Investments in real estate

6 Months Ended

Jun. 30, 2011

Investments in real estate

Investments in real estate

3.Investments in real estate

Our investments in real estate, net consisted of the following (in thousands):

	June 30,			December 31,
	2011			2010
Land (related to rental properties)	$	472,977		$	456,940
Buildings and building improvements	4,139,115			3,906,689
Other improvements	184,600			183,140
Rental properties	4,796,692			4,546,769
Less: accumulated depreciation	(679,081		)	(616,007		)
Rental properties, net	4,117,611			3,930,762
Construction in progress (“CIP”)/current value-added projects:
Active redevelopment	296,225			248,651
Active development	238,433			134,758
Projects in India and China	107,934			98,327
	642,592			481,736
Land/future value-added projects:
Land held for future development	534,618			431,838
Land undergoing preconstruction activities (additional CIP)	521,753			563,800
	1,056,371			995,638
Investment in unconsolidated real estate entity	38,778			36,678
Investments in real estate, net	$	5,855,352		$	5,444,814

Rental properties, construction in progress, and land held for future development

As of June 30, 2011 and December 31, 2010, we had approximately $4.1 billion and $3.9 billion of rental properties, net, aggregating 12.7 and 12.5 million rentable square feet as of the end of each respective period.

As of June 30, 2011, and December 31, 2010, we had various projects classified as construction in progress, including redevelopment and development projects, and projects in India and China.  As of June 30, 2011, and December 31, 2010, we had 782,258 and 755,463 rentable square feet, respectively, undergoing active redevelopment. Additionally, as of June 30, 2011, and December 31, 2010, we had 690,139 and 475,818 rentable square feet, respectively, undergoing active ground-up development consisting of vertical aboveground construction of life science properties.  We also had construction projects in India and China aggregating approximately 0.9 million rentable square feet as of June 30, 2011, and December 31, 2010.  We are required to capitalize project costs, indirect project costs, and interest during the period an asset is undergoing activities to prepare it for its intended use.  Capitalization of interest ceases after a project is substantially complete and ready for its intended use.  In addition, should construction activity cease, interest would be expensed as incurred.  Total interest capitalized related to construction activities for the six months ended June 30, 2011 and 2010, was approximately $28.2 million and $41.5 million, respectively.

Additionally, as of June 30, 2011 and December 31, 2010, we had approximately $534.6 million and $431.8 million, respectively, of land held for future development, aggregating 12.0 million and 8.3 million rentable square feet, respectively.  Land held for future development represents real estate we plan to develop in the future but on which, as of each period presented, no construction activities were ongoing.  As a result, interest, property taxes, insurance, and other costs are expensed as incurred. Additionally, as of June 30, 2011, and December 31, 2010, we had an aggregate of 2.4 million and 3.0 million rentable square feet, respectively, undergoing preconstruction activities (consisting of Building Information Modeling (3-D virtual modeling), design development and construction drawings, sustainability and energy optimization review, budgeting, planning for future site and infrastructure work, and other activities prior to commencement of vertical construction of aboveground shell and core improvements) that are also classified as construction in progress.  Our objective with preconstruction is to reduce the time it takes to deliver projects to prospective tenants.  Project costs are capitalized as a cost of the project during periods when activities necessary to prepare an asset for its intended use are in progress.  We generally will not commence ground-up development of any parcels undergoing preconstruction activities without first securing significant pre-leasing for such space.  If vertical aboveground construction is not initiated at completion of preconstruction activities, the land parcel will be classified as land held for future development.  The two largest projects included in preconstruction consist of our 1.9 million developable square feet at Alexandria Center™ at Kendall Square in Cambridge, Massachusetts, and our 407,000 developable square foot site for the second tower at Alexandria Center™ for Life Science – New York City.

Investment in unconsolidated real estate entity

In 2007, we formed an entity with a development partner for the purpose of owning, developing, leasing, managing, and operating a development parcel supporting a future building aggregating 428,000 rentable square feet.  The development parcel serves as collateral for a non-recourse secured loan due in 2012 with an outstanding balance of $38.4 million as of June 30, 2011 and December 31, 2010.  We also have an option to extend the maturity of the loan to April 2013.  We determined that the entity did not qualify as a VIE since we do not have the power to direct the activities of the entity that most significantly impact its economic performance.  The decisions that most significantly impact the entity’s economic performance require both our consent and that of our partner, including all major operating, investing, and financing decisions as well as decisions involving major expenditures.  Because we share power over the decisions that most significantly impact the entity’s economic performance, we determined that we are not the primary beneficiary of the entity.  As of June 30, 2011 and December 31, 2010, our investment in the unconsolidated entity was approximately $38.8 million and $36.7 million, respectively.

Our investment in the unconsolidated real estate entity is adjusted for additional contributions and distributions, the proportionate share of the net earnings or losses, and other comprehensive income or loss.  Distributions, profits, and losses related to this entity are allocated in accordance with the operating agreement.  When circumstances indicate there may have been a reduction in value of an equity investment, we evaluate the equity investment and any advances made for impairment by estimating our ability to recover our investment from future expected cash flows.  If we determine the loss in value is other-than-temporary, we recognize an impairment charge to reflect the equity investment and any advances made at fair value.  For the three and six months ended June 30, 2011, there were no indications of a reduction in the value of our investment in the unconsolidated real estate entity.