Just following up on development stuff. It looks like the yields ticked down a little bit from second quarter. I’m just wondering if that’s the function of the new projects getting added or is anything in your – underwriting on the existing projects that changed it all?

William Hankowsky

It’s the former, it’s the projects getting added. We basically have not changed the under-writing in the pipeline from a quarter ago.

Gabriel Hilmoe – UBS

Thank you.

William Hankowsky

Thanks.

Operator

Your next question comes from Anthony Paolone from JP Morgan. Your line is open.

Anthony Paolone – JP Morgan

Thanks. Bill, we all saw that the trade last week from Duke selling the portfolio to BlackStone. Just curious if you would consider selling a bunch of this suburban office that you have articulated that you’d like to pay back on in a portfolio type trading. If you did, would those trades gone a premium or discount? And do you think there are buyers out there for portfolios?

William Hankowsky

Okay. I think we’ve operated both ways. Earlier this year, we sold a portfolio that was called, Richmond and we sold a portfolio that was called, the Lehigh Valley. So we’ve done – we’ve done in scale.

We’ve also done as we’ve done in this quarter , I mean we sold four in one sale, we sold a single building to a single buyer. So our approach has been – we know we have a sense of product that we’d like to sell overtime. And we make judgments about what’s the – is kind of the best way to get both good pricing and good activity and interest in them and so that could be portfolio and that could be singularly.

So it might be the case I mean and I think we’ve – between myself and Mike, we probably said it four times and I’m not saying we’ve – if we see an opportunity to advance the strategy we will take it. So that could involve the portfolio. And if somebody use our market that’s about a building we will sell it to them. So we kind of do it both ways.

And at least for us we find that, that’s fine and works for us. And it also gives us a kind of – we also invest – again we have seen capacity to buy poor building in Charlotte we will do it and if we see a capacity to buy a single building or build and we’ll do that. So it sort of works from a pace perspective. I mean we are under no pressure to – we don’t need the sales from a capital perspective, the balance sheet is in terrific shape. So we can do it at the pace and when the market lets us feel good about it.

Anthony Paolone – JP Morgan

Got it. And you mentioned 8% to 10% range for cap rates on sales you’ve been pretty consistent with that all year. Just wondering if there’s been any change in the last couple of months if you had to bring a similar group of properties to market like would that have widen out or have you just seen not very much change there?

William Hankowsky

I’m going to make a comment and then I’m going to ask Mike to. But I – let’s be – we are talking from our perspective about suburban office one and two is we’re generally talking about it in secondary markets, I mean we’ve been – it’s in Milwaukee and Richman and Carolina and Lehigh Valley.

So a year ago or maybe 18 months ago, I’m not sure there was a market for that. I mean there weren’t many trades in that space at all. As you came into calendar ‘11 that market sort of evolved and become active and we participated in it. And then I think it remains active. Mike as said it may have pulled in a bit in terms of interest. I’m not sure that its move cap rates a ton. Mike.

Michael Hagan

Yeah I would just add to that. I think there is – right now is probably fewer buyers in the space for – where that could change. And I think if the still buyers some would say that price has to move a little bit, but that gets to a point where it hit a price where, it’s just gets pulled from the markets a opposed to trading. So, quite frankly I’m comfortable that there range that we’ve given we start to is going to be the range.

Anthony Paolone – JP Morgan

It’s not, we won’t do it.

Michael Hagan

As factors could change in the marketplace that change that range but then that’s well said we just we won’t participate there.

Anthony Paolone – JP Morgan

Okay, got it. And then just last question on a more fundamental side you talked about just concerns over business activity going into next year. Is there any way to give a sense has to traffic or showings in the last couple of months and how that maybe compare to a year ago or whether that as has a tends on behalf of businesses has manifested itself yet in those sort of metrics?

Michael Hagan

That’s a good question. I mean this year has been I think kind of interesting. So, we all know that nine and ten were kind of anemic. You come into ‘11 I think showings activity proposals all the things we monitored. We are picking up kind of the first quarter maybe even into the month of June to the second quarter, then it kind of felt like it slowed up.

Anthony Paolone – JP Morgan

Right.

Michael Hagan

And we I think caught in the spring about whether it was the summer slowdown or whether there was something going on. So, the summer kind of slowed up a bit. We had June and August were our two strongest months for signing leases this year. So that’s kind of continued to coming into – now we’re in September and October. On the one hand it feels like activity level has remained there.

On the other hand, you might say to yourself wait a minute, I’m past the summer should it pick up a bit. So it hasn’t necessarily feel like it’s fallen off per se, but it more has a picked up per se. And some sectors you can get some clarity on. So if you’re in – you’re a government contractor in defense in Northern Virginia, you might be sitting on the sidelines waiting to figure out where the federal budgets go.

So you can kind of get that kind of hesitancy. If you are maybe if you’re a financial service company and you look trying to figure out how the new consumer protection agency is going to operate, how shall I organize myself, you might be on the sidelines a bit.

So some of this could be industry specific versus an economic overlay, but I would tend to say it’s and as Rob said, it’s – industrial is clearly hung in there more than office, office feels a little choppier right now. But, on the other hand it could be this uncertainty, it doesn’t necessarily mean their business fundamentals are in of course off, but just looking for some clarity.

Anthony Paolone – JP Morgan

Got it. Thank you.

Michael Hagan

Thanks.

Operator

Your next question comes from Ki Bin Kim from Macquarie. Your line is open.

Ki Bin Kim – Macquarie

Thanks. Just a follow up on Antony’s previous question. How much of your cautious tone has actually checked, is actually stemming from the leasing done for a 2012 already and what clients have been telling you guys?

Michael Hagan

It’s not so much that Ki. If the question is why we are so – our customer is switching back in the field, walking away from a deal that is not happening, I don’t want to feel that is not happening. I don’t want anybody to think that’s what’s happening.

And the people that say they’re working on something, they’re working on something – deals get closed, they proceed. I think what it’s more about is just talking to business leaders over the last 60 days who and as I said there’s a lot of factors that have mixed into this, so people will cite different reasons.

So they could cite government spending, gridlock in Washington, they could cite concerns about the euro in Greece and where capital markets are going, they can cite just generally the economy and unemployment stay stuck in that north of 9. So people will say different reasons and it makes them wonder what’s 12 going to look like.

In some degree they’re trying to plan against that, do they want to be a little conservative because they’re not sure 12 is going to be that exciting. That’s what it’s about. It’d about their conversation, thinking, mindset. It’s not about behavior in the market where suddenly they say people have walked away from something or aren’t doing something. We haven’t seen that as of yet.

As you’re right we are – today we are working on deals that – explorations and renewals that go into 12. We work on those lot of time. I don’t think we’ve – Rob and I just went through – I think every – we’re in the midst of our budget process so we’ve been looking line by line at every vacancy and renewal of the portfolio and I can’t really think of anybody that – either they’re not renewing because we already knew they weren’t renewing for some business reason, but I can’t think that there’s no new wave of that. So it hasn’t manifested itself yet in a lot of direct behavior.

Ki Bin Kim – Macquarie

Okay and just to follow up on that. So far, it looks like your lease spreads, all these new leases were very different from the lease price we got on renewals. And when you look at those mix 2012 I know you’ll not give guidance but do we see this operating and do you think it will get better in 2012?

Michael Hagan

Let me separate that question in two ways, I’m going to ask George to comment on the lease part for the quarter, because there is a little bit of credit behavior that’s driving those. So I don’t want you to misinterpret those as a trend I’ll comment generally.

Robert Fenza

Yeah. Let me comment on that for the quarter and I think you pointed out on new leases and I think you got your numbers from page 10 of the supplement package, but if I could point you to page 11 on the supplemental package you’ll see in the Northeast region there is a big role down in rents on distribution and also a pretty big role down on rent on the flex space.

I’ll deal with the flex one first where it’s a 56% role down in rents, but we’re only talking about four leases and under 60,000 square feet of space so you can get on some small space leases, yes we did have some role down in rents and they were primarily in Maryland and Horsham. I wouldn’t say 60,000 square feet of space in those market speak a trend in where rental rates are going to go for us for 2012.

And for the distribution space it role down by 47%, a big piece of that has to do with one lease it’s for 140,000 square feet of space and that one lease is for a two month period, it was basically empty space that we leased up for two months for seasonal storage. There’s no TI associated with that space at all if you look at the average lease time you’ll see that the average lease time is very short and there was a 67% role down that’s basically there’re still some empty space and I don’t think that as a guidepost for what you are going to see for market rents in 2012.

A roll down for the quarter were 8.6%, I think year-to-date. There are 8.3% our guidance was that would be 7% to 12% for the year. So although those numbers I just pointed out are kind of hopple off the page, roll down we get for the year-to-date are pretty much in line with the guidance we originally gave.

Michael Hagan

And George to the bigger question is generic question of 2012 we’re not going to give guidance. We call it other way mark-to-market if you looked at the portfolio today...

Ki Bin Kim – Macquarie

For the entire day of the portfolio?

Michael Hagan

Yeah, for the entirety, so not giving the same for the entire day.

Robert Fenza

For the entirety of the portfolio, I think that the last quarter we would have said it’s around 10% maybe it had under 10%...

Michael Hagan

Just little better quarter-over-quarter. Not that is similar to these numbers.

Ki Bin Kim – Macquarie

Okay, all right, thank you that was helpful. And the last question, it feels like you guys have developed a kind of a unique strategy of leasing space that you don’t own yet and then buying the buildings...

Michael Hagan

Occasionally, we are lucky yeah. Occasionally works out.

Ki Bin Kim – Macquarie

So I know it’s quite very difficult to quantify it but is this obviously the seller don’t notice and nor should they, but how many more of these deals are you kind of looking at going forward or is it a main strategy?

Michael Hagan

Yeah, sure. I think it’s a great question and I should appreciate the question because I think it speaks very much to the Liberty platform and our theory of how they’re operating this business. So we have our own people in every market we are in and whether they are city managers, leasing property managers, they are of that community.

We know vendors, we know architects, we know engineers, we know our customer base. We might belong to the chamber, we might belong to different organizations, whatever, in these communities.

We are not an institutional owner who owns assets in a community and has gone to a third-party leasing company and a separate third-party property management company. Because that business model is the way you can invest in real estate, it’s great. It will tend to get new behavior that is analogous to the market. If the markets at 35% lease, and you have a good broker you got 35% lease, that’s kind of what happens.

Our theory is to be in a position to beat the market. And sometimes in a sub market by a product type, we might not be there one quarter because of the vacancy or something, but Liberty as a company, our markets speak the national average and beat our markets quarter-over-quarter-over-quarter.

And part of that is being there, so what happens is you’re exactly right. We hear about an opportunity, we hear somebody might need space, we might not have the space, but we also might be aware of a building that’s vacant. The building may have been vacant it was one we have for three years. Our guys know because we are in deal flow so constantly that they say, there is a shot here, get, grab that building. We’d like to be able to find one or two tenants who could take it, sell it fairly quickly.

And there is a little bit of risk in it, right. It’s not like everything is done at a time because you got to get the building tide up before – so excited and made it all come together, but it is an advantage or an opportunity that the model allows us to participate in. And it’s part of our history, because the other part of this is, we’re very open to entrepreneurial acquisitions. I mean when you’ve a team in the field, and you have deal flow, you’re comfortable buying vacant space. I mean we are not again.

We will buy stabilized assets, because it fits the portfolio. It flushes it out, but we’re happy to buy assets that are somewhat under leased or have roll or whatever it has because we’re going to see deal flow that’s with it. So it’s something that our teams know we will do that is, we marry the capital and the investment with the leasing. And so it is something our folks look for. And we’re happy to meet with them and talk to them and find us the opportunities.

Ki Bin Kim – Macquarie

And is it – is it more of – where the tenants have an informal agreement to do that, they’ll take the space once you buy it or do you buy it first and then try to lease it?

Michael Hagan

Yeah, we’re not.

Ki Bin Kim – Macquarie

(Inaudible).

Michael Hagan

We don’t find contingent leases. Let’s say if we own this building and we’re going to lease it that we kind of don’t go that far. I mean what we will know is, we will know that somebody is in the market, we will know that they have a need. We may have talked to them about look if we could find a way to satisfy that need at this economic terms was that certainly would do. Oh yes, you guys could find something at that rent, or we will have a sense of what it’s going to look like, and what they would. By the way, some of this could be with tenants we’ve long-term experience with.

So sometimes what will happen is it’s a customer in two or three other markets, and they come to us and say look we’ve a need in a market. It’s your market, but we’re not one of your customers in that market. If you could find something that looks like this then we will be happy to do business with you.

Why wouldn’t we go and do business with a new landlord, you guys run the buildings great, we can use the same lease we used in Jacksonville and Minneapolis, let’s just do it and so sometimes it happens like that, where you are actually talking to the head of corporate real estate in a company. You are not talking to, I don’t think – we love brokers and we do like to deal with them, we are not talking to the local brokers roughly. You are talking to the customer. So, we all those kind of deals we are talking to customers, we are not talking to brokers.

Ki Bin Kim – Macquarie

Got it.

Michael Hagan

(Inaudible) that gives you the comfort that something can happen.

Ki Bin Kim – Macquarie

All right. Thanks a lot.

Michael Hagan

Sure.

Operator

Your next question comes from Alex Goldfarb from Sandler O’Neill. Your line is open.

Alexander Goldfarb – Sandler O’Neill

Thank you, good afternoon. I just want to go back to Anthony’s question on the Duke buyback trade. Is your view that because of the price – I mean it seems like they are quite a discount to replacement cost. Is your view that now potential buyers of suburban office are going to say hey, I want a Blackstone type pricing or you think, that you know for whatever reason whether it’s their ability to close on a huge transaction that other potential buyers of suburban office won’t be able to get anywhere near that on a price per pound?

Michael Hagan

Look, first Alex I really can’t comment on what the discount was or wasn’t, I mean I don’t know – I don’t know the math of the deal, I don’t know everyone I mean we are in some of those markets with Duke, I know some of the assets from you know they are across the street I know they are good competition to us when they remove the competitors for years.

So I can’t really comment about the pricing. All I’m saying is sometimes in the cycle of capital activity you actually get a premium for scale, I mean there was a period 2000, like 2007 when people need to get capital at the door and they were a little bit pay up for scale. Sometimes it’s to be the other way around, which is the market, there is more competition, more buyers if the packages are more discreet, Mike mentioned in his comments, that we’ve seen a couple of transactions where people took figure packages to market and have to – have to sign it to sell them in pieces, because what they think they will see is that the – there is a lot of people who can buy $200 million rate of real-estate and there is very few who can buy a $1 billion.

So, the $200 million we’ll get price that are because there will be good competition for us. So, for us we’ve just it’s different when I think it’s better idea or worse, it just works for us, we are happy to be patient on this. What we find at doing this and kind of $100 here $200 there, a single building of 20 works for us.

There seems to be enough on the market, that it clears and we’re able to get like – like Mike said, the one set of the Milwaukee sold for about a 20 square feet, the Greenville asset was about 174 square feet, that’s nice. So, we’re happy to kind of wait and try to find those plots and make – and have it make sense. I don’t see that role of discreet single assets more portfolio in markets significantly change by the duplex deal is going to do.

Alexander Goldfarb – Sandler O’Neill

Okay. So, from your comments it doesn’t sound like buyers are suddenly saying, hey this is the new mark, this is the new mark for where stuff should trade, sounds like basically very – as you explained very few at – at that size ticket. So, for the smaller ticket there is still a premium?

Robert Fenza

I think Mike called it when – what’s going to change those pricings , that cost of debt – cost of debt and how people look at fundamentals that’s what changes the pricing.

Alexander Goldfarb – Sandler O’Neill

And unfortunately right now it sounds like we’ve to model through a little more this uncertainty for a bit on that stuff. A separate question although relating to that is for George, you guys just your reside line of credit clearly resided ahead of when it was due, the way rates and terms have been coming in it almost seems like pretty soon the banks are going to be paying REITs to borrow money. Where you started the conversation with the banks to where you ended up, how much better did the terms improve for you guys?

Robert Fenza

It’s really an upgrade in the middle.

Michael Hagan

Yeah, you are setting aside that we might have moved the spot on the grid because of the upgrade right, but it’s – I think it’s pretty common knowledge out there what deals are closing for and our numbers were always in the mix of what current market was and the deal that we just closed was at what some would suggest would be current market. I can’t remember exactly when we started the conversations, but during the course of the conversations from the closing table, the market moved down modestly and our numbers moved down modestly with market.

Alexander Goldfarb – Sandler O’Neill

So what would you say like 20 basis points they moved down, and I’m just trying to get a sense of...

Michael Hagan

I didn’t say and – but I can’t remember perhaps it was 20 basis points, I don’t know exactly – I can’t recall exactly. Some conversations were quite casual and some conversations were yeah we really had to get around to redoing the line and somewhere let’s actually go out there and start. So it all depends when you pick your starting point.

Alexander Goldfarb – Sandler O’Neill

Okay, that’s helpful. Thank you.

Michael Hagan

Thanks.

Operator

Your next question comes from Brendan Maiorana from Wells Fargo. Your line is open.

Brendan Maiorana – Wells Fargo

Thanks, good afternoon, and maybe George I’ll just stick with you for a second. So next year you guys have the unsecured maturity, I think it’s $230 million, how do you – I mean the unsecured market is pretty challenged right now, how do you think about what your capital plan could be? Do you think about – may be using a term loan as opposed to an unsecured issuance if the markets kind of remain choppy the way they have been?

George Alburger

Well we’re not at that point in time where we really have to make that decision. That maturity isn’t until August. We have a lot of capacity on our credit facilities, so we could always use our credit facility.

We recently have had dialogue with all the banks that are in our line, it isn’t quite what Alex said whether you’re going to pay us to take money, but an unsecured term loan from a bank – they’re not going to go out 10 years, but is viable alternative then we do keep on top of that market I did mention, we have capacity on our credit facility and we don’t have to make the decision right away. Another element of funds available are proceeds from asset sales to which we also have to take into consideration. So when we lay out the guidance in December 13 we also kind of lay out the capital plan too.

Brendan Maiorana – Wells Fargo

Okay sure fair enough. And then for Bill I am sorry if I – you said it, maybe I missed it, just relative to kind of where you were thinking quarter or two quarters ago.

Doing development and I think you had mentioned maybe that May or in June that you guys wanted to be ahead of the curve in terms of development in new demand. And you’ve got the Speck projects that’s coming in the Lehigh Valley in Q4. And you’ve done – you have Speck out of the ground, now in Houston and Lehigh Valley as well have. Going forward if we’re at this point at some point next year where the market dynamics are similar. Are you still comfortable putting spec out there or does the macro cause you to rethink that a little bit, maybe dial back a little on the risk curve?

William Hankowsky

Well, I think right now, we are about where we want to be on the risk curve and what I mean by that is in three markets where we think there is interesting demand and supply imbalance issues, those are Lehigh Valley, Central Pennsylvania; Navy Yard in Houston, we have brought products into the market and they passed two tests. One test is that Liberty itself is well leased, so all of those three situations we are in the 95%, 96%, 97%, 99% lease.

So we ourselves are out of product and by the way if we can buy something like we did, we bought an empty building in Lehigh Valley that can fill that need, we bought something in Houston to build. So there’s various ways to deal with this, that first question, which is does Liberty have product on the shelf available to our customers.

The second is where is that market? And if that market happens to be in a situation where it itself is relatively decently leased and more importantly in the product type and our size there happens to be no opportunities then what you sighted is something we will think about which is that first leader – first mover capacity that to make something happen. Now that we’ve done it, we need to get them leases. So we have product, where we wanted and these are the markets that we think that situation exist. So I agree we would get those lease quickly or well or whatever and we see continued demand behind it and maybe we do another one.

But we wouldn’t necessarily do another one before we would see activity where we are. So I think we are comfortable that they match the demand in the markets. The markets hopefully will demonstrate to us that we were accurate in that and then we’ll continue the pace. There’s very few. I have hard time thinking about these situations where we might do that right now.

Brendan Maiorana – Wells Fargo

Sure.

William Hankowsky

I think we’re kind of exactly where we want to be.

Brendan Maiorana – Wells Fargo

And your return expectations are pretty consistent from the summer?

William Hankowsky

Yeah, I think so. Yeah.

Brendan Maiorana – Wells Fargo

Okay. And then just lastly on the build-to-suite pipeline that you guys have the 5 million square feet of potential either in negotiation or proposal stage what’s the breakdown sort of between office and industry?

William Hankowsky

It’s more industrial (inaudible)

George Alburger

It’s primarily – of course you have this – on a square foot it’s predominantly industrial, 70%, 80% remembering that office building costs more.

Brendan Maiorana – Wells Fargo

Right.

George Alburger

So maybe that’s more 60%, 40% on an investment dollar basis but it’s predominantly industrial.

Brendan Maiorana – Wells Fargo

Okay. Thank you.

George Alburger

Thank you.

Operator

Your next question comes from Michael Bilerman from Citi. Your line is open.

Josh Attie – Citi

Thank you. It’s Josh Attie with Michael. Can you talk about the fourth quarter guidance of $0.61 to $0.64, it’s below the third quarter run rate of $0.65 and a penny of that is land sale gains and it sounds like a penny is a $1.2 million reduction NOI you mentioned due to acquisitions dispositions so that would bring the number 63. Can you talk about what assumptions you need to make to bring it to 61 at the low end?

George Alburger

I mean it’s a range, I mean is it 63 or is it 62.5 and you put a penny on either side of that range is essentially what we’re doing. I mean there’s a verity of things in there. The term fees can bump up or down, just a verity of modest items. I mean a penny we can move that with – can change based on rounding.

Josh Attie – Citi

And as you think about what the run rate should be heading into next year if it’s 61 or 62.5. How did you – the properties that you bought that are low leased, how did you underwrite the lease up of those properties? Is it a six-month period or is it 12-month period, just to help us think about how we should model 2012?

George Alburger

We basically – let me – there is two aspects for this, Josh. One is, in terms of how we underwrite. So when we acquire an asset, generally the rule is, or if we develop an asset on an basis, generally the rule is, we’re going to put into that one additional year of lease up.

And we’re going to assume it’s, the way we think about it just from a discipline standpoint it is empty until the 12th month last day, and so we put the carry in and we think about that cost as a cost in the project and are the returns – were they its justified impact, that’s what happens.

And so then, depending on when we buy stuff or we commence activity, we’ll drop it – it will drop into our year as we build out guidance and of course, we are not doing 2012 guidance. So – but we’ll walk you through all of that in December about – where we see things and where we see things falling out.

Michael Bilerman – Citi

I guess it does – Michael Bilerman speaking.

Robert Fenza

Hey Mike.

Michael Bilerman – Citi

I guess when you think about where the Street sits today, the Street is up at like 265, which is almost $0.68 a quarter, relative to $0.61, $0.64 sort of run rate. Obviously, you’re going to get a little bit of lease up from these acquisitions where you had call it $0.01, $0.015 drag in the quarter, but that’s a pretty wide delta. And I’m just – as you try to synthesize the Street for next year, I guess what are the things should we be thinking about as ways to gap up to where consensus appears to have formed right now?

Robert Fenza

Well. Again, you’re – I appreciate the question, but I also appreciate we haven’t put guidance out. So it puts us in a tough position to fully sort of address that. But I think there is a simple premise that everybody should just – which we’ve had out there. So this premise is not news.

The simple presence or the simple premise, excuse me, is that we’re in the mode of downsizing somewhat our suburban office, we’ve been selling that. They has been relatively well leased which yields, capacity gets some decent pricing. So we’ve been selling office rents a little higher at relatively well leased out of the portfolio over the last several quarters. That may happen – that may continue to happen as we continue that securing the strategy.

And we tend to be replacing that from an investment dollar perspective with development, but it could be a built-to-suit which is great, but it’s not going to commence right until the fourth quarter of next year, or the first quarter of ‘13 or something or we are buying stuff that’s under leased and it’s going to take us a while to get there. So we’ve always talk, excuse me, talked about bridging the sales activity with the investment activity.

And one would assume that that would create somewhat of an earnings valley until you get from one end of the valley to the other end of the valley. I think that’s kind of the way I think about it a little bit. George, anything you will add to that.

George Alburger

I think, I have it – no, no that’s fine.

Michael Bilerman – Citi

Okay. Thanks. And one quick question on development, I think you mentioned that the pipeline would be $219 million at the end of the year, versus $170 million at the end of the third quarter. Could you just review what’s been added to it?

Robert Fenza

Sure. Rob walked you through three – I think three discrete projects, one was a built-to-suit for American Tire in Charlotte, it’s about 8 million bucks, one is the groundbreaking we had last evening with the Penn Medicine system for 50 million for 153,000 square foot office building in Centre City Philadelphia; and the final is an industrial building in the Lehigh Valley for 58 million.

Michael Bilerman – Citi

Great. Thank you very much.

Robert Fenza

Yeah.

Operator

Your next question comes from Jordan Sadler from Key Bank Capital Markets.

Your line is open.

Jordan Sadler – Key Bank Capital

Thanks guys. Thanks for hanging in there. Quick question coming back to the Blackstone deal, you’ve been completely clear in the desire to accelerate sales or investment activity should the opportunity present itself, so are you still with that premise. But my curiosity is what is the magnitude or the size of a call it suburban office portfolio that you would be willing to punt for lack of a better word, if the opportunity were to presented itself?

Robert Fenza

Do you say punt in terms of what I would sell or what I would say I’m not selling. Thank you very much.

Jordan Sadler – Key Bank Capital

Sell.

Robert Fenza

I think, I don’t, if – I guess a couple of points come in there, one is just the ability for somebody to execute on, so we saw it in our transaction you can get to a closing. And then I think if its multiple markets and you got to price of real estate accordingly and if you think you’re getting a fair value then you execute on it. If you think that you can do better by holding onto it for a while then we will do that.

Jordan Sadler – Key Bank Capital

I understand your thought. Just curious in terms of magnitude what the size – I know we’ve talked about in terms of square footage where you want to be positioned, but I’m talking – is there a $1 billion or $2 billion portfolio inside of Liberty, just a rough guide those?

Robert Fenza

I don’t think so. I think look, we signed a couple of deals, the Richmond deal was close to $100 million if I remember, but we have valid deals about $125 million, we saw other deals in $40 million and $50 million chunks. Could I see us doing a $200 million deal or...

George Alburger

Yes.

Jordan Sadler – Key Bank Capital

Right, I could.

George Alburger

But it’s more – that’s the way we’ve been doing it right?

Robert Fenza

In pieces we told you it’s in pieces.

Jordan Sadler – Key Bank Capital

I guess I’m curious in terms of dollar volume on the sales front though, how far the way are we?

Robert Fenza

Well, I think, if you ask me a different question I might give you a different answer. One of the questions sometime people ask us is how much of the portfolio is part of this suburban office that you would like to – doesn’t quite fit, right. And is there a couple of million square feet maybe, because remember our idea of changing the mix is both some sales and having more industrial adding more development, a denominator effect. So for us to get what we want to get isn’t just by subtraction, it will be some more subtraction, but there will be a lot of addition. So I’m not sure...

Jordan Sadler – Key Bank Capital

I see the addition part, right, I mean you’re building up the development pipeline, you are making acquisitions, that’s going to be a gradual I understand that. I’m just – I’m curious what’s the stuff that’s been tagged as?

Robert Fenza

That’s what I’m saying, I’ve already I thought I give you some sense. My sense of that is, is there 1 million, 2 million square feet, couple of million more square feet, but what I’m saying is, we are not – we’ve never said we are getting out of suburban office. So we’re going to have suburban office in the portfolio we like what we have in the Philadelphia market, we like it when we have in Minneapolis. There are places we like it. So for us to get what we – where we want to go isn’t that much further.

Jordan Sadler – Key Bank Capital

Fair, that’s fair. The other question I had is on development as it ramps up, I’m curious where you stand in terms of capitalized overhead today George and as the development pipeline by builds back up, what sort of – how much G&A could shift into the capitalization bucket. If you’ll thereby pushing that G&A down?

William Hankowsky

I’m going to let George comment if you want, but there is an overriding piece here. Just remember how this company is setup. We talked about the platform a little earlier with someone about the question about how we access opportunities.

Our development expertise is going to – I’m so glad that Board has set it up this way, it’s buried in the company, so Rob has got it, Jim, and our City Managers each have, and our regional directors have it, and our leasing people have it, so it’s not as if we had a separate construction company or a whole group of folks off to the side that either – I have been sitting there, burning G&A or whatever, so to the degree we start development – yeah, you do some capitalization, but there’s not something piece of the company that’s sort of sitting there and waiting to get capitalized. It’s integral to the whole company how we pull off this development so.

George Alburger

No, that’s correct. In other words, Bill just mentioned. Rob’s got a great deal of development expertise. Yes he does, but Rob’s the Chief Operating Officer, we’re not going to capitalize Rob. Rob’s doing a lot of things other than that, but he has development expertise as to the Regional Directors and the like. So, there is not a lot of people sitting around waiting for development projects to come in, so they don’t get charges with G&A and they otherwise get capitalized. To just give you a sense of it, we have $171 million development pipeline now. There is less than $0.5 million that has been -was capitalized in the past quarter.

Jordan Sadler – Key Bank Capital

Okay. That’s helpful. Yes, I was looking back to ‘06 G&A, but I realized there has been a lot of changes since 2006.

George Alburger

Yeah.

Jordan Sadler – Key Bank Capital

At ton of G&A back then that was being capitalized is your point.

George Alburger

Well, we probably had different...

William Hankowsky

One thing is on the Comcast Center there was a team.

George Alburger

Yeah, we had a team on the Comcast Center and that team was assembled for that particular unique project.

Jordan Sadler – Key Bank Capital

Okay. That’s helpful. Thanks guys.

George Alburger

Thank you.

Operator

Your next question comes from John Guinee from Stifel. Your line is open.

John Guinee – Stifel

Hi. Good afternoon guys, this is actually (inaudible) from Stifel. Thanks for taking my questions. Basically first one was, the first quarter and third quarter CapEx costs appear to be that they were lower than expected. At that time you were covering the dividend, correct? And can that continue?

George Alburger

Well, we converted dividend all year each of the three quarters. I think we’ve been I think it’s the same answer that somebody asked us about, we’re trying to get...

William Hankowsky

Yeah.

George Alburger

– full guidance out of this. But the – we are selling relatively well these suburban office space to a degree that continues and we put it in development and we put it in under-leased assets even end up with an earnings gap. That gap will exist we think in 2012 for a couple of quarters as that transition happens. It’s still we think it’s out there. We think it’s a $15 million to $20 million.

William Hankowsky

That’s correct.

George Alburger

Cost expense how we want to put it will drop itself in some way over the couple of quarters. We’ll probably bring – even greater clarity on that in December when we give you guidance. But we think that’s still probably something that is going to happen out here.

John Guinee – Stifel

Okay. And then it appears if you look at page 14 and yourself there kind of some high rental rates across all categories of the assets class or the portfolio that will be rolling between 12 and 14. Do you think your 10% negative mark-to-markets will actually increase or do they have the potential to decrease?

George Alburger

Yeah, I mean, I know we have a big portfolio, but at times it’s not quite as homogeneous as you think. I mean you have real estate in different markets and different rents in different markets and on the flex products it can be quite different in terms of what’s rolling in the flex spot. So I think the guidance we just gave is which is our mark-to-market is slightly under 10% is still legitimate number.

Unidentified Company Representative

Understanding...

Unidentified Company Representative

Understanding entirety of that portfolio...

George Alburger

Because it is thought of by these products and by where they are.

John Guinee – Stifel

Okay. Thank you.

George Alburger

Okay.

Operator

Your next question comes from John Steward from Green Street Advisor. Your line is open.

John Steward – Green Street Advisor

Thank you. Bill if I could come at the suburban office question from a slightly different prospective. I realize you don’t typically talk about individual transactions

But given the strategic direction here I think it is important. If you look at the Minnetonka office properties, which you brought during quarter for 90 bucks a foot and it’s helpful that you shared with us today that you never said you want out of the suburban office business. But clearly that trade runs contrary to what you’ve articulated. So my question is, what do you think is – I guess first of all you’ve given 86, stabilized yield across the acquisitions for the quarter. What do you looking at on vacant suburban office and what do you think is an appropriate to entice you to make that contrary and trade?

Robert Fenza

ISure, I’m going to answer that, but first I think we might have once fact wrong in your question. Mike what was it for a pound yet?

Michael Hagan

I think, I think you said we upgraded for $90 a pound did we hear you right, because I think the numbers about 45 or 46 I do some quick math and check that. But I think it’s 230,000 square feet and we bought that for about $11 million. It’s not higher than George? But we’re in a low to mid 40s on a per square foot basis on those buildings if I recall.

Robert Fenza

And then there’s (inaudible)

John Steward – Green Street Advisor

Yeah. So John if that’s, what is it?

Robert Fenza

Yeah. So John just – but here’s the theory here that it comes to what question was asked earlier in the call about business opportunity in a market. So we think these are some assets in a market we are very active in that we are able to pick up at significantly below replacement cost.

We think there is deal flow in that market that could create an opportunity for us to lease or even like sell to people who have particular needs these assets at a significant profit that we will – that our shareholders will enjoy. And are they going to be long-term holds for Liberty, I’m not sure. I think what they are, is they are very near-term opportunities that create some significant value that we think is in the market.

There are five potential transactions that can take all or part of that real estate that sit in that market and as Rob mentioned in his comments there aren’t a whole lot of blocks of space that can address those five concerns. So we hopefully will be – hopefully will be good at it and look at it, and we think can happen can happen, and I think you will find once the whole story is written that these might well have been pre-assured investments.

John Steward – Green Street Advisor

So if that comes to that’s really what’s your unlevered IRR on this field?

Robert Fenza

Jesus.

Michael Hagan

If we can celebrate we think we’re in the low to mid-teens.

Robert Fenza

Yeah.

John Steward – Green Street Advisor

Okay. That’s helpful. And Bill you referenced that some of the curtailing of business plans has been industry specific and you cited financial services and defense. And so if you were to go through your tenant roster by SIC code, what would you – what percent of your tenant roster would you say is on strike today?

Robert Fenza

Well, okay. I don’t think I can answer that in the sense that I have done it therefore can save a percentage. I want to be very clear though, when I was talking about, and I want to make this distinction, I’ve tried it earlier, hopefully I was successful, but I will do it again to make sure. I’m talking about sediment prospectively not behavior today. When I was citing defense that’s behavior today.

Now as they’ve real issues about where is the federation government going and what should we’ve be doing in all that, I think that story is pretty well known in the kind of Northern Virginia marketplaces like that.

So that’s not that’s not – that’s something a surprise to you. But what I’m talking about are our sectors where people are expressing a nervousness about where the world is going, that hasn’t been effected how they are making decisions, but it might.

And I just want to get on the radar screen that it might and we should, we all need to pay – we for surety to pay attention to it, but I want sort of a brick getting out there a bit, this anxiety could manifest itself, and how people write their 2012 business plans and there could – therefore, it could manifest itself and how people think about leasing space and what their needs going into ‘12. And so the number of people who are immediately affected I think are fairly discrete industries – financial services, defense, the couple I said it.

So, once who it may affect going forward, I think could be a number of sectors, much more widespread. So, but at the moment I don’t have like is it half or two-thirds or kind of thought about a split like that (inaudible).

John Steward – Green Street Advisor

And that’s helpful. Thanks. One last quick one if I may. First of all, can you give us a little bit of color on the structure of the hotel project that was announced at the Navy Yard? Is that a ground – see developer what’s the story there? And also just a quick update on the development site in a fully CBD place?

Michael Hagan

Okay, sure, both. The Navy Yard site candidly Liberty has almost no rule in the sense 18th and Arch is the developer. They will provide their own financing. We are re not the key developer.

We don’t have a rule. The reason we’re part of it is it’s within the confines of area where we have the development rights. So, we have the designate develop for the Commerce Center. It makes sense to us into PIDC who is the public entity that there’ll be a hotel amenity. So, it required us to participate in the sense of “allowing someone to build something on site we have development rights for”. There is a little bit of economic consideration for that, but it’s not meaningful, I mean in big scale -nobody. But we don’t have an ongoing rule. It’s just trend. It’s like a land transaction. They won’t see and that’s it.

18th and Arch, which is the Center City Philadelphia site U.S. about, I think we were fairly clear what the situation is there and entity to which we are affiliated has acquired that site. It was acquired with funds provided by third parties. It is not on the Liberty balance sheet. And where there are plans about what’s going to happen with it, we’ll let everybody know.

John Steward – Green Street Advisor

Okay. Thank you.

Michael Hagan

Thank you.

Operator

Your next question comes from Vincent Chao from Deutsche Bank. Your line is open.

Vincent Chao – Deutsche Bank

Yes. Hi everyone. Just a follow-up question on the volumes that you’ve talked about earlier in September and October being sort of flattish to August when typically there will be a seasonal pickup. I mean can you just remind us what you would normally expect in terms of seasonality from August to September and then maybe September into October?

Michael Hagan

Okay. I want to be again, in terms of I feel like I’m – hopefully I reminded – I just want to remind you what I said. We had June and August the two best leasing months we had. So what happened was we thought this summer was going to slowdown and it didn’t. And so we now go into the fall, and it feels the same as the summer which was a better summer than normal, but the fall didn’t pick up. So it’s kind of stayed where it is. So I don’t want you think it’s like totally anemic. It’s just, there was no bounce. But that’s okay because they were pretty decent months, as I said. The three summer months, two of them were the best months we had in the year in terms of signed new leases.

Vincent Chao – Deutsche Bank

Okay.

Michael Hagan

So it’s – what I’m saying as there was no further bounce, it’s kind of playing out where it is.

Vincent Chao – Deutsche Bank

Okay. So I mean if you normalize July and August, I mean it seems like things are just sort of on track versus at typically level?

Michael Hagan

Yeah, when I look at what we’re doing on average per month this year, we’re signing and again, we announced commenced leases that’s the 4.5 million we announced this quarter. But we were signing a million, a million plus per square feet, that’s sort of where we’ve been. 1 million to 1.3 million is kind of a monthly average.

Vincent Chao – Deutsche Bank

Okay. Thanks. That’s all I had.

Michael Hagan

Okay, great. Thank you.

Operator

(Operator Instructions). Your next question comes from Daniel Donlan from Janney Capital. Your line is open.

Daniel Donlan – Janney Capital

The American Tire development and then the – I think you said $58 million Lehigh Valley development. What is the completion time for those?

Michael Hagan

I don’t know.

Robert Fenza

It should be in the supplemental.

Unidentified Company Representative

No, no they have made.. that’s written on the supplemental, because we have (inaudible)

George Alburger

American Tire is -American Tire is, this is George , American Tire is mid-2012 and the big building in Lehigh Valley is early 2013.

Daniel Donlan – Janney Capital

Okay. And then the Penn Medicine building?

George Alburger

Also I think first or second quarter of ‘13.

Daniel Donlan – Janney Capital

Okay. And then I’m sorry if I missed this too...

George Alburger

Second quarter of ‘13.

Daniel Donlan – Janney Capital

Okay. And I’m sorry if I missed this, did you give the cap rate on the Crosspoint Center?

No. We don’t give individual transactions, might gave you a roll-up for the quarter which was...

Michael Hagan

For the year...

Daniel Donlan – Janney Capital

I’m sorry for the year which was...

George Alburger

Year-to-date 88%.

Daniel Donlan – Janney Capital

Okay. Thank you.

George Alburger

Thank you.

Operator

And there are no further questions in queue. I’ll turn the call back over to the presenters for closing remarks.

William Hankowsky

Thank you everyone and I appreciate your attention and we’ll talk to everybody on December 13. Thanks.

Operator

This concludes today’s conference call. You may now disconnect.

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