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Executives

Dennis D. Oklak - Chairman of the Board, Chief Executive Officer, Director

Robert M. Chapman - Chief Operating Officer

Howard L. Feinsand - Executive Vice President, General Counsel

Mark A. Denien - Chief Accounting Officer

Randy A. Henry - Vice President of Investor Relations

Shona L. Bedwell - Investor Relations Contact

Analysts

[Irwin Gossman] - Citigroup

Michael Bilerman - Citigroup

Louis Taylor - Deutsche Bank Securities

Sloan Bohlen - Goldman Sachs

Paul Adornato - BMO Capital markets

Chris Haley - Wachovia Capital Markets, LLC

[Michael Vernot - Green Street Advisors]

David Aubuchon - Robert W. Baird & Co., Inc.

Mitchell Germain - Banc Of America Securities

James Feldman - UBS

Duke Realty Corporation (DRE) Q2 2008 Earnings Call July 31, 2008 3:00 PM ET

Operator

Welcome to the Duke Realty quarterly earnings conference call. (Operator Instructions) At this time I will turn the conference call over to your host, Shona Bedwell.

Shona L. Bedwell

Welcome to our quarterly conference call. Joining me today is Denny Oklak, Chairman and Chief Executive Officer, Bob Chapman, Chief Operating Officer, Howard Feinsand, Executive Vice President and General Counsel, Mark Denien, Chief Accounting Officer, and Randy Henry, Assistant Vice President of Investor Relations.

Before we make our prepared remarks let me remind you that statements we may make today are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. Some of those risk factors include our continued qualification of the REIT, general business and economic conditions, competition, increases in real estate construction costs, interest rates, accessibility of the debt and capital equity market, and also other risks inherent in the real estate business. For more information about these risk factors we would refer you to our 10K we have on file with the SEC dated February 29, 2008.

And now for our prepared statements I’ll turn it over to Denny Oklak.

Dennis D. Oklak

I do want to welcome Mark Denien to the call. Most of you don’t know Mark so let me give you a little of Mark’s background. Mark’s been with us for three years. Prior to joining us Mark was a partner at KPMG and worked on the Duke account for 16 years. I’m pleased to have Mark here with us today.

During the second quarter we began to see the effects of the slowing economy. Our gross leasing activity in square feet during the quarter was down from our record activity of 2007. Year-to-date through the first six months of 2008 gross leasing activity is down about 11% from 2007. Despite the slowing we made good progress on our overall occupancy. Total occupancy including all properties under development increased by 1.2%. We made significant progress on our under development portfolio which increased by nearly 11% to 42% pre-leased. Also our stabilized in-service portfolio moved back to over 93% leased. Including our built-for-sale pipeline we are 63% pre-leased, overall a $9.4 million square feet of development.

Despite the slowing we were able to complete some significant deals in the quarter. As I mentioned on last quarter’s call, in April we signed a 513,000 square foot lease with Amazon.com to fill our new industrial building at our Goodyear Crossing Industrial Park in Phoenix. We also filled three other new industrial buildings during the quarter. We signed a lease with W.W. Grainger to take 100% of a 230,000 square foot redevelopment industrial building in Chicago. In our Braselton Business Park in Atlanta Mitsubishi leased 265,000 square feet to fill the remaining vacant space in our Progressive Lighting building. And in South Florida Research in Motion, a maker of all your Blackberries, signed a lease for 60,000 square feet to take two-thirds of our Sawgrass Point 2 office building which is still under construction. And I’m pleased to say that yesterday they exercised their option to take the remaining space in the building. So they’ll occupy 100% of that building.

July has also been a good leasing month. During the month we signed two additional South Florida office leases with the GSA totaling 130,000 square feet. We’ve now backfilled nearly all the space we took back in the South Florida office market last year from two large lease buy-outs. And as you’ll recall I mentioned on last quarter’s conference call that the Bombay Company bankruptcy resulted in its termination of 300,000 square feet in a bulk building in Indianapolis. We’re pleased to report that in July we signed a 600,000 square foot lease with a logistics company to backfill the Bombay space and another 300,000 square feet of an expiring tenant. Beginning September 1 they will occupy the entire 600,000 square foot building. These two leases increased our stabilized in-service occupancy by 70 basis points to 93.8%.

We also signed two significant build-to-suit transactions during the second quarter. In St. Louis we signed a 10-year 146,000 square foot lease with Elserver at our Riverport Business Park. We also signed a 200,000 square foot 20-year lease with the Veteran’s Administration for a new clinic building in Fort Worth, Texas.

In looking across our markets the bulk distribution business in general is a little on the slow side. Our occupancy however continues to be solid. All of our markets have bulk industrial stabilized in-service occupancy of 93% or more except Nashville and Dallas. Nashville’s vacancy relates almost entirely to one building. In July we signed a lease for 50% of that building. In Dallas industrial activity has clearly slowed from the past couple years but we did sign 550,000 square feet of leases during the second quarter in Dallas and we have a solid pipeline of prospects.

I would also note that activity in the Midwest on the bulk side is still very good. Our Midwest markets of Cincinnati, Columbus, Chicago, Indianapolis, Minneapolis and St. Louis are all between 94% and 100% leased in our stabilized properties.

We believe that industrial activity will continue to be slow during the second half of the year. The good news is however that the construction starts for bulk product in all of our markets is down and new deliveries should be manageable. So our expectations are that overall market vacancies will increase somewhat but will remain in pretty good shape compared to historical numbers.

On the office side the market’s similar. Leasing is slower but still pretty good in most markets. Again, new supply nearing completion or under construction is constrained basically in all of our markets. We continue to pursue solid office build-to-suit projects for major customers indicating to us that the economy still has solid underlying fundamentals.

Overall for all product types lease terms, capital expenditures per square foot, and free rent as a percentage of lease terms have not deteriorated from 2007. Same-store growth for the second quarter was 2.23% solidly within our guidance.

The healthcare business remains very strong. We continue to see opportunities with major hospital systems across the country. We’ve now signed two projects with Baylor Medical Center in Dallas, the Ascension Group of hospitals where we are one of four preferred providers continue to grow their medical office needs in their system in the East and Midwest, and other major systems such as ACA tenant in Trinity continue to provide us with opportunities. We’re extremely pleased with our position in this market and our opportunities to grow.

Our speculative development starts continue to be low. No projects without significant pre-leasing were started during the quarter. We anticipate very limited or no speculative starts without significant pre-leasing for the remainder of 2008. But we’re still comfortable with our guidance of $750 million to $1 billion of new development starts for the year due to continuing build-to-suit and healthcare business.

We acquired another fully-leased property in Savannah this quarter. There are two more properties which are 100% leased that we will acquire before year end. Our portfolio in Savannah is 100% leased on a long-term basis and almost all of these projects were pre-leased before construction began. We continue to favor Savannah’s long-term prospects. With the deepening of the ship channel and the expansion of the Panama Canal to be completed in the next few years, we expect the activity at the Port of Savannah to continue to grow.

The disposition market continues to be challenging as the debt markets are still in turmoil. We did complete our first closing into our new joint venture with CBRE Realty Trust during the second quarter. The venture acquired Buckeye Logistics Center in Phoenix, a 600,000 square foot distribution center leased to Amazon.com. Other closings anticipated for the venture later this year are on track. Our other distributions during the quarter were one-off projects from throughout our system.

On the capital side we are in good shape. We completed a $325 million 5-year unsecured debt offering in May at very competitive pricing. The spread to the treasury was 312.5 basis points and the final rate was 6.26%. We’re fully funded for all of our committed development starts before any anticipated property dispositions including the CBRE joint venture sales.

One other item of great news for us this quarter is the addition of Lynn Thurber to our Board of Directors. Lynn is the non-Executive Chairman and former CEO of La Salle Investment Management. Lynn has had an extraordinary career in the real estate industry at La Salle Investment Management, and prior to that as CEO of ABKB Realty Advisors, and prior to that served in the real estate and asset management groups at Morgan Stanley. We look forward to Lynn’s counsel going forward.

We are also pleased to announce our 15th consecutive annual dividend increase yesterday. This increase of $0.02 per share will be effective with the quarterly dividend payable in August. We continue to focus on reducing our funds available for distribution payout ratio. In 2007 we came in at 85%. Our target for 2008 is again to be under 90%. Ultimately we would like to maintain that ratio in the mid-80% range so we will monitor our dividend increases accordingly.

Our guidance for FFO per share for the year is $2.60 to $2.90. Based on our current expectations for the remainder of the year we anticipate being in the lower end of that range. The primary reasons for being in the lower end of that range are lower lease buy-outs, lower land sale gains, more conservative lease-up assumptions, lower third party construction revenue than originally anticipated, and the impact of continued uncertainty in a capital market on property sales. The decline in lease buy-outs is somewhat surprising to us. Typically in a slowing economy we have a number of tenants usually on the office side approach us about terminating their leases early to downsize their space and reduce overhead costs. So far this year we have not seen that happen. We believe this is a positive sign because when the economy turns around, which it eventually will, the need for space should accelerate quickly. The lower land sales and third party construction fee estimates are based on lower market activity that we have so far and anticipate for the remainder of the year. I would also point out that FFO for the second half of the year will be skewed towards the fourth quarter. Most of the remaining properties to be contributed to the CRVT joint venture will be completed and closed during the fourth quarter.

The CFO search continues to progress. We’ve interviewed eight candidates and are in a round of second interviews. Based on the quality and experience level of all the candidates we still believe that we’ll fill this position during the third quarter.

With that we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first call comes from Irwin Gossman & Michael Bilerman- Citigroup.

Irwin Gossman - Citigroup

Denny, can you get back to the development start guidance of $0.75 billion to $1 billion per year and break that out between build-to-suit and healthcare and tie that into the volume of build-to-suit starts that you’ve achieved already in the first half?

Dennis D. Oklak

I would tell you that I don’t have the exact numbers in front of me of course because we don’t have the final starts for the year because we’re still working on it, but I would tell you that I would say the held-for-sale and held-for-rental split out will be about a 50/50 which is pretty close to where it’s been the last couple of years. And if you look at the product type, on the healthcare side and we said this before we anticipate healthcare starts to be roughly somewhere between 40% and 50% of our starts this year. And then in addition on the build-to-suit side, I would say based on things we’ve seen today that it would be a little skewed towards the office side. We seem to have more office build-to-suit opportunities today than industrial.

Michael Bilerman - Citigroup

And Denny if I can be considered a caller with a question, I just had a quick one. Just to review on guidance, if you can just break out for lease [inaudible], land sales, service ops, settlement gains, and G&A just where you are today on those line items?

Dennis D. Oklak

Our original guidance for lease buy-outs was $17 million to $22 million and today I would tell you we’re probably looking somewhere between the $12 million and $15 million range would be our estimate. On the land sale gains our original estimate was $15 million to $30 million. I would tell you we’d be very close to the low end of that range. And the G&A again I think we’re going to be towards the top end of our guidance which was $34 million to $39 million. I don’t think we gave specific guidance on the service ops but I would tell you today that we’re looking in the $20 million to $25 million range.

Michael Bilerman - Citigroup

And then on development you had talked, the original was $45 million to $50 million but then given the more difficult time as you moved into the beginning of the year that came down. Is there a sense of where that development falls at today for the year?

Dennis D. Oklak

I’m not sure I understood that question but again we said it’s going to be between $750 million and $1 billion now.

Michael Bilerman - Citigroup

The profit; the development profit.

Dennis D. Oklak

I’m sorry. Yes, let me look here Michael. I’m looking for our original guidance here, it was in the $45 million to $55 million range. Excuse me, original was $50 million to $60 million. Today I would tell you it’s somewhere between probably closer to $45 million to $50 million in that range.

Operator

Our next question comes from Louis Taylor - Deutsche Bank Securities.

Louis Taylor - Deutsche Bank Securities

Denny, can you just touch on maybe what caused the delay in merchant sales this quarter? Was it leasing or just buyer having trouble getting financing? What caused the slippage?

Dennis D. Oklak

Actually when we looked at this quarter it was all related to one project and it was just the timing of the purchaser getting their act together really from a legal point of view. And that project was supposed to close this week. I haven’t heard if it did because I’ve been in meetings for the last couple days, but everything was on track for that project to close here in July.

Louis Taylor - Deutsche Bank Securities

It sounds like from your components getting you to the low end that you’re going to hit your merchant sales for the year. Is that correct?

Dennis D. Oklak

Yes. We feel pretty good about where the merchant sales are coming in. Again I would just remind you Lou that for this year a pretty significant piece of that pipeline is already committed through the CBRE joint venture. Those are all the industrial build-to-suits that we started mid-last year that will be completed later this year.

Operator

Our next question comes from Sloan Bohlen - Goldman Sachs.

Sloan Bohlen - Goldman Sachs

Just a quick question on your comment about reducing the FAD payout ratio. The below 90%, is that just a long-term target? And then I guess attached to that question, what’s your outlook for tenant improvement or leasing commission costs as you look to lease up your held-for-rental development?

Dennis D. Oklak

First of all on the FAD, yes. If you look back historically, we ran in the sort of mid-80% on the FAD payout ratio for quite a number of years and then coming off the slowdown in 2001 and 2002, we actually got up into the range of about 110% or a little bit over. We were very focused on getting that back down as our occupancy increased. We did get it down to 85% last year. I think we’re looking at hopefully the 85% to 90% range this year. And long term we really want to be able to keep that in the mid-80% range.

And Bob Chapman, do you want to talk a little bit about what we’re seeing on the TI front for the lease up of the space?

Robert M. Chapman

We’ve really seen very little increase in concessions or TI costs as Denny mentioned in the prepared remarks. Actually pre-rent has been down versus last year as a percent of the lease term and then overall TI costs and lease concessions year-to-date have also been down versus 07. So there’s really no reason for us to think they’re going to increase.

Operator

Our next question comes from Paul Adornato - BMO Capital Markets.

Paul Adornato - BMO Capital Markets

I was wondering given the focus on held-for-sale properties, could you just review the investment criteria that you’re using today for both held-for-rental and held-for-sale properties as compared to a year ago?

Dennis D. Oklak

Let me start with the held-for-rental. We’ve clearly increased our hurl rates from where we were about a year ago. And Paul as you know and everybody on the call knows, the world started to change right about a year ago right after we had our second quarter call. I would say we’ve increased those hurdle rates by probably 100 basis points in the last year at least depending on product type; for certain product types even more than that. And again the way we look at it Paul is we’ve got different hurdle rates for different product types in different markets. And clearly today we’re as I mentioned on the call we’re not starting spec projects, so we’ve got more pre-leasing which gives us more comfort in reaching those hurdle rates.

Then also on the held-for-sale we’ve clearly increased the cap rates that we’re estimating on exit giving ourselves a little cushion there and then we’ve also given ourselves a cushion by increasing our margin requirements up front as to what we think that margin should be to give us some more room. Traditionally we’ve experienced as you know pretty high pre-tax profit margins on that over the last three or four years, up even into the 20% or low 30% range. But we’ve always said that the more realistic range for that pre-tax profit margin is somewhere in say 10% or 15% for industrial product, 15% to 25% for office product, and so we’ve actually pushed those requirements up a little bit to make sure that if there’s any slippage in cap rates as things move forward that we still get our desired margin.

Paul Adornato - BMO Capital Markets

And given your cost of capital, you’re comfortable that you’re kind of in that range right now with the new stuff that you’re adding?

Dennis D. Oklak

Yes. But one thing I would point out Paul just so everybody remembers, in our supplemental package we showed basically the stabilized yield. So that’s just the first year yield and what we’re really finding in most of our projects these days especially on the healthcare and the build-to-suit side is that we’ve got long-term leases and pretty much all have step rents. The healthcare leases we get annual rent bumps and a lot of other build-to-suits we’re getting annual or every two or three year rent bumps. So when you look at those numbers in the supplemental on our pipeline, our average yields over the 5 or 10 year period is probably 30 to 60 basis points higher than what’s shown in there.

Operator

Our next question comes from Chris Haley - Wachovia Capital Markets, LLC.

Chris Haley - Wachovia Capital Markets, LLC

On your healthcare products you’d mentioned that marginal or incremental healthcare starts will account for half of the activity. Is that in numbers, square footage, dollars?

Dennis D. Oklak

That’s in dollars. We count that in dollars. So yes I said somewhere between 40% and 50% of our starts this year will be on the healthcare side.

Chris Haley - Wachovia Capital Markets, LLC

If I look at the second quarter investment activity, the fair amount about that was added. Are you changing or have you seen any change in terms of rates of return expectations, how you’re underwriting that market, that product?

Dennis D. Oklak

No. We really haven’t. I think it stayed pretty consistent. I would tell you in that product type what we’re seeing is if you have a building where the hospital and the hospital credit is on a long-term portion and a significant portion of the building, the going in yields are a little bit lower. But again as I said on almost all of these if not 100% we’re getting annual rent bumps. And then on the product where the hospital may take a smaller portion and then the rest of it’s going to be doctor related, we generally are seeing higher going in yields. So that’s what we’re seeing but I think it’s pretty consistent with what we’ve been seeing. We haven’t seen a serious deterioration in the yields at all in the healthcare side.

Chris Haley - Wachovia Capital Markets, LLC

If I look at your fourth quarter 08 deliveries projected in service in your build-for-sale pipeline, just kind of impute what stabilized you’re looking for your healthcare product looks just about 10%. Is that a cash return or is that a GAAP stabilized return?

Dennis D. Oklak

Those are cash returns that we report.

Operator

Our next question comes from [Michael Vernot - Green Street Advisors].

[Michael Vernot - Green Street Advisors]

Can you just tie together a few things for me? If you take a look at the backlog of merchant building projects, I think it’s around $650 million on the books today, can you just talk about that in conjunction with your forecast for merchant building sales for the rest of the year? And then also how much of that backlog may be attributable to the CBRE industrial joint venture?

Dennis D. Oklak

First of all let me just answer that last question. As you recall the CBRE portfolio that they were going to acquire was around the $250 million range. They’ve acquired one building so far. That was probably a $25 million to $30 million building. So $220 million will go into there for the rest of the year.

In looking at the other $600 million pipeline, are you talking about the stuff that’s under development or the stuff that’s completed?

[Michael Vernot - Green Street Advisors]

The completed merchant building.

Dennis D. Oklak

The couple significant ones of those won’t close yet this year. They’ll close sometime in either 08 or early 09 and there’s an office building that we have that we won’t be able to sell for a couple reasons until the late 09 which is an agreement we had with the tenant for some tax reasons. We’ve got a couple of pretty significant retail projects in there that are very well leased but tenants are burning through some free rent periods. Before we sell them and market them they want to have some sales history for the tenants and so they’re all working through that right now. So again those will be late 09 type sales. And then the rest of them are one-off projects and they’ll be sold as we get them - we’re marketing a number of those right now actually.

[Michael Vernot - Green Street Advisors]

Just to follow up on that. Guidance for the built-for-sale dispositions in the year was I think $400 million to $500 million and you’ve done call it close to $100 million so far, so sort of $300 million to $500 million to go yet this year of which $225 million is the CBRE joint venture, is that right?

Dennis D. Oklak

Yes.

Operator

Our next question comes from David Aubuchon - Robert W. Baird & Co., Inc.

David Aubuchon - Robert W. Baird & Co., Inc.

Denny you did a really good job about describing a lot of the leasing that you’ve done in July so far and you mentioned that the in-service stabilized occupancy would jump up 70 basis points to 93.8. Can you kind of give us a little bit better guidance on when that may occur? Is that something you expect by the end of Q3 or are these leases not going to become economic until Q4?

Dennis D. Oklak

Again those are leases we signed this month. The office lease I think starts early next year with Research in Motion. The one large industrial deal here in Indianapolis actually starts September 1 so that’ll have some positive effect in the third quarter. Then also the GSA leases which is about 130,000 square feet in the South Florida office, those actually start early next year because we have some build-out to do for the GSA.

David Aubuchon - Robert W. Baird & Co., Inc.

You mentioned your build-to-suit activity on the office side seemed to be hanging in there. Can you talk about just generally the discussions that you have with the tenants, what they’re thinking right now in light of obviously an uncertain economic environment?

Dennis D. Oklak

I’ll let Bob handle that one.

Robert M. Chapman

As Denny mentioned Dave, we’ve done two significant deals in St. Louis with Elserver and in Montana. We’ve done a deal down in Houston with [Denorst Varitods], another office build-to-suit. There’s just a lot of activity in that office build-to-suit arena and there’s very little competition right now because of the capital availability. So we have a bit of a great leg up. I can’t detail a lot of the discussions but we have three or four significant ones that we’re working on right now.

David Aubuchon - Robert W. Baird & Co., Inc.

A lot of the commentary we’re hearing from other companies is that tenant’s just want to stay put and I think you’re retention rate kind of proves that point out too, but you think that you’re seeing specific cases of where companies are looking to expand their space because their businesses are growing and you’re just I guess gaining market share?

Robert M. Chapman

Well, expanding or looking to build a campus. When they need a 200,000 or 300,000 or 400,000 square feet and they want to add shinier new space, better new space, and we’re seeing a lot of that in the Midwest.

Dennis D. Oklak

And a lot of it is coming from consolidation. They may have folks spread around in a number of places and believe that they can get some efficiencies by consolidating their group together. We’ve seen that in a couple cases, too.

Operator

Our next question comes from Mitch Germain - Banc Of America Securities.

Mitch Germain - Banc Of America Securities

Just a quick question on your health rental. I see 3Q deliveries are only 36% leased at this point. Is the projected stabilization date and then you have about another year at that point until it becomes dilutive from recognition of interest expense or is that when it hits the balance sheet?

Dennis D. Oklak

There’s another year. Capitalizing not the interest but the operating expenses.

Mitch Germain - Banc Of America Securities

What’s going on with the demand on the 3Q and 4Q developments that are currently vacant?

Dennis D. Oklak

As I’m looking down through that list, I can’t say that we’ve signed anything on those buildings so far post-quarter end but I think as I look through them there’s pretty good activity on all of them. I think we’re probably pretty close to be right on our budgeted occupancy for those properties coming in-service and we’ve got some good activity. Oh excuse me. If you are looking at the schedule there’s what we call Sawgrass Point 2 in South Florida. We were showing that as about two-thirds leased at the end of June and as I mentioned RIM came in yesterday and exercised their option to take the remaining space. So we’ve got a little bit of pickup and that’s a third quarter delivery.

Operator

Our next question comes from James Feldman - UBS.

James Feldman - UBS

A quick housekeeping question and then I have a real question. Your preferred interest expense seemed like it picked up in the quarter. What was going on there?

Dennis D. Oklak

We issued some preferred stock back in February.

James Feldman - UBS

So that was the hangover from the quarter?

Dennis D. Oklak

That was about halfway through the quarter in the first quarter so that was the increase for the second.

James Feldman - UBS

That was the last issuance, right?

Dennis D. Oklak

Yes.

James Feldman - UBS

If I’m looking at the built-for-sale inventory, how would you characterize exactly what types of property really are in demand? Is it industrial? Is it office? Are there certain markets that people are most interested in? How should we be thinking about the future here?

Dennis D. Oklak

It’s a mix of both. Clearly the industrial is a popular product type. Most of what we have there at this point in time is going into the CBRE joint venture. We do have some office projects that some of them are in-service today; some of them are coming in-service. These type projects are all again single tenant buildings with high credit tenants that are leased on a long-term basis for the most part with just maybe one or two exceptions on the office side. So we’re actually seeing good interest and good activity on those. We have one under contract to close on the office side. There were just a couple healthcare projects in there and these were projects where basically we completed them and the hospital, we have two of them where the hospital came to us and said we really want to own this building. One of those is the one that I said got carried over from June to closing in July and the other one is going to close later this year. So it’s a little bit of all over the board if you will.

Operator

Our next question comes from David Aubuchon - Robert W. Baird & Co., Inc.

David Aubuchon - Robert W. Baird & Co., Inc.

I thought you mentioned when you were talking about the Savannah market that you had some acquisitions that were teed up?

Dennis D. Oklak

Yes, we have two additional buildings that we will acquire later this year once the tenant occupies and I want to say those are probably totaling around $35 million to $40 million; $26 million excuse me.

David Aubuchon - Robert W. Baird & Co., Inc.

I don’t know if you want to comment on the specific projects but just looking at your built-for-sale pipeline, the Rickenbacker asset in Columbus kind of sticks out as a vacancy. Can you just talk about that?

Dennis D. Oklak

Sure, I can talk about that. That’s one of just a couple spec buildings we have started this year. That’s owned in a joint venture over at our Rickenbacker Logistics Center. We really own 25% of that product but we’re the developer and leasing person. We have a partnership with the Columbus Regional Airport Authority on that. We are 100% leased in all of our industrial product in Columbus. We started this building early this year and it won’t come into service until late this year. We did start it on a spec basis because that’s what our partner wanted to do and we’ve got some relatively good activity on it. We haven’t signed anything yet though.

Operator

Our next question comes from [Michael Vernot - Green Street Advisors].

[Michael Vernot - Green Street Advisors]

Can you just give a little bit of commentary on the cancelled debt offering for which there was a small charge this quarter?

Dennis D. Oklak

Sure. With the debt markets the way they were the first half of this year, we had intended to do some kind of debt offering in the $300 million range to give us some room on the line. That was our plan. Clearly for a while there the unsecured markets were pretty much locked up and there was nothing that we could do there, so we had teed up a secured offering on some basically 100% leased industrial properties and had paid a commitment fee on that and we’re getting ready to move forward. And then the unsecured market opened up for a short period of time for us in early May and we just made the decision to go with the unsecured market. We thought it was a better long-term decision, the rate was good, and then we didn’t have to tie up the assets. So we made the decision to switch from the secured to unsecured; we completed that transaction, but we had some nonrefundable costs associated with that secured transaction that we wrote off in the quarter.

[Michael Vernot - Green Street Advisors]

I think your updated guidance for held-for-rental dispositions was in the $200 million to $350 million range. I think you found $50 million so far this year. How are you thinking about the balance of the year and what can be sold in this environment and just how you’re thinking about that particular segment?

Dennis D. Oklak

Well clearly that’s a tough market right now. Again I think what we’ve been saying for the last couple quarters Michael is that smaller is better. Just for example, I’m a little tired of talking about Cleveland but I’ll talk about Cleveland. That one fell through but we do have back on the market one small three-building portfolio up in Cleveland. It’s just out there now so we’ll see how that does. Just with a portfolio the size of ours you also have a lot of tenants that come to you now and then and say “I’d just like to buy my building” or you might have a lease expire in a building and have a user come and want to buy it. So those are the kind of things that we’re looking at. We’ve seen a few of those. Just for example we had a relocation of a tenant in an Indianapolis office building and the building was vacant and we were getting ready to lease it up and we had a company who had some base nearby come to us and want to buy the building and offered us what we thought was a very good price for it, so we sold an office building in Indianapolis. So those are the kind of things that we’re looking at. We don’t have included in that guidance anything major teed up.

Robert M. Chapman

Michael, there will be several $15 million to $18 million transactions.

Operator

Our next question comes from Chris Haley - Wachovia Capital Markets, LLC.

Chris Haley - Wachovia Capital Markets, LLC

Additionally in the quarter you also had some charges related to development projects that didn’t pan out and the write off of those costs. Would you care to offer any color?

Dennis D. Oklak

Yes, I can. Almost all of that was primarily related to one project. It was a retail project over in Columbus, Ohio that we had been working on for probably 18 months. Actually we’re still actually working on the project some but we just concluded that the likelihood of that one really pulling off is probably pretty low right now. Some city issues with water and sewer and it’s right on the line between two cities that don’t get along very well. So there were some issues we unfortunately couldn’t work through. We always track all our costs associated with projects we’re chasing. We go through it with a fine-toothed comb every month and look at it and we just concluded that it was a good time to reserve some costs we incurred on that one.

Operator

At this time we have no additional questions in queue. Please continue.

Shona L. Bedwell

We want to thank you for joining our conference call today. Our third quarter call is tentatively scheduled for October 30 at the same time, 3:00 PM Eastern. Thanks everyone and have a nice day.

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