Boston Properties Inc

NYSE:BXP

Earnings Call Analysis

Investment Analysis: BXP's Leasing Focus and Performance

BXP aims to build FFO per share leveraging its office asset class focus, strong balance sheet, and high-quality portfolio. In 2023, despite market challenges, BXP demonstrated resilience by leasing over 4 million square feet, raising over $4 billion in capital, and sustaining its occupancy and dividend. Their FFO per share increased compared to the pre-pandemic period. For 2024, BXP is targeting leasing to address expirations, seizing investment opportunities due to market downturns, and exploring selective new developments. They anticipate occupancy changes to be within a narrow range and plan opportunistic dispositions. BXP reported a full year 2023 FFO of $7.28 per share, slightly above guidance and consensus.

Priorities and Advantages of BXP in 2024

BXP enters 2024 with a strong commitment to the office asset class and client relationships, which positions it advantageously in a sector where many are disinvesting. With an 88% occupied portfolio, BXP is laser-focused on leasing, aiming to tackle near-term lease expirations and bolster occupancy. Leasing vacant spaces emerges as the cost-effective path to rebuild Funds From Operations (FFO). Moreover, BXP sees potential in new investment activities owing to the existential risks faced by many office owners and the eagerness of institutional owners to diversify away from offices. BXP is ready to seize these opportunities in its core markets of premier workplaces, life science assets, and residential development.

Leasing Progress and Market Conditions

BXP demonstrated robust leasing activities, particularly in Midtown Manhattan and the Back Bay of Boston, completing 74 transactions in the quarter. Despite an overall net reduction in square footage due to some contractions, expansions in New York helped yield positive results. The leasing volume was led by New York, followed by notable activity in L.A., San Francisco, Boston, and Washington, D.C. Notably, the mark-to-market for leases commencing this quarter was flat, but there's a slight decrease in overall starting cash rents. With 750,000 square feet of signed leases not yet commenced and a pipeline under negotiation of nearly 1 million square feet, BXP is witnessing an increase in deal volume but with smaller transaction sizes.

2024 Guidance and Financial Outlook

For 2024, BXP forecasts slight growth due to development delivery and certain acquisitions, countered by a marginal decline in same-property Net Operating Income (NOI) from 2023, along with higher net interest expenses and lower fee income. Development activities are expected to make a more pronounced impact in 2025, contributing incrementally to FFO. The company anticipates a same-property NOI growth range of negative 1% to negative 3%, factoring in adjustments for WeWork lease modifications. BXP predicts increased interest expenses, partially offset by available cash and credit lines. Summing up the projections and factoring in all variables, the initial FFO guidance range for 2024 stands at $7 to $7.20 per share, which is a downturn of $0.18 per share from 2023's reported FFO.

Investment Opportunities and Capital Strategy

BXP is poised to explore strategic investment opportunities that may arise in 2024, potentially through joint venture partnerships using third-party capital while leveraging its balance sheet. There's an optimistic tone from the executives about an increase in activity, although nothing concrete has formed as of yet. The company is fielding inquiries and assessing prospects, indicating a dynamic and responsive investment strategy moving forward.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to BXP Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, to Helen Han, Vice President of Investor Relations. Please go ahead.

[Helen Han, executive]

Good morning, and welcome to BXP's Fourth Quarter and Full Year 2023 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G.

If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. The webcast of this call will be available for 12 months.

At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Although BXP believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in BXP's filings with the SEC. BXP does not undertake a duty to update any forward-looking statements.

I'd like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer.

During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call to please limit yourself to only one question. If you have an additional query or follow-up, please feel free to rejoin the queue.

I would now like to turn the call over to Owen Thomas for his formal remarks.

[Owen Thomas, executive]

Thank you, Helen, and good morning, everyone. After a brief review of our quarterly and annual performance, I intend to focus my remarks this morning on BXP's significant capital allocation activity over the last quarter, related real estate capital market conditions and key areas of focus for us in 2024.

The operating trends I've described in prior quarters, specifically the steady return of workers to their offices, the importance of corporate earnings growth to leasing activity and the outperformance of Premier Workplaces, all remain important and substantially unchanged.

BXP continued to perform in the fourth quarter as we did throughout 2023, despite withering negative market sentiment for the commercial real estate sector. Our FFO per share was $0.01 above market consensus for the fourth quarter and for all of 2023, was $0.15 above the midpoint of the guidance range we provided one year ago.

We completed over 1.5 million square feet of leasing in the fourth quarter and 4.2 million square feet of leasing for all of 2023, well above our prior forecast.

Over the last year, signed leases remain long term over 8 years weighted average and portfolio occupancy remained stable, despite a challenging leasing environment.

In 2023, BXP raised over $4 billion in new capital in the public unsecured debt, private secured mortgage and private equity markets. In the fourth quarter alone, we completed a new $600 million mortgage financing, a $750 million asset-specific equity capital raise, both among the largest comparable transactions completed in our sector last year as well as 3 new and highly accretive equity investments, one of which closed in January.

So on capital allocation activities and starting with capital raising, last November, BXP announced the sale to Norges Bank Investment Management of a 45% interest in 290 and 300 Binney Street, both life science developments located in the Kendall Square District of Cambridge, leased on a long-term basis to creditworthy clients. 300 Binney is a 236,000 square foot existing office building that is being converted to lab use and scheduled for delivery at the end of this year, and 290 Binney is a 566,000 square foot ground-up development that we expect to deliver in 2026.

Our partner purchased the assets at a gross valuation of $1.66 billion or $2,050 per square foot and an expected initial cash yield on cost at delivery for both assets of 5.9%.

BXP will retain a 55% interest in each joint venture and provide development, property management and leasing services.

Norges has closed its investment in 300 Binney and funded $213 million, and we expect the 290 Binney joint venture will close in the first quarter of this year, which will reduce approximately $534 million of BXP's development funding requirement over time.

We are pleased and honored to grow our important relationship with Norges, BXP's largest joint venture partner and one of our largest shareholders.

Upon completion of this transaction, BXP will have raised just under $750 million of equity capital on attractive terms and reduced our forecast leverage.

Next, BXP purchased interest in 3 currently owned assets from 2 different joint venture partners, one of which closed in early January. These transactions were sparked by anchor client renewals BXP achieved at 2 of the assets, requiring capital for tenant improvements, leasing commissions and building upgrades.

In the current environment, these 2 joint venture partners decided they wanted to reduce their exposure to office. We agreed to purchase their interest at attractive and accretive returns and complete the long-term lease extension.

Regarding the specific deals, 901 New York Avenue is a 548,000 square foot, 83% leased office building located in Washington, D.C. The building is encumbered by a $207 million mortgage, with attractive terms due in 2025.

In January, we completed the renewal of the 214,000 square foot anchor client in the building, Finnegan Henderson for 18 years, purchased the 50% interest in the property we didn't own for $10 million and modified the loan to allow for an extension of the maturity date for up to 5 years.

Pricing for the acquisition was $414 per square foot and a 6.4% initial cap rate on an as-is basis, and $516 a square foot with an expected 8.4% cash yield on cost at stabilization in 2027.

Santa Monica Business Park is a 21 building 1.2 million square foot and 88% leased office complex located adjacent to the Santa Monica Airport. The property is encumbered by a $300 million mortgage due in 2025, and 70% of the park is encumbered by a ground lease, with above-market ground rent and a fee purchase option in 2028.

We completed a 467,000 square foot lease renewal for Snap, the anchor client in the park for 10 years, and purchased the 45% interest in the asset we didn't own for $38 million, which represents pricing of $395 per square foot and a 9% initial cap rate on a fee simple basis based on market assumptions for land value.

Lastly, in conjunction with the Santa Monica Business Park buyout, BXP purchased a 29% interest in 360 Park Avenue South for $1, bringing our ownership interest in the asset to 71%. 360 Park Avenue South is a 450,000 square foot office building that BXP is fully redeveloping in Midtown South and is encumbered by a $220 million mortgage.

Purchased 360 Park Avenue South using OP units priced at $111 per share in 2021 and subsequently introduced 2 financial joint venture partners, who secured their interest by funding the required redevelopment capital expenditures over time.

At the time of closing, the selling joint venture partner had funded $71 million, and BXP assumed their remaining $46 million projected funding obligation. This investment represents pricing projected at building stabilization in 2026 of $754 per square foot and a 7.2% initial yield on cost.

So in summary, for these 3 acquisitions, BXP invested only $48 million upfront and materially increased its ownership position in 3 high-quality assets we understand well. We expect to receive projected total returns that will be well in excess of the cost of the equity capital we've raised from the Binney Street joint ventures, and project FFO per share accretion from the investments of approximately $0.14 in 2024.

Regarding the broader private equity capital markets, office sales volume picked up in the fourth quarter to $14.4 billion, up 126% from the prior quarter and up 14% from a year ago.

Interestingly, office sales went from 12% of total real estate transaction volume in the third quarter, to over 27% last quarter. Though U.S. lenders continue to reduce exposure to office real estate, making secured financing extremely difficult to arrange, there is more distressed asset restructuring activity, more capitulation on pricing by owners and more confidence by buyers in their forecast cost of capital.

The Fed's announced late last year that interest rate hikes are likely over and cuts could start to occur in 2024, is very favorable for real estate capital market conditions.

There were a few comparable premier workplace transactions completed last quarter other than our Binney Street joint ventures. 1 West Side and West Side 2 in West L.A. sold for $700 million or over $1,000 a square foot, and a 6% cap rate to a user, but the economics are influenced by a lease buyout from the existing anchor tenant.

Now turning to BXP's priorities for 2024. Our overriding goal is to leverage our competitive advantages to preserve and build FFO per share over time.

Today, the key advantages for BXP are our commitment to the office asset class and our clients, as many competitors disinvest in the sector, a strong balance sheet with access to capital and the unsecured debt and private equity markets and one of the highest quality portfolios of premier workplaces in the U.S. assembled over several decades of intentional acquisitions and development.

Our primary focus for 2024 will be leasing, preserving and building over time our occupancy in addressing near and, in some cases, medium-term lease expirations, with our portfolio 88% occupied, leasing vacant space is our lead capital-intensive way to build back FFO. Doug will focus his comments on leasing markets and our expectations for leasing this year.

A second focus for 2024 is new investment activity. Many office owners are facing existential risks, given slow leasing and limited secured financing, and many institutional owners want to diversify away from the office asset class.

We said last quarter we intended to shift to offense on capital deployment, and this has started, given the 3 new investments I described. There are and will be significant additional investment opportunities available from both lenders and owners of property. Our focus will remain in our core markets on premier workplaces, life science assets and residential development.

During the last market downturn caused by the global financial crisis, BXP was able to acquire premier workplaces such as the GM building, 200 Clarendon Street, 100 Federal Street and 510 Madison, all at attractive prices at the time.

A third area of focus for us this year will be new development. We have 2 possibly 3 residential development opportunities under control that are being entitled and designed and we intend to raise joint venture equity capital for these projects in the second half of the year. We also continue to have dialogue with anchor clients for sites under control in Manhattan, though the discussions are in early phases and the outcomes are much less certain.

Significant pre-leasing, higher expected development yields and joint venture equity would be required to launch any new premier workplace developments. We also have several specific sites and buildings that we are trying to reentitle in advance for near-term viable use based on market conditions.

BXP continues to execute a significant development pipeline with 10 office, lab, retail and residential projects underway. These projects aggregate approximately 2.7 million square feet and $2.4 billion of BXP investment, with $750 million remaining to be funded after closing the 290 Binney Street joint venture, and are projected to generate attractive yields in the aggregate upon delivery.

We will be opportunistic with dispositions in 2024. Market conditions are generally unfavorable for selling assets at attractive prices, but we are interested in raising capital through asset sales if favorable opportunities present themselves.

To summarize, in the face of strong negative market sentiment, BXP executed well in 2023, leasing over 4 million square feet of space, raising over $4 billion of capital and launching 2 large-scale fully pre-leased life science developments. We displayed resilience with stable occupancy and a stable dividend, and our FFO per share is higher today than it was before the pandemic started in 2020.

So we start the year with continued challenges in the leasing market, BXP is well positioned to gain market share in both assets and clients during this time of market dislocation.

As a last closing remark, today represents a BXP milestone. This will be Bob Pester's last earnings call as he is retiring from BXP next month, after more than 25 years of service. Our San Francisco region grew significantly under Bob's capable leadership. Thank you very much, Bob. You will be missed by all of us at BXP.

Over to Doug.

[Douglas Linde, executive]

Thanks, Owen. Good morning, everybody. After a moment of silence to Bob, I'm going to start.

In early 2023, we established our baseline leasing expectations for our portfolio of about 3 million square feet in flat occupancy. As Owen commented, we ended the year with 4.2 million square feet, and the fourth quarter included our 467,000 square foot early renewal with Snap at Santa Monica Business Park.

We executed about 500,000 square feet more than we expected in 2023, and it was primarily pulling forward some 2024 transactions. The Snap lease was part of our baseline expectations. And interestingly, it was only 1 of 2 leases in excess of 130,000 square feet that we executed in the portfolio during the year.

On 12/31/22, so over -- just over a year ago, our in-service occupancy was 88.6%, and we finished the year, 12/31/23, at 88.4%, essentially flat. Our in-service portfolio is 49 million square feet, so 20 basis points amounts to 98,000 square feet, sort of a rounding era.

Maintaining portfolio occupancy in the current environment is an accomplishment in its own right. Our large lease expirations in 2024 are 200,000 square feet at 680 Folsom, 230,000 square feet at 7 Times Square, where we own 55% and 230,000 square feet at Carnegie Center, and they all occur in the first half of the year.

A few comments on WeWork. We are actively engaged in lease modification discussions at our 4 units, Dock 72 in Brooklyn and our 3 sites in San Francisco. Our occupancy expectations assume we reach agreements that result in a smaller overall footprint and a reduction to the $33 million of rent they are currently paying. It is the obvious that we work emerges from bankruptcy as an operating business that is positioned for success. Mike will discuss the impacts in his same-store property performance for 2024.

In '23, the U.S. [indiscernible] markets experienced negative leasing absorption. This included the BXP coastal cities as well as the major Sunbelt and Midwest markets, basically everywhere.

How are we thinking about the broad market for '24? If you look at the most recent labor statistics, while the U.S. added 216,000 jobs in December, only 5% were categorized as professional and business services, a.k.a. true office using jobs. The pace of job reductions related to the slowdown in the business economy has slowed, but we continue to see employee layoff announcements across a wide variety of industries, particularly technology.

The U.S. economy may not enter a technical recession, but no one should assume that the soft landing is going to stimulate a pickup in office-using employment. Operating in this macro environment, it's hard to envision any dramatic pickup in market leasing absorption in '24.

We think overall earnings growth for our clients and potential clients will improve and are optimistic it will lead to employment and space additions just not right away. However, we're not counting on a market recovery to maintain BXP's occupancy. Our leasing, construction and property management teams will lean in on our operating prowess to gain new clients and market share, as clients choose premier properties that are in sound financial conditions for their workplaces. This is how we release known explorations and cover vacant space.

The bifurcation of client demand between the East Coast and the West Coast continues to be very wide. San Francisco, West L.A. and Seattle are dependent on technology employers. Traditional technology demand growth continues to be weak and more times than not, renewing technology clients are reducing their lease premises.

Snap is a case in point. We were successful in executing a forward-starting 10-year lease extension commencing in '26 for 467,000 square feet. However, the transaction does include an early termination of 140,000 square feet at 12/31 24. We can't require clients to lease more space, but we can meet their workplace needs.

The leasing excitement on the West Coast in '23 was all about growth from AI organizations in the city of San Francisco, where we saw over 1 million square feet of positive absorption from the industry in the San Francisco CBD in '23. There have been billions of dollars of recent investment in this growing ecosystem, and there are additional clients in the market, but let's acknowledge that these other AI organizations are predominantly seed or early round funded entities, and not at the same scale as an open AI or an anthropic. Their leasing is focused on small footprint built opportunities that are available at significantly discounted terms relative to rents being achieved in Premier. However, all demand is good demand in San Francisco if it translates into absorption.

The Seattle CBD continues to have very little active demand other than lease exploration-driven exploration. Our vacancy in Seattle increased by about 100,000 square feet in the second half of '23, due to WeWorks termination, as well as the give back of a floor from a technology company as part of a 5-floor lease extension at Madison Center. Again, technology company, staying with us in our portfolio, but reducing some space.

The entertainment industry, union contract settlements are clearly a positive for West L.A., but there continues to be pressure from streaming profitability, industry consolidation and job reduction in the gaming and media space that is impacting overall demand growth.

The concentration of the strongest user demand, which will be the source of occupancy pickup, is still broadly speaking, asset managers, including private equity, venture hedge funds and specialized fund managers and their financial and legal advisers. These organizations are the heart and soul of our New York City activity and are an important sector of the Boston and San Francisco CBD demand as well.

In some instances, these clients are growing their teams and capital under management, but in many cases, or in all cases, they want to occupy premier workplaces.

To illustrate the point, during the quarter, we completed a 25,000 square feet expansion for an investment bank in Manhattan, a 17,000 square foot lease with a foreign bank that's relocating to one of our other properties in Manhattan, a 10,000 square foot lease with a venture capital firm that's relocating to Embarcadero Center, a 30,000 square foot renewal with a private equity firm at Embarcadero Center, a 74,000 square foot renewal with a law firm in Embarcadero Center and a 15,000 square foot renewal with a long-only manager in Boston. This is where the demand is going to come from.

Our strongest activity remains in our Midtown Manhattan portfolio, the Back Bay of Boston, the urban cores of Reston Town Center in Northern Virginia and our Embarcadero Center assets in San Francisco.

This quarter, we executed leases of about 74 transactions. We signed 37 lease renewals, 37 leases with new tenants. There were 8 contractions and 9 expansions among our existing clients, with a net reduction of about 100,000 square feet across those 17 transactions. If you exclude Snap, the number is actually a positive 40,000 square feet. The bulk of the transactions were on the West Coast and the majority of the expansions were in New York City.

Total leasing volume this quarter was led by New York at 567,000 square feet, then 468,000 in L.A., 198,000 in San Francisco, 153,000 in Boston and 140,000 square feet in the greater Washington, DC area.

I would highlight 2 leases that were executed this quarter. First, the Pratt Institute entered into a long-term lease for 63,000 square feet at Dock 72, a real accomplishment for the New York team and DoorDash executed 115,000 square foot lease, including 57,000 square feet of expansion at 200 Fifth Avenue, again, in Manhattan.

The mark-to-market of the leases that commenced this quarter, meaning they hit our revenue, was flat as reported in our supplemental. The overall mark-to-market of the starting cash rents on leases executed this quarter, relative to the previous in-place cash rents was down 1.8%. The starting cash rents on leases we signed this quarter on second-generation space were up 7.5% in Boston, flat in New York, down 15% in D.C. and overall on the West Coast down 3%, but the San Francisco CBD was still up 9%.

At the end of the quarter, we had signed leases that had yet to commence on our in-service vacancy, totaling approximately 750,000 square feet, with 625,000 square feet anticipated to commence in '24.

Our pipeline of active leases under negotiation sits at just under 1 million square feet today. We have only one transaction currently in negotiation over 70,000 square feet. Comparing this to last quarter, we were at 1.2 million square feet of active discussions at the same time and included the 467,000 square foot Snap deal. We've seen an uptick in the number of active deals, but the size is smaller.

For modeling purposes, our 2024 leasing activity is anticipated to be about 3.5 million square feet. As of January 1, 2022, so going back 2 years, our total expirations for '24 totaled 3.5 million square feet.

On January 1, 2024, we have 2.7 million square feet of current expected expirations. If we renew 25% of the remaining 2024 expirations or 675,000 square feet, it means we will have renewed about 43% of our expiring square footage, which is sort of in line with our historical averages.

We have executed leases on 625,000 square feet of vacant space commencing in '24. So effectively, we need about 1.4 million square feet of leases that we have yet to execute on 2024 vacant space to have a rent commencement during the year to maintain a flat occupancy. That's what is built into the model and into Mike's same-store.

As we look forward into the year 2024, we expect to have sticky occupancy defined as 20 basis points plus to minus 120 basis points negative at the year, and that also factors in some tenant defaults in addition to contractual expirations.

During the year, we will have property additions and subtractions to the portfolio. These are not included in the current portfolio occupancy guidance. As an example, in the fourth quarter of '24, the 2 Waltham Life Science developments will join the in-service portfolio. Their 32% leased and include 300,000 square feet of vacant space that will hit the reported vacancy, that's not part of our projections. We're just looking at our intra-service portfolio as of today.

And as long as we're on the topic of life science leasing, new life science activity across our 2 markets as well as our entire portfolio, continues to be light. During the quarter, we actually had 137,000 square foot known exploration of a life science lease in our Waltham portfolio, which impacted our sequential occupancy and there were no new leases signed in South San Francisco at 651 Gateway.

In Waltham, we are seeing some tour activity and have made some proposals, but potential clients don't feel a sense of urgency to make a quick decision.

Before Mike discusses our 2024 guidance, I want to make one additional comment around the cost of potential new developments that Owen described. We are seeing more competitive pricing in tenant improvement projects. We've not experienced deflation in material prices or labor, but it's true that there is less work, and we believe that this has resulted in lower pricing from the various subcontractors, who want to maintain a certain size of business.

As we think about new base building construction costs, we're hopeful that escalation is no longer part of the conversation and that the same pressures will result in bids that allow us to consider moving forward.

However, there are lots of infrastructure projects as well as institutional construction that is filling a portion of the void from lower commercial construction in our markets.

Capital costs still haven't received. Construction financing requires a significant capital charge for lenders and obviously results in a higher margin on top of the underlying SOFR. Everyone has a view on the timing and depth of Fed Red rate cuts, but if [ Silver ] goes to 4%, construction financing, if you can arrange it, it's still going to be very expensive and a significant drag on new construction starts.

Current market rents and concessions associated with available existing space don't support office -- new office development. To a potential client that requests a proposal for new construction understands it will involve appropriate lease economics to justify the new capital requirements.

So Mike, it's time to talk about the quarter and guidance for '24.

[Michael LaBelle, executive]

Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of the fourth quarter and our full year 2023 performance, but I'm going to spend most of our time describing our 2024 initial earnings guidance that was included in our press release, with additional details in our supplemental financial package.

So for 2023, we reported full year FFO of $7.28 per share and that was $0.02 per share of the midpoint of our guidance range provided last quarter and $0.01 above Street consensus.

Owen described the strong 1.5 million square feet of leasing activity in the quarter, and included in this is 270,000 square feet within our unconsolidated joint venture portfolio, where we generate leasing commissions that exceeded our budget by $0.02 per share.

We also outperformed our guidance for the quarter with $0.02 per share of lower net interest expense. There were 2 real reasons for that. Last quarter, we announced the closing of our $600 million 5-year floating rate mortgage on 3 of our Cambridge buildings. When interest rates rallied in December, we opportunistically hedged this financing to fix the rate at 6% for the term. This reduced our interest rate by 160 basis points, contributing to lower interest expense in the quarter.

Additionally, the closing of the sale of a 45% interest in 300 Binney Street raised $213 million of equity. That transaction closed earlier than we expected, so the interest earned on the cash represents an increase to our net interest guidance.

These 2 items were offset by about $0.02 per share of onetime unbudgeted transaction expenses related to the forming of the joint venture for 290 and 300 Binney Street as well as slightly higher G&A costs in the quarter.

Our portfolio NOI performed in line with our expectations, though we did experience a shift from the same property income bucket to termination income. We booked $10 million of termination income in the quarter, which was $7 million higher than our assumption, primarily from WeWork terminating its lease for 2 floors in Madison Center in Seattle.

Our practice is to exclude termination income from our same property results. So the impact caused our same-property growth to be slightly negative for the quarter. If you exclude the impact of the termination income, our same-property performance actually would have been roughly flat.

So with that, I'm going to turn to our 2024 guidance. On a high level, our 2024 guidance can be summarized as follows. We project growth from the delivery of development and the acquisitions of our partners share in Santa Monica Business Park and 901 New York Avenue, a slight decrease in our same-property portfolio NOI compared to 2023, higher net interest expense due to the persistency of the current high interest rate environment and lower development and management services fee income.

I'm going to start with the impact of the acquisitions of our partner's interest in Santa Monica Business Park and 901 New York Avenue that Owen described. 360 Park is still in development, so that transaction has limited impact on 2024 FFO. There are a lot of moving pieces with these transactions from an income and balance sheet perspective, so bear with me for a moment.

Including the impact of the incremental debt acquired as well as the loss of fee income earned from our former partners, we project these acquisitions are highly accretive, adding approximately $25 million or $0.14 per share to our 2024 FFO.

Noncash components represent about 50% of the incremental FFO pickup and are derived from straight lining the leases and fair valuing the debt and the ground lease at Santa Monica Business Park.

If we break that down into the categories for our guidance assumptions, the incremental property NOI is approximately $0.22 per share, and that's offset by the additional interest expense of $0.05 per share and the loss of fee income of $0.03 per share.

We will now be consolidating the results from these properties. So starting in 2024, you will see the increase in our consolidated NOI and interest expense and a decrease in FFO from unconsolidated joint ventures and fee income.

Also impacting 2024 is the disposition of Metropolitan Square in Washington, D.C. that we transacted last year. Inclusive of interest expense, the transaction is neutral to our 2024 FFO. But we do expect a reduction in property NOI of $0.03 per share, that's offset by a comparable $0.03 per share reduction in interest expense.

Turning to development activity. Our development activity includes $550 million of investments that delivered in 2023 and will contribute incremental growth for a full year in 2024. These include 2100 Penn, 140 Kendrick Street and 751 Gateway that are in aggregate 97% leased.

We have an additional $665 million in developments that are projected to deliver in the near term that we expect will commence revenue in 2024, but be much more meaningful to our growth in 2025 as they complete their lease-up.

In aggregate, we expect our developments to contribute an incremental $35 million to $42 million in 2024 or $0.20 to $0.24 per share.

Turning to the same property portfolio. Doug spent time describing our occupancy outlook and the impact of the uncertain economic environment that our clients are dealing with. Most continue to be very cautious around new investments, including space, and our leasing projections reflect this conservatism. We still expect to have a productive leasing year. And as Doug described, we have a large backlog of signed leases and leases and negotiation that will go into occupancy in 2024. We expect an occupancy range for our in-service portfolio of 87.2% to 88.6%.

Overall, our assumption for 2024 same-property NOI growth from 2023 is negative 1% to negative 3%. As Doug mentioned, we're in discussions with WeWork on modifications for the remaining 4 leases. Our guidance assumes -- our guidance includes assumptions for these modifications that comprise 45 basis points of the decrease in our projected same-property NOI performance.

As you all should expect, our interest expense will be higher in 2024 with the continued high interest rate environment. We expect floating rates will start to drop in the back half of the year and are modeling 75 basis points of Fed cuts, which is more conservative than the current forward SOFR curve.

Currently, floating rate debt is only 5% of our total debt, is comprised of $730 million of mortgages, and we have a $1.2 billion term loan that's currently fixed and the interest rate swap expires in May of 2024.

Our liquidity is very strong. We have current cash balances of $1.5 billion and our entire $1.8 billion line of credit is available. We will be using approximately $700 million of cash to redeem our maturing 3.8% $700 million unsecured bond that expires tomorrow. Other than that, we have no meaningful 2024 debt maturities without extension provisions, so we're not projecting significant changes in our debt profile.

Our only external funding need is approximately $600 million of development spend in 2024 that will be funded with available cash.

The majority of the increase in interest expense is coming from our 2023 refinancing activity, resulting in a roll up to market interest rates and the consolidation of the mortgage threat for Santa Monica Business Park and 901 New York Avenue.

And lastly, as I mentioned last quarter, our average cash balance will be less in 2024 than it was in 2023, and we expect approximately $30 million of lower interest income. So overall, we're projecting net interest expense of $570 million to $590 million in 2024. We expect consolidated net interest expense to be higher by $72 million at the midpoint, inclusive of the drop in interest income I mentioned. With the consolidation of SMBP and 901 New York Avenue, the interest expense and our unconsolidated joint venture portfolio is expected to be $18 million lower. So this results in a projected increase from year-to-year in total interest expense, including our joint ventures of $54 million or $0.31 per share at the midpoint of our guidance range over 2023.

Additionally, the consolidation of Santa Monica Business Park requires us to fair value the above-market ground lease, we project a $10 million positive noncash impact to FFO from this in 2024.

The last item I would like to cover is our fee income projection. We have or will be delivering several joint venture development projects, including our Gateway joint ventures, 360 [ Park ] and the Skymark Residential Development. With the delivery of these projects, our development fees are expected to be lower by about $5 million in 2024.

Also, we're no longer receiving fees of about $5 million from Santa Monica and 901 New York Avenue, now that they are wholly owned. So our guidance for fee income is lower and is now $25 million to $28 million in 2024.

So if you aggregate all of these assumptions, we're providing an initial 2024 FFO guidance range of $7 to $7.20 per share. At the midpoint of our guidance, that's $0.18 per share lower than our 2023 reported FFO. The difference is comprised of increases of $0.19 of incremental NOI from acquisitions and dispositions, $0.22 from our developments, $0.02 of lower G&A expense, offset by $0.26 of higher interest and fair value ground lease amortization, $0.21 of lower contribution from same-property NOI, $0.08 of lower fee income and $0.06 of lower termination income.

At the midpoint, our 2024 FFO results in a modest 2.5% decline from 2023. So despite the economic headwinds, we continue to gain market share with our leasing and operating prowess and premier workplace portfolio, demonstrating relative stability in times of negative absorption.

We're optimistic that the interest rate environment will settle at a lower level, providing more confidence in the economy. We're also successfully executing on accretive new investments and continue to focus on additional opportunities to grow our earnings and create shareholder value.

That completes our formal remarks. Operator, can you open the line for questions?

[Operator]

[Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI.

[Steve Sakwa, analyst]

I appreciate all the detail. I guess, Doug, I wanted to maybe circle back on the 1.4 million that you talked about. I think that's kind of the effectively the new leasing number that you need to hit this year. And I think you said you've got some things in the pipeline. But how do we think about that number at unfolding over the course of the year? And I guess, at what point of the year do those leases need to be signed in order to take effect to hit the occupancy target that you're looking for this year?

[Douglas Linde, executive]

So that's, unfortunately, the technical question that keeps everybody up at night here at BXP, which is what will the actual condition of the space fee that we're leasing and what will our requirements be to either modify or change the space relative to simply handing the space over to the tenant? And I wish I could give you a precise answer to that, Steve.

Right now, of the -- just over 1 million square feet of space that we are currently under negotiation with, about 500,000 of that is covering what I would refer to as pure vacancy. And I think there is a good probability that 50-plus percent of that will be in place from a revenue perspective in 2024 -- but it's -- that's the really hard question for us to gauge, which is, I'm comfortable that we're going to get the leasing done and that when we are also showing our "occupancy, " including signed leases, that it will illustrate that we have had a very successful year from a leasing perspective.

It's really hard to know when that revenue is going to hit. And so that's the variable that we can't control because it's really a question of how the lease comes together. And all of that is embroiled into Mike's same-store number. So that's why I think, to be fair, we are being, I think, conservative but they're conservative, not trying to -- we're not standing backing anything here because we just don't know.

[Operator]

And I show our next question comes from the line of John Kim from BMO Capital Markets.

[John Kim, analyst]

On your joint venture acquisitions, 2 of them were centered around major lease extensions. Was that timing related to your partners exit, because they no longer wanted to fund the future CapEx? Or did the signing of those leases really provide valuations for your partners to exit? And what does this mean for your other assets that you co-own with [ CPPIB ] and your other selling target?

[Owen Thomas, executive]

Yes. Yes, as I said in my remarks, the lease extensions did spark the acquisitions that we made. And it's for the reasons that you outlined. So with each of these extensions came a capital requirement for tenant work, leasing commissions and, in some cases, building upgrades. And the 2 partners had a shift in strategy to disinvest or reallocate away from office. And that basically sparked the acquisitions.

The other thing I would point out, other assets had future capital requirements as well. So in the case of Santa Monica Business Park, we have the Snap renewal, but also we have a fee purchase option coming up in 2028. That could -- if we elect to purchase the fee, that will have a capital requirement.

And those 360 Park Avenue South, there was not an anchor lease renewal because that project is under redevelopment. It's in the middle of the redevelopment. So the partner basically sold out their position in the middle of funding that development. So it also had a future funding requirements. So those are really the drivers.

[Douglas Linde, executive]

Yes. And John, I would just say the following, which is there are institutional investors who have just had a perspective that at this moment in time, investing additional capital in our sector is not what they want to do, relative to their portfolios. We obviously have a very different perspective on the long-term value that's going to be created by doing these transactions or we wouldn't be doing them.

So we're excited about the lease that we signed with Snap. We're excited about the lease we signed with Finnegan Henderson. And we're excited about what that means for the long-term value of these properties. And it was the disconnect between what they wanted to do and what we wanted to do that really created the opportunity from our perspective to deploy capital in a very accretive way. And we're looking for other opportunities in our portfolio and away from our portfolio, where these types of disconnects between the current owner and what our perspective is they're different.

[Owen Thomas, executive]

Yes. And just lastly, John, to the second question that you asked, never say never. There might be other opportunities to acquire interest in properties that we own, but I certainly don't think the volume would be anything like what we experienced in the last quarter.

For example, today, our largest joint venture partner is Norges. And in the last quarter, they actually increased their number of joint ventures with us because we did these 2 major JVs in Cambridge. And obviously, they have a different strategy from the JV partners that we acquired interest from. So it could be more, but I don't think it will be anything close to the volume that we experienced last quarter.

[Operator]

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

[Alexander Goldfarb, analyst]

And first, Bob Pester, congrats on retirement. I guess now we can all look for Rod's steady hand.

Just, Owen, and Doug, just I guess a 2-parter following up on John Kim's questions. One, obviously, is the debt side of the equation, looking what your expectations are for potential debt resolution, where Boston may be able to pay off debt at cents on the dollar and two.

As you look at these JV buyouts, is it purely that the partners, whether the existing or potential ones in the future, just don't want to put in capital or is it that they view the investment of that capital to be highly risky, whereas you guys seem quite confident in your returns? And just trying to understand if it's a capital issue that your partners just want to know more versus a risk of investment decision?

[Owen Thomas, executive]

Yes. I think the -- Alex, to answer your question on the debt side, Mike should answer. But in general, as you know, we primarily finance with unsecured financing, and we have great access to that market and have been accessing it and we think it's very attractive. And in most cases, we've been able to extend or refinance existing mortgages that we have on our joint ventures.

Look, I think in terms of the answer to your question, the JV partners would have to answer it in terms of how they thought about the returns that they were forecasting from the extensions that we committed to. But when we do our own math, and we shared some of it with you on this call, we think it's very attractive and it's very accretive to our company, and we think it makes a lot of sense.

So our suspicion, as a result, is that these decisions that they made were more related to a change in strategy as opposed to a lack of enthusiasm for the return.

I'd also just make an additional point on this. These are 2 different partners, and they come from a little bit different position. So the partner on 901 has been a long-term investor in that project, and they have been in it, and they have made a good return and has been very successful for them. So maybe it was a change in strategy, but it also might have been, look, we've been in this for a very long period of time. We've done fine. Maybe this would be a good time to exit.

I think on the partner on the other 2 deals, Santa Monica Business Park and 360, definitely, they were newer to the JVs, and I think that clearly was more of a change in strategy.

[Operator]

And I show our next question comes from the line of Nick Yulico from Scotiabank.

[Nicholas Yulico, analyst]

I was hoping to just get a little bit more feel for the decision to reinvest in Santa Monica Business Park. Why you think it's still an attractive long-term opportunity?

And secondly, if you could just give us any feel for -- in terms of the Snap renewal, how the mark-to-market worked on that plus the level of TIs and free rent if you had to give there?

[Owen Thomas, executive]

Yes. So I'll turn it over to Mike for the second question. But in terms of the first question, I mentioned the yield that we bought this and the per foot that we bought the asset on a fee simple basis, we think that's very attractive pricing. We were able to derisk the asset materially through the extension of the anchor tenant, which leases 400-plus thousand square feet of the 1.2 million square feet.

And also, we think that Santa Monica Business Park is a very interesting redevelopment opportunity for our company, and we're in the process of commencing that redevelopment process. And we think over a long period of time, it's going to be a very accretive asset to our company. So we are excited about the asset.

[Douglas Linde, executive]

Yes. And Nick, this is Doug. On your answer to the other question. Without -- we're not going to get into the specifics of a particular tenants economics.

As I said in my remarks, our West Coast leases that were signed this quarter -- executed this quarter was down 3%, but San Francisco was up 9%. So you can go through the statistics and sort of decide yourself how you think that might have played out.

And relative to transaction costs in free rent, it was actually a very low transaction costs and low free rent early renewals. So those economics were built into the lease rate.

[Operator]

And I show our next question comes from the line of Anthony Paolone from JPMorgan.

[Anthony Paolone, analyst]

You talked about playing offense and it sounds like you'll use some third-party capital as you've done in the past. But just for BXP's portion of deals and playing offense, where do you think we see capital come from for you all?

[Owen Thomas, executive]

Well, as you said, as I mentioned in my remarks, I do think there will be opportunities that will present themselves for the company this coming year. And as you said, we will -- the joint venture partner more than likely using third-party capital, and we will be using our balance sheet to fund our joint venture interest in whatever we come up with.

But it's -- again, we are receiving inquiries. We are looking at things, but we're not, I would say, advanced in anything at this time. But if we look at what we think will happen in 2024 versus illiquidity in the market in 2023, I think activity will be greater this coming year.

[Michael LaBelle, executive]

And I would just add that a lot of what we're looking at is doing things more on a capital-light basis, and taking a lower percentage interest percentage potentially or entering assets in a different way and kind of similar to these transactions that we did, and this didn't require a lot of incremental capital.

We took on a little bit, obviously, their share of the debt, but the overall impact on our leverage was very, very small with these transactions. And in fact, we've kind of delevered overall because we brought in the equity from the Cambridge transaction. Overall, we deleveraged.

We're -- we don't expect that we're going to increase our leverage significantly. And our goal is to kind of maintain it in a range that is pretty close to where we are. So I think that when we think about investments, we keep that in mind.

[Operator]

And I show our next question comes from the line of Michael Goldsmith from UBS.

[Michael Goldsmith, analyst]

We've talked a little bit about San Francisco, and there's some clear differences in the markets. Do you think we're kind of hitting the bottom in these tech markets that are lagging in their portfolio? And just any visibility from the demand from AI or other sources that are providing some near-term excitement for a rebound in San Francisco and Seattle?

[Douglas Linde, executive]

I would say, Michael, that the technology demand on the West Coast is lower than we would like it to be, largely because there have been a significant amount of technology layoffs over the past, call it, 12 to 18 months, and they're still happening.

Clearly, they're happening at a much lower rate and they're on the margin. So I would tell you that I think we've been sort of in the "bottom" for a period of time. And I don't look at the world and say that there's another "[indiscernible]," I think we're just sort of in a portion of time where there's just no interest in growth from a real estate space perspective for technology companies.

I believe that will change. The fourth quarter and the third quarter of 2023 in San Francisco for AI was a great quarter, and we had 2 really interesting transactions occur, which we've described previously. There was 1 million square feet of positive absorption. I'm not smart enough to know if those 2 tenants may double or triple or quadruple over the next 2 to 3 years. I also don't know whether or not there are going to be other AI companies that are either BC or seed invested with [ angle ] investing that are going to explode.

I'm hopeful that those types of things will happen. And from our perspective, that will all be to the good for the West Coast and for the city of San Francisco. 2024 is not going to be that year in terms of, in our view, space absorption.

[Operator]

And I show our next question comes from the line of Michael Griffin from Citi.

[Unknown Analyst]

It's actually Nick Joseph here with Michael.

Owen and Doug, you guys have touched on the opportunities expected this year and with some institutional owners, maybe change in strategy or lowering exposure. I guess on the other side, are you seeing more competition for some of these potential deals? Are you seeing people actually looking either distressed opportunities or other opportunistic opportunities looking to actually add exposure to office? And then how are you thinking about actually underwriting the deals, just given the current environment?

[Owen Thomas, executive]

Yes. So Nick. So there have been more office transactions in the fourth quarter. In my remarks, I gave some stats, and it was kind of interesting to me the percentage of the commercial real estate transactions that are going on from office increased materially in the fourth quarter to the third.

So what's happening? I think there are more distressed players that are out there, buying assets at very low per square foot prices. Some of these assets are challenged physically, most of them are not very well leased. And I think those buyers are family offices, for example, they're smaller deals that don't need leverage. Because again, getting a secured mortgage for an office building is virtually impossible. And I think these buyers are just saying, look at this per square foot price, we think the market will ultimately recover, and we're in at a good basis.

So I think that's the kind of market that's out there. Those aren't the kind of deals that we want to do. I mean we're looking for premier workplaces. We're looking for assets. They may not be fully leased. Maybe there are some challenges with it or an asset that we can make a premier workplace, and they're going to be larger and they're going to probably require funding from the financing market in some way. And I think there's much less competition for anything like that. And I think, hence, that's BXP's opportunity.

[Operator]

And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley.

[Ronald Kamdem, analyst]

Hopefully, you can hear me. Just one, 2-parter, one on the same-store NOI guidance of down 2%. Just hoping a little bit more color. You talked about WeWork being a 45 basis point headwind. Just could you talk through maybe what some of the larger expirations that you're expecting in the first half the impact will be and what you're assuming at the top and bottom end of the guidance range?

And the second part, if I could sneak it in, is just on the life science market, as you sit here today versus 3 to 6 months ago, can you just characterize what the leasing activity is like for the larger versus the sort of mid and smaller tenants?

[Michael LaBelle, executive]

So I'll start with that on the same-store question, which is really related to kind of the trends in our occupancy that we expect. So we gave the range of that. And our anticipation is the first half of the year has some of these larger expirations, there's one in New York City. There's one in [indiscernible] Center and then there's one in San Francisco, and Doug kind of described how big they were.

And then the leasing that we have signed that are going into vacant space is more spread across. So my expectation is that you're going to see occupancy decline a little bit in the first couple of quarters, and then it's going to build back up through the year. And that's what's built kind of into our guidance ranges.

And then obviously, our boundaries are kind of the upper and lower boundaries of what that year-end occupancy range that we provided is that Doug talked about. So that's kind of how we build that range. And I think that pretty much answers your question, Nick.

[Douglas Linde, executive]

Yes. And let me add on Rod deal go first on life science activity in the San Francisco -- South San Francisco, North Peninsula market and then Bryan can talk about life science activity in our Waltham portfolio, which is where obviously where our availability is.

Rod, do you want to start?

[Rodney Diehl, executive]

I would just say that relative to 6 months ago, at least in the Bay Area, I would say the life science demand is about what it had been, which is that it's not with the larger users. There have been some smaller tenants. That's how we were able to land the 3 deals at our 651 Gateway project. Those are single-floor tenants roughly 22,000 each.

So in that section of the demand, we're still seeing a little bit of activity, but not so much on the larger groups. So relative to 6 months ago, I think it's probably about the same.

[Bryan Koop, executive]

Boston, this is Bryan Koop. It really reflects the same thing. The second half of last year was far different than the first, and activity picked up on life science tours. But let's say, from summer beginning, smaller users out there still questioning, is it time to make a commitment or not? A lot of questions about their funding, et cetera.

And then fourth quarter, we did see a couple of, let's say, the life science titans come out and emerge. And they were all caught let's say, potential clients that are in the market already in Cambridge that were, let's say, looking, sourcing the Waltham market for what could be available.

In general, we just had a summary with Doug and Owen yesterday about last year's performance. And we were quite surprised. We have 360 tours last year. So you're averaging 7 a week, which was surprising, given how dismal the attitude about office was.

2 comments. One is that the clients are spending far more time with us and aggressively looking for what their strategy is going forward. And we have also seen verification of possible spoke plays, where you have a large headquarters in the CBD district and then looking for a spoke location further closer to the suburbs to people's homes. And we've had 2 great executions of that and there's been a lot of interest in that.

[Operator]

And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs.

[Caitlin Burrows, analyst]

Maybe just a question. Google announced last night meaningful office optimization charges, 1.2 billion in the quarter. So given your 2.8% exposure to the tenant, will this impact any of your properties? And I guess, more broadly, I think you mentioned that tenant defaults are included in your guidance. So what's your watch list like or outlook for early exits by tenants this year?

[Douglas Linde, executive]

With regards to your first question about Google, the answer is absolutely not. We have -- Google is in only one asset of ours, which is in our Cambridge portfolio and they're in there for a long, long time, and they're actively using their space and talking to us about increasing parking needs and things like that. So we have no sense that there's any change in their portfolio composition at least with us at BXP.

I would say most of our defaults have been in the life science and they've been in the sort of start-up tech world, and we have one in Waltham, that's probably going to occur and we have 2 or 3 that occurred in the latter parts of 2023 on the West Coast, one CBD and 2 in the suburban market, and they're all sort of in this 20,000 to 25,000 square feet of piece, and they're just part of the -- what's going on in the economy with regards to capital formation, where VCs want to put their money, where they don't want to put their money, whether technologies are successfully getting companies to the point where they can raise additional capital again and we have some exposure to that, but it's not significant.

[Operator]

Our next question comes from the line of Camille Bonnel from Bank of America.

[Jing Xian Tan, analyst]

On the 6 projects that are scheduled to be stabilized in 2025 and have started or are starting initial occupancy this year, how far along are the leasing prospects on those buildings? And how much do these development prospects represent in the active leases under negotiation pipeline?

[Douglas Linde, executive]

So Mike is pulling out which ones theoretically are...

[Unknown Executive]

We're needing [ 103 ] [indiscernible].

[Douglas Linde, executive]

So the developments that we have, I believe that you're referring to are 290 Binney Street, which is the 2026. That's [indiscernible], that's 100% lease. 103 Fourth Avenue, which we don't have any leasing velocity on. 180 CityPoint, where we have about 140,000 square feet of available space. Those 2 are coming online in '24 in terms of when they're going to be in service. And we need to find some clients to lease those buildings in order for them to be stabilized in 2025.

At 651 Gateway, it's a similar conversation, in that we've started doing leasing. We will be through 12 months of the lease-up in early 2025, and we need to do more leasing in order to get that one going in the 360 Park Avenue South, which -- where the building construction is complete and Hilary and her team in New York are aggressively pursuing anybody who wants premier space in the Midtown South market, where we've done one lease, and we have another lease that we're close to having a letter of intent on for a floor plus. And then there's other interest in the building. And that one also we need to do additional leasing in order for it to be stabilized in 2025.

The rest of the -- I believe the rest of the stuff is residential, and that's obviously a question of when those buildings start and how long the ramp-up is in terms of turning over the units and I think when Skymark opens, which is the Reston property in the third quarter of 2024, we have probably a 15- to 18-month lease-up. [indiscernible] you can correct me if I'm wrong, in or for that one to be stabilized.

[Unknown Executive]

No, those are both correct. And that also has, as you know, 75,000 square feet of office and then some ancillary retail. And we're working on a couple of deals for the retail space. And we've got, I would say, a real prospect for about half of the office space that we're speaking to, but not at LOI stage with at this point in time.

[Michael LaBelle, executive]

So Camille, that was really in my notes, I kind of described that the deliveries in '24 are these deliveries we're talking about. And we don't expect '24 to have a really significant impact from those, but we do expect to have some leasing momentum in '24, with income starting in '25. So our expectation is that that's when we will start to see more revenue come from these buildings.

[Operator]

And I show our next question comes from the line of Blaine Heck from Wells Fargo.

[Blaine Heck, analyst]

So it seems like we're still seeing the flight to quality trend play out with most net absorption and leasing activity taking place at high-quality buildings with high rents. But recent media reports have tried to kind of poke holes and even the top of the office market. So just wanted to get your thoughts on whether anything has changed with respect to leasing activity or rents at the top of the market and whether you've noticed that tenants have maybe become more cost conscious and less likely to lease at those highest quality spaces?

[Owen Thomas, executive]

I would tell you -- I didn't go through it this quarter because we had so much other stuff to go through. But the premier workplace data that I generally provide on this call shows accelerating distancing between premier workplaces and the rest of the market from a vacancy, net absorption and rental perspective. So at least at a high level, the trend to premier workplace continues to run unabated.

[Douglas Linde, executive]

And I would tell you that the most activity that we are having on a building-by-building basis is, in fact, in our CBD most premier assets. And in no case, are we seeing changes in the economics of what the market or we are asking for and ultimately achieving in those client conversations.

I'm not sure where that information that was in the article in the Wall Street Journal came from, but it's just -- and I'll let Hilary describe what's going on in Manhattan in terms of our activity level, which I think is sort of the poster trial for Premier. And she can sort of give you a perspective on why I think that article is just not -- it doesn't hold water for us.

[Hilary Spann, executive]

Thanks, Doug. Yes. So we have seen consistently since, at least 2019, gains in occupancy in Midtown Manhattan for Premier workplace, with corresponding declines in occupancy for non-Premier workplaces. And the same is true in terms of rental rate gains for Premier Workplaces in Midtown Manhattan.

So while you might expect, given the weakness in some of the overall office statistics to sort of affect the Premier Workplace, in fact, the opposite is true. And at present, the vacancy rate for Premier Workplaces is hovering just around 10%, which we consider stabilization levels for Midtown Manhattan.

And although the capital markets environments are not constructive for new development, that is generally the point in the market at which you would start to see people interested in building new products.

So if you think about the availability of high-quality space in Midtown, there are only 3 available spaces in the Park Avenue submarket of 250,000 square feet or greater. One of them has a lease out on it. So if you are a tenant of size and you're looking for premier space in Midtown, it simply is very, very hard to find and getting harder. And that drives pricing, obviously. So we feel very, very good about our Midtown portfolio. And we think that rents will continue to improve across the board for Premier Workplace in New York.

[Douglas Linde, executive]

And then just -- Jake, you might comment on the phenomenon you're seeing at the high end -- in the premier buildings where, I guess, what we would refer to in Washington, D.C. as the trophy buildings in terms of both the demand and the economics there.

[Jake Stroman, executive]

Sure. I will just sort of tack on to what Hilary had noted in Washington, D.C. We continue to see a significant sort of material outperformance for trophy class assets and repositioned assets in our market. There's an incredible amount of leasing velocity that we see at those assets, relative to what we see across the rest of the market being commodity space. So we've achieved a lot of leasing success in a lot of our premier assets in downtown Washington and continue to see a lot of traffic.

[Unknown Executive]

We're seeing the same thing in Boston. And as noted in our discussions internally this last week, for our Boston portfolio, we're at 4.4% vacancy and Cambridge is 2.5%, which is just phenomenal.

We are seeing -- I wouldn't say that this is outstanding trend, but we are seeing users that normally would not be in our office building, where they want more square footage in, let's say, a Class B or C building, looking to us for reaching up with smaller square footage just used more efficiently.

[Operator]

And I show our next question comes from the line of Upal Rana from KeyBanc.

[Upal Rana, analyst]

The D.C. market seems to be a bright spot, given the JV acquisition of 901 and the lease extension as well as the increase in occupancy there. Do you see the strength that is sustainable? Or could you provide your thoughts on the D.C. market in general?

[Douglas Linde, executive]

So I would tell you that the D.C. market is the most -- one of the most interesting markets from our perspective in the sense that there are more, what I would refer to as over finance buildings with institutional owners that are no longer interested in providing capital to those assets, which is manifesting itself in a inability for lease transactions to occur in those transactions.

And Jake and his team are, I would say, highlighting our financial stability and the things that we are doing in our buildings. And there is no question that the lease transaction that he just pulled off with Finnegan Henderson was a direct result of the lack of opportunities for a large tenant to go to other existing buildings, the inability of any new construction to commence and BXP's ability to both provide TI capital as well as figure out a way to reposition that building to be as close to a brand-new trophy building as you possibly can have.

And Jake, you might just sort of describe the choices that are out there and how the distress in the market is impacting our ability to transact.

[Jake Stroman, executive]

Yes, sure. I can just -- Doug, to that point, if we look at 901 New York Avenue as an example, in the last 30 months, we've done 140,000 square feet, plus or minus, of transactions at that asset. And we've had great activity. And I think a lot of that is because we've been incredibly responsive to the clients in the market. And I think people have been responsive to our sponsorship at the asset.

So we feel really comfortable with the plus or minus 100,000 square feet of vacancy at the asset, given the repositioning program that we're going to undergo. And so we're really excited because these repositioned assets and investing this new capital into re-amenitizing the ground floor plane of the building and sort of really repositioning the lobby experiences, it really drives the activity of that asset, and it really becomes a new building in the market.

And so there are fewer and fewer of those opportunities available in downtown Washington. And ever since news of the transaction that Doug noted was completed, we've seen great activity already and continue to at 901. And it's just representative of the fact that there aren't a lot of great opportunities in Washington, D.C. that exist today for premier office or repositioned office.

[Michael LaBelle, executive]

The one other thing I would add is the performance of Reston Town Center. I mean again, the majority of our portfolio in the Greater Washington areas and Reston Town Center. And Reston is 94% leased, and we've had positive absorption there. In this past quarter, we did a 60,000 square foot new lease with a technology company coming from another place into Reston Town Center.

Again, because it is such high quality kind of a live, work, play kind of place, and these clients really, really value that. So we're outperforming from a rental rate perspective, and we're seeing positive absorption there.

[Operator]

And I show our next question comes from the line of Peter Abramowitz from Jefferies.

[Peter Abramowitz, analyst]

I think Owen mentioned there's an early termination option for part of the Snap extension at Santa Monica Business Park. Just curious how that's kind of factoring into your conversations with the lender ahead of the loan maturity in 2025. And wondering just how to think around parameters for pricing as you start to have those conversations?

[Douglas Linde, executive]

This is Doug. There is no termination option on the lease that we just signed. As part of the lease, we allowed them to terminate on 140,000 square feet at the end of 2024. The remaining 467,000 square feet is going out for 10 years starting in 2026 to 2036.

So Mike can describe any conversations that we've had with the lender, but we're very comfortable with the refinancing opportunity associated with that building and how that will play out, relative to both the new leasing that we hope to do as well as the potential purchase of the ground, which is -- can occur in 2028.

[Michael LaBelle, executive]

And Peter, the loan is with a syndicate of banks who are relationship banks of ours. It does expire in 2025. And I'm confident that those banks will be supportive of us, and we will likely extend that loan for, I would say, a bridge period that will get us through the purchase of the ground lease. And after the purchase of the ground lease, because it's an above-market ground lease, there will be an improvement to the economics of the asset and we would probably do a longer-term refinancing after that or focus on a portion of the part that might be redeveloped, and then we could split it into a portion that is going to stay as is for a while in a portion where we might do a kind of mixed-use redevelopment.

[Douglas Linde, executive]

And now that it's effectively a wholly owned joint venture, we have no partner. We don't need to use third-party financing. We can choose to use unsecured financing. So I mean there are lots of [indiscernible].

[Operator]

And I show our next question comes from the line of Dylan Burzinski from Green Street.

[Dylan Burzinski, analyst]

I guess just appreciate the comments on potential acquisition opportunities in the future. But could you just talk about sort of how maybe your co-investment partners are viewing office today and sort of the return threshold needed for them to deploy capital to the sector?

[Owen Thomas, executive]

I think it's a mix. As we've just described some partners that are trying to reallocate away from office. And -- but there are others that are interested, they're intrigued. I think they see the same opportunity that we do.

All of these negative sentiment about office is creeping into the premier workplace segment, which doesn't deserve it, given all of the color that we just gave you on this call. And I think there are investors, who have capital that see that and are interested in co-investing with us.

And so in terms of pricing, I think it's to be determined. I think it depends a lot on the building, leasing status and what exactly the issues are. There's no doubt that pricing has changed. And we demonstrated what some of those changes are with the deals we did last quarter.

[Operator]

And I show our last question comes from the line of Floris Van Dijkum from Compass Point LLC.

[Floris Gerbrand van Dijkum, analyst]

I guess following up on the last question a little bit, Owen, maybe I'd love to get your thoughts on cap rates, and what is happening in office? And when could we see, in your opinion, the stabilization of cap rates? It appears that clearly, the Santa Monica deal at a 9% cap rate, that would be probably 200 basis points north of where it was maybe 18, 24 months ago.

Maybe talk specifically about your view on what's happening to cap rates in some of your key markets like New York, San Francisco, Boston, D.C. or L.A. And what -- and at what point would you -- where do cap rates need to be for you to actually deploy more capital?

[Owen Thomas, executive]

Floris, you're asking a very good but unanswerable question, and I'll explain why.

We tried. I try every quarter to give all of you comparable market deals. So we all understand together what pricing is. And this quarter, I could not come up with one. The only one was the deal in West L.A., but it had a lease buyout, and I'm not sure it was per se, a comparable deal.

We gave you some data on partner buyouts that we did. Each one of those deals have different facts. For example, the Santa Monica deal was an unlevered fee simple cap rate. Well, that's got an assumption in there about Land Valley.

So how accurate and how usable is that cap rate, I don't know. But we did just give you 3 cap rates on deals in New York, West L.A. and Washington, D.C. on partners that we bought out. So that is some data.

And then lastly, in terms of what would be interesting to us, we pay attention to what is the look through cap rate for BXP and what would be accretive to us. And today, I think that number is around 7.5%. And we need to -- if we're going to do things that need to accrete our earnings. And so we're going to be focused on that, look through cap rate as a guidepost for what we do.

[Operator]

Thank you. This concludes our Q&A session. At this time, I would like to turn the call over to Owen Thomas, Chairman and CEO for closing remarks.

[Owen Thomas, executive]

I can't imagine you all want to hear any more remarks from us. So I thank you for your patience. This is a complicated quarter. We got through a lot of data. And again, thank you for your time and interest in BXP.

[Operator]

Thank you, sir. This concludes today's conference call. Thank you for participating. You may now disconnect. Good day.