Investments in real estate

9 Months Ended

Sep. 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):

	September 30,			December 31,
	2011			2010
Land (related to rental properties)	$	460,649		$	456,940
Buildings and building improvements	4,355,276			3,906,689
Other improvements	184,775			183,140
Rental properties	5,000,700			4,546,769
Less: accumulated depreciation	(710,580		)	(616,007		)
Rental properties, net	4,290,120			3,930,762
Construction in progress (“CIP”)/current value-added projects:
Active redevelopment	300,398			248,651
Active development	190,427			134,758
Projects in India and China	113,136			98,327
	603,961			481,736
Land/future value-added projects:
Land held for future development	452,732			431,838
Land undergoing preconstruction activities (additional CIP)	538,437			563,800
	991,169			995,638
Investment in unconsolidated real estate entity	40,042			36,678
Investments in real estate, net	$	5,925,292		$	5,444,814

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

As of September 30, 2011, and December 31, 2010, we had approximately $4.3 billion and $3.9 billion of rental properties, net, aggregating 13.6 and 12.4 million rentable square feet, respectively.

As of September 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 September 30, 2011, and December 31, 2010, we had 747,248 and 755,463 rentable square feet, respectively, undergoing active redevelopment. Additionally, as of September 30, 2011, and December 31, 2010, we had 531,486 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 September 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 nine months ended September 30, 2011 and 2010, was approximately $44.9 million and $58.2 million, respectively.

Additionally, as of September 30, 2011, and December 31, 2010, we had approximately $452.7 million and $431.8 million, respectively, of land held for future development, aggregating 11.7 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 September 30, 2011, and December 31, 2010, we had land supporting an aggregate of 2.5 million and 3.0 million rentable square feet of future ground-up development, 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 foot site 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 September 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 the primary beneficiary 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 September 30, 2011, and December 31, 2010, our investment in the unconsolidated entity was approximately $40.0 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.