One of the biggest changes from the beginning of 2007 to thebeginning of 2008, REIT president Douglas Linde noted was thedramatic turnaround in the credit markets. "Last year when we hadthis call, we were talking about the strong demand, rising rentsand--most importantly--robust capital flows," the BostonProperties' chief said. This year, by contrast, Linde said "overalldemand is still healthy, rents still seem to be rising, albeit at aslower pace, but the capital markets are anything but robust." Hecited an example of how unpredictable those markets have become inthe past year.

In November, Boston Properties locked in $525 million ofunderlying 10-year Treasuries at an average interest rate of about4.63%. "Clearly, we did not anticipate the turmoil and theresulting rally in bonds or the 100-plus basis points reduction inshort-term rates by the Fed that has occurred over the past 60days," Linde said. "Consequently, it is with some caution that wediscuss the impact of the current financial environment on ouroperating portfolio."

Although the financial markets turmoil has reduced theavailability of funds and raised the cost of capital, Linde said it"has not produced any discernible impact on our operations." Hesummarized conditions in New York City, Boston and Cambridge, SanFrancisco and Washington, DC, where occupancy in general is highand demand remains strong.