Good afternoon, ladies and gentlemen, and welcome to today's Clipper Realty Second Quarter 2022 Earnings Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Lawrence Kreider. Lawrence, the floor is yours.

Thank you very much. Good afternoon, and thank you for joining us for the second quarter 2022 Clipper Realty Inc. Earnings Conference Call. Participating with me on today's call are David Bistricer, Co-Chairman of the Board and Chief Executive Officer; and J.J. Bistricer, Chief Operating Officer. Please be aware that statements made during the call that are not historical may be deemed forward-looking statements, and actual results may differ materially from those indicated by such forward-looking statements. These statements are subject to numerous risks and uncertainties, including those disclosed in the company's 2021 annual report on Form 10-K, which is accessible at www.sec.gov and our website. As a reminder, the forward-looking statements speak only as of the date of this call, August 9, 2022, and the company undertakes no duty to update them. During this call, management may refer to certain non-GAAP financial measures, including adjusted funds from operations or AFFO; adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA; and net operating income or NOI. Please see our press release, supplemental financial information and Form 10-Q posted today for reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. With that, I will now turn the call over to our Co-Chairman and CEO, David Bistricer.

Thank you, Larry. Good afternoon, and welcome to the second quarter 2022 earnings call for Clipper Realty. I will provide an update of our business performance, including recent highlights and milestones as well as our company's progress. I will then turn the call over to J.J., who will address property-level activity, including leasing performance. Finally, Larry will speak about our quarterly financial performance. We will then take your questions. We see positive operational trends as we look forward. Residential leasing activity is rapidly improving. Despite the recent headline news on inflation and interest rate increases, we expect rental demand to remain strong and pricing to improve. Now that New York City is largely reopened, people seek to relocate back to the city and employees increasingly return to their offices. At the end of the second quarter, our properties were 98% leased and new leases at our property are reaching or exceeding prepandemic levels, including our Tribeca House property, where new lease rates in the second quarter exceeded $80 per square foot, more than 30% better than the previous rents. And June average rent per square foot increased to $67 per foot from $65 per foot at the end of March and $63 per square foot end of December. With respect to interest rate increases, we believe we are buttressed by relatively long duration of our debt, of which 95% is fixed at 3.76% at an average duration of 7.13 years and is not a recourse subject to limited standard carve-outs not cross-collateralized. With respect to inflation, we looked at the short duration of our residential leases to allow us to cover increased expenses on a substantial number of our leases and our major existing construction projects, our contracts were all bought out in 2021. Our balance sheet continues to be…

Thank you. New residential leasing activities that began towards the last year continues to improve. At the end of the second quarter, all our residential properties were leased in the high 90% range and new rental rates per square foot in the second quarter are reaching or exceeding prepandemic levels, and all exceeding present average rent rates. As I will detail shortly, combined for all our properties, new lease rental rates in the second quarter exceeded previous rents by over 20% and renewal rental rates exceeded previous rents by over 10%. We are experiencing strong rental demand at our Tribeca House property. While leased occupancy has averaged 98% over the last 12 months, we have increased average rent per square foot to $67 per square foot from $60 over that same period. In the last 6 months, rent on new leases have risen to over $80 per square foot, representing an increase of 30% over previous rents and rents on renewals have increased 18% over previous rents. Further, we expect rent per square foot to continue to grow steadily through next year as a result of turnover of our 1- and 2-year leases entered into last year in response to pandemic conditions. We also continue to make progress on new leases at retail properties at the Tribeca House property. We have entered into 4 new smaller leases this year at substantially higher rates, renewed our and firmed up our . At the Flatbush Gardens complex in Brooklyn, in the second quarter, we are focused on leasing the units vacated in pandemics since mid-2020. Since the beginning of the year, we have increased leased occupancy to nearly 98%, while new leases averaged nearly $33 per square foot, approximately 8% higher than the units previously rented. Overall, average rents for the property…

Thank you, J.J. For the second quarter, revenues increased by $1.2 million to $31.9 million from $30.7 million last year's second quarter. NOI this quarter increased by $1.1 million to $17.2 million from $16.1 million last year's second quarter. AFFO increased by $1 million to $5.1 million this quarter from $4.1 million last year's second quarter. As I discussed last quarter, adoption of a new accounting standard, ASC 842, shifted the classification of bad debt expense from expense to revenue and accelerated the recognition of bad debt expense on accounts that are not fully collectible. As a result, we have deducted bad debt expense from revenue in 2022 versus adding to expense in 2021 and earlier. To record the effect of the acceleration of bad debt expense -- bad debt expense recognition from the new accounting standard, we recorded a $5.8 million charge to retained earnings in the first quarter and then a $1.1 million credit to revenue for improved prospects of a commercial tenant at the Tribeca House property. As a result, excluding the impact of the new accounting standard, revenue at the end of the second quarter increased by $1.9 million to $32.6 million from $30.7 million last year primarily due, as J.J. detailed, to increased occupancy at the Flatbush Gardens property, higher residential rental rates at the Tribeca House, Clover House, 10 West 65th Street and Flatbush Gardens properties, new commercial tenants at the Tribeca House property and increased billings at the 141 Livingston Street property. These increases were partially offset by $700,000 of bad debt expense this quarter versus a $900,000 charge through operating expenses last year. On the expense side, the key year-over-year changes were as follows: property operating expenses were $600,000 higher than last year, excluding the $900,000 charge for bad debt expense in…

Thank you, Larry. We remain focus on efficiency, operating our portfolio. We look to current operating improvements to continue to accelerate through 2022 and beyond. We look forward to capitalizing on a myriad of growth opportunities, including the 1010 Pacific and 953 Dean Street developments and other possibilities that may present themselves. I would now like to open up the line for questions.

[Operator Instructions]. And we do have a question coming from Buck Horne from Raymond James.

Just curious with completion of 1010 Pacific coming into visibility here, what the time frame would be for putting in some sort of permanent financing on that property or taking out the construction loan. And what kind of costs you see in the market in terms of like what do you think you can go to market at in the next few months and price that loan out at?

We haven't yet gone to the market. We are starting to speak to the lender itself who has a program for permanent financing and we're starting to make such applications. It's a little bit early because it's not rented yet. And we think that jumping the gun before it's rented will hurt us in the interest rate and other terms of the loan. But we're very focused on it, and we know that's one of the things that we'll be doing more towards the fourth quarter of this year, where we'll engage with different lenders on it.

Okay. Okay. Appreciate that. And on the Dean Street redevelopment, so what's the projected time line for completion on that? If you have any idea on what pro forma stabilized yield on cost might look like there.

This is something we'd have to get back to. I don't have that number here. We actually have it, but I don't have it in front of me. We'll get back to you after the call.

[Operator Instructions]. And there are no further questions in queue at this time. I would now like to pass the floor back to the management team for closing remarks.

Thank you for joining us today. We look forward to speaking with you again soon. Have a happy, healthy summer.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.