session at Citi's 2023 Global Property CEO Conference. I'm Michael Griffin with Citi Research, we're pleased to have with us Brandywine Realty and CEO Jerry Sweeney. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or in the webcast, you can sign on to live Q&A and enter code GPC23 to submit any questions if you do not want to raise your hand. Jerry, we'll turn it over to you now to introduce Brandywine and any members of management who are with you today, provide any opening remarks, then we'll get into Q&A.
Michael, thank you very much. Thank you all for attending. With me today is Tom Wirth, who's our Executive Vice President, Chief Financial Officer. A couple of opening comments and then certainly happy to answer any Q&A that may come from either Michael or other team members. Look, I think the focus, quite simply for Brandywine is really on leasing, liquidity, and leverage. I think, approaching the first one on the leasing front. You know, from an operational standpoint, we're in very good shape. We have very high quality properties. Those properties are at the high end of the quality curve in every one of our submarkets. Our occupancy levels are in the 90% range, and we're projecting that from a leasing standpoint to move close to 92% by the end of 2023.
That range is in our portfolio. Our Philadelphia CBD, University City, and Pennsylvania suburban markets are about 93% occupied, with Austin around 85%, and then our 5 remaining projects in Metro D.C. are down around 75%. The portfolio has a very low rollover risk actually through 2026. We only have 7% of the portfolio rolling on average. We have been able to post strong mark-to-market, both on a cash and GAAP basis the last several years. Our forecast for 2023 is that they will have 11%-13% GAAP mark-to-market and 4%-6% cash. We've also kept our capital ratios very much in line with our long-term targets. For 2023, we're forecasting a capital ratio between 11% and 13% of rents.
We are definitely benefiting from the move to quality, as you refer with some other office companies. In fact, during the fourth quarter of 2022, 58% of our leasing velocity was tenants moving up the quality curve. All of our leasing activity for 2022, about 40% of that were tenants moving up the quality curve. Expansions continue to outweigh contractions. During 2022, we posted about a 2.5 to 1 ratio of expansions over contractions. Our pipeline is on the operating portfolio is above pre-pandemic levels, and we're seeing a continued compression of decision timelines. In looking at our development pipeline, we have about $1.2 billion under active development. Our wholly owned pipeline is about $300 million.
That is 30% life science, 70% office. It's 83% pre-leased. Our only remaining funding obligation on that pipeline is about $90 million. On the JV front, we have several projects underway, that's comprised of about 31% residential, 41% life science, and 28% office, and we only have about $4 million left to fund on that pipeline, with the remaining equity coming in from our joint venture partners. The existing pipeline for our development projects is about 1.8 million sq ft, pretty much broken down between office and life science. One of the things that we're excited about in the company looking forward is that our forward development pipeline aggregates about 11 million sq ft. That's about 21% life science, 36% residential, 27% office, and 16% other.
The ability within our two large master planned communities at Uptown ATX in Austin and Schuylkill Yards in University City, Philadelphia, we have the ability to really diversify our forward revenue stream. We also spent a lot of time in the last quarter on our liquidity position. We entered 2023 in a very strong liquidity position. We redid our $600 million line of credit last year, as well as a related term loan. We financed our $350 million of bonds that were maturing in February of 2023, late last year. We've also done a $245 million secured mortgage transaction and sold about $113 million last year. As we look into our business plan going forward, we have cash on the balance sheet.
We have full line of credit availability and several other financings underway. In addition to that, our plan for 2023 is to sell about $100 million-$125 million worth of properties to further augment the strong liquidity position that we're in. You know, from a leverage standpoint, our core leverage is around 6.2 times. That does not take into account the debt attribution that we get in from our joint venture properties. We have two things that are impacting our leverage near term. First, we have about $450 million invested in our development pipeline that's not generating any current return.
We do forecast that between 2024 and 2026, that pipeline, when leased, will add between $35 million and $65 million of incremental NOI. We also have about $460 million of debt attribution that we're picking up from some of our joint ventures. A number of those are reaching the conclusion of their life cycle. As we laid out in our 2023 business plan, we do anticipate in reducing that debt attribution by $100 million or about 24%. With Michael, with that, I'll open up the floor to questions.
Great. Thanks, Jerry. That was very helpful. We're starting off each of these sessions with the same opening question. What are the top three reasons investors should buy Brandywine stock?
I think the top 3 reasons would be, you know, the existing growth that we expect to get out of our current operating and development portfolio. As I mentioned, our rollover going forward is 1 of the best in the office sector. We continue to see the flight to quality generating both good capital control and upward pressure on rents. Certainly looking at our development pipeline, we think that that will add tremendous growth to our NOI over the next 3 years. I think that's the existing portfolio, and development growth, I think is very strong for us. Secondly, I do think, and I touched on it in my opening comments, is the diversity of our forward development pipeline really does position Brandywine very well.
Between our Schuylkill Yards development and Uptown ATX, we do have the ability, as I mentioned statistically a few moments ago, to really diversify our forward revenue, forward revenue stream and create tremendous upside for our shareholders. Third, as a corollary to the second, is we certainly do expect to see continued growth in our life science component. Right now, life science is less than 5% of our revenue stream. Our game plan is to grow that to between 20% and 25% over the next several years. We certainly think the demand drivers that we're seeing, the cell and gene therapy businesses in University City, Philadelphia, will support that growth.
Maybe just to piggyback on that for a bit. Just given the current headwinds facing the office sector currently, you know, why is Brandywine differentiated from the competition in terms of, you know, portfolio composition, tenant makeup, any other growth opportunities? You touched on life science there, so if you could expand on that would be helpful.
Sure, Michael. Look, I think it all comes down to product and people. I mean, I think we have the best product available in our submarkets, and we have the best on-site property, asset, and leasing teams to really drive the results forward. I do think that, you know, some of the anecdotal data points are illustrative of that. As I mentioned, over 40% of our pipeline of activity is coming from tenants who are looking to move up the quality curve. Certainly, that seems to be a trend line that we are taking advantage of. Right now, tenants are willing to pay for that.
We're seeing more and more tenants come back to the workplace as opposed to working from home. We're picking up a lot of additional leasing activity from tenants looking to relocate from lower quality buildings into buildings that are much better run and better positioned. I also think another good data point on that is the expansions outweighing our contractions over the last several years. I know there's a lot of discourse over the decline of office demand. We certainly see it at a macro level, but I think tactically, our portfolio is positioned incredibly well to both take advantage of that quality curve, bring tenants into more efficient buildings, and continue to drive our rental rate growth higher.
Maybe just on that point that you've highlighted about expansions outweighing contractions over the last few years. I guess if you were to look kind of on a forward basis, is the expectation for more of the same, or do you think there's kind of a medium between expansions and contractions, or could we see contractions outweighing expansions?
No, I at this point, I don't really know how that will play out over the next few years. I do know what we're seeing is within our own portfolio, we're seeing more tenants who are looking for higher quality interior space, more amenitized buildings, and that seems to be taking up more sq ft per employee. It's not been marginally stellar, but the upward trend is positive. Then we're seeing for tenants who are locating out of the lower quality buildings, they may be reducing their footprints in terms of total square footage, you know, from where they were to coming into Brandywine. Our building efficiencies account for a good piece of that, and then how they're doing their interior layouts accounts for the balance.
Those tenants are able to pay higher rents, albeit on slightly less square footage than they had before, and deliver a much better quality workplace to their employees.
We had a question just come in from our, like, live QA feed. Thank you for whoever submitted it. Just on, you know, your current valuation and this valuation growth that you see, particularly from the development pipeline, I mean, how does that current valuation compare to the potential replacement costs?
I'm sorry, could you repeat?
Valuation that you have, particularly in the development pipeline as it relates to current replacement costs.
Yeah, I mean, look, I think the certainly the cost to build new buildings today is certainly higher than it has been in the past several years. We're not really seeing a lot of downward pressure on materials or labor costs. In terms of the valuations, I think you'll see that, you know, certainly the cost for us to do some of the buildings at Schuylkill Yards are close to $600 a sq ft. That is far beyond the public market valuation of our existing portfolio based upon the equity and debt components.
Just in terms of leasing expectations, you know, what are tenants looking for today that they might not have been 6-12 months ago? Are you seeing a pause from maybe those larger tenants whose real estate decision makers are maybe a bit more skeptical, or have they started looking to test the waters?
No, I think we're seeing more and more tenants enter the market. I think one of the trend lines that we've seen and frankly, we've been waiting a little bit of time for it, is, you know, more companies of a larger size are bringing more employees back to the workplace. I think when we looked, you know, a number of quarters ago, our tenants who were smaller than 50,000 sq ft, they were back to 75% occupancy. Where we really saw the drag on our portfolio was these larger companies that were loathe to bring their employees back. We have certainly seen that trend line change and the pace of return to work accelerate. A number of our very large tenants have gone back to mandatory 3 days in the office.
Some are considering four days back in the office. We've had no companies move to a hot desking or hoteling concept, so they're maintaining the fixed plant locations for each employee. We're actually seeing a little bit of the inverse of that, Mike. We're actually seeing the pace of decision-making start to accelerate. As I touched on earlier, that the decision cycle time for our leasing activity today is in line with pre-pandemic levels.
Then just in terms of industries or specific tenant types you might be seeing more demand from. I mean, we've been hearing that maybe those finance professional services tenants have been taking the lion's share of demand, whereas tech, there may be more of a pause there.
Yeah, it's a great question. We're definitely seeing more demand drivers from financial and professional service firms. Law firms continue to look for more and upgraded space. You know, in our little world, we're definitely seeing a lot more activity on the life science front. That's up significantly year-over-year. We are, however, seeing a lot less demand for the tech tenants. When you take a look at our Austin marketplace, where we historically have done very good in terms of leasing velocity, that marketplace, I would say, from a tech sector standpoint, is on pause. Austin's evolved a lot over the last 10, 15 years, so the diversity of that employment base, while tech-reliant, there's a lot of other demand drivers.
For example, our 405 Colorado project, which we completed last year, is now 95% leased, not one single tech tenant. Our lead tenant there is JP Morgan. We have Bain Capital there, AllianceBernstein, a few professional service firms, Cushman & Wakefield. There are other tenants in that marketplace that are starting to drive demand. The unfortunate reality is that the major blocks of tenant demand were coming from the tech tenants, and that is clearly on pause. Who knows when it comes back, but, you know, hopefully we're starting to generate some good activity across the rest of our portfolio from non-tech tenants that can start to absorb some of that space we have available.
Just maybe we can touch on markets for a bit. You know, specifically, what makes, you know, Philly, both the CBD and the suburban portfolio and then your Austin exposure, maybe relatively more attractive office markets compared to some of the other Sun Belt or gateway coastal markets?
Yeah, look, I think in terms of, I'll start with, I'll start north and go south. I think in the Philadelphia marketplace, we have three different markets in Philly. I know it tends to be grouped as one. The CBD market, again, at the Class A trophy level space, is actually doing fairly well. We've done 230,000 sq ft of leasing activity in our Commerce Square property, far outpacing our market share. Tenants are flocking to the higher quality buildings. Our universe, I'm sorry, our CBD portfolio again is around 90%-93% occupied with very little forward rollover. I think we're in very good shape there. What's really driving that are the traditional drivers, the professional service firms, the law firms, the accounting firms.
Those demand drivers still seem to be there. Switching over to the other side of the river in University City, that's clearly being driven by life science. I think we're seeing a continued incubation of life science companies by University of Pennsylvania Medical System, Children's Hospital, The Wistar Institute. Just last week, Roche Pharmaceuticals, which bought one of our large tenants, Spark Therapeutics, a number of years ago, just had a groundbreaking for a $600 million, 500,000 sq ft research manufacturing facility that will become the global head for Roche. That project is under construction now, will be delivered in a couple years, and is located adjacent to our Cira Centre South development. Now University City has a fourth anchor tenant in addition to the institutions with Roche Pharmaceuticals.
They'll be investing, as I mentioned, $600 million. My guess is that goes higher as they go through that construction cycle. There'll be about 2,000 new employees there. There's about 20 different life science companies being incubated by both Penn Medicine and Children's Hospital. We're certainly seeing a lot of demand drivers. Our B.Labs incubator is fully occupied and oversubscribed. We're embarking on the next phase of expansion for that. The life science projects that we have under construction have about 800,000 sq ft of total demand drivers for about 600,000 sq ft of space. Very good demand drivers there. Michael, primarily life science and university at this point. Some office tenants looking to locate over to the west banks of the river, primarily life science.
In the suburban Philadelphia counties, again, we're doing very well. You see emerging nodes of life science there. Our Radnor Life Science Center is about 60% leased. We just signed a build to suit transaction for Arkema for a 155,000 sq ft building in Radnor. The Radnor portfolio remains in the low 90% occupied with a good pipeline of prospects there. We think the knock on Philadelphia historically has also proven to be the blessing with Philadelphia in the last last cycle, where it's slow but it's steady. Having the best product and the best sub-markets has really put us in a very good position to maintain good rental rate growth, good control over capital.
We're a large consumer of capital in these markets, so we drive the best deals from our general contracts and have bulk purchasing programs. I think that remains very much on pace. You know, Austin, to move south, is gonna hit a bit of a yellow flag with the pause in tech. I mean, that market has really benefited from being called aggressive expansion or over-expansion by a number of tech companies and the corollary of oversupply of office space. We do think that market will be very competitive for the next several years until the tech demand returns. As I mentioned, we think Austin has a tremendous amount of in-migration. They have 251 active prospects.
When I say they, Opportunity Austin, which is an arm of the Chamber of Commerce. 251 active prospects of companies looking to relocate into Austin. 24% of those have active office requirements. You know, one of the great things about Austin, even though it's in this tech pause, is the size of that city and the diversity of the employment base has changed significantly in the last decade. It now is a growth market for a joint defense command out of the Pentagon. We're seeing 22 different life science companies look at Austin as a base of operation. They had the tremendous expansion of Dell Medical School at University of Texas at Austin.
we remain very bullish on both the demographics that are driving Austin daily, but also the favorability of the business climate and public policy to drive growth forward there for the foreseeable future.
Can I just ask on specifically on Philly CBD, the reports about the sublease space from Comcast at Three Logan, I think relocating into their HQ? They had noted that there was about 1 million sq ft of office space for sublease in the market. Just trying to marry that up with how the demand you're seeing on the ground there is. I know that's not a, you know, material impact to earnings. I think the lease runs through 2029. Any additional commentary or thoughts around that would be helpful.
You know, it's. Happy to. Look, Comcast put a number of floors in our Three Logan building on the market for sublease. This is not a new phenomenon. I mean, we're accustomed to some of these larger tenants assessing their space needs periodically. The lease goes out through 2030. I think as these companies like a Comcast are looking at their space requirements, they're still trying to think through how and under what methodology to bring their employees back to the office. Comcast has 2 million sq ft they built right next door. They're trying to go through that thought process and stacking plan now. They put this space on the market.
I honestly don't know that if they got a tenant prospect tomorrow, they'd actually do a sublease there as opposed to just kind of testing the marketplace. We're not concerned about that sublease space from a competitive set standpoint right now. In terms of the general market for sublease, that's typically coming out of these lower quality buildings. Some of these tenants are vacating early to move into higher quality buildings to bring their employees back to a more favorable work environment. It remains to be seen what happens with some of that sublease space as the months go by.
Do you have a sense for what that vacancy or sublease rate might be for that higher quality of building product that you described?
I think in the trophy quality projects where we are, so the high Class A, I think the vacancy there, including sublease, are running about 8%. I'd have to check on that, but that's the last number I remember.
Great. Just on terms of upcoming expirations you'll need to backfill. You started off in your prepared remarks talking about kind of a lower lease rollover, maybe relative to peers. You know, for those of you who do need to backfill, how quickly could we expect that to happen? What would you have to give up in terms of concessions, TI packages, you know, free rents, in order to get deals over the finish line?
It's never fast enough, right? You know, in our financial models, we build in kind of between 9-12 months downtime. We have not really seen a big increase in concession package. I mean, you know, in some of the deals where it's, you know, a month free rent for every year of lease term, we're still getting between 2%-3% bumps. We're still keeping our capital costs on new and renewal leasing in that average of 11%-13%. We are seeing tenants invest more money into their space. I mean, they're certainly asking us for more money too, but they're willing to pay for that in higher rents. No material increase, Michael, in concessions that we've seen. Even on the life science projects.
You may have noticed in our last earnings call, we raised the construction costs for our 250 Radnor Life Science project. That was primarily due when we renovated the project, we assumed it was gonna be about a 50/50 office life science split. The entire pipeline is now life science. We increased our construction costs to increase the TI allowances that we need to give to get those tenants done. You may have also noticed we moved our yield up about 20 basis points. We're getting compensated for that. Other than that variability between the office TI and the life science TI, we're not really seeing any divergence from historical concession packages.
Maybe just shifting over to external growth opportunities. You know, in terms of capital allocation priorities, you know, what, if anything, from an external growth standpoint makes sense now, you know, just given the shifting macroeconomic backdrop and maybe acquisitions or, you know, spec development might not make sense, but any updated thoughts there?
Yeah, look, I think our major focus right now, I think on those 3 Ls, I mean, you know, leasing, liquidity and leverage. As I mentioned on our calls, we have put our forward development pipeline on pause until we achieve more leasing activity in the joint venture portfolio. Frankly, we get more visibility on where debt costs and therefore equity costs settle. We're not sure exactly how to price things in today's climate, so we put that on hold. We would still do build to suits. We're looking at a couple of build to suit opportunities where the tenant takes 100% of the building for 15 years. That's something we certainly keep on our radar screen, but that's pretty much the outlook on the development pipeline near term.
We're not necessarily looking to be a buyer. We have a number of properties in the market going the other way. We're looking to try and see what price discovery presents on a sales standpoint. I think from our standpoint, the real focus is on keeping the leasing levels in the operating portfolio high, continue to drive increases in net effective rents, and then address the development pipeline leasing needs and get that put away.
Just on the targeted dispositions, I think you talked about $100 million-$125 million of potential proceeds from there. You know, how should we think about investor appetite for those buildings, where cap rates might shake out, and then, you know, I think about maybe a 2340 Dulles, the redevelopment initiative in Northern Virginia could potentially be a targeted opportunity there. Any kind of thoughts around the dispositions would be helpful.
Sure. Look, I mean, Look, the investment market is clearly unsettled. Our way of approaching that has been to put a number of properties of different type and in different markets into the market for sale. Not that I think we'll be able to sell all those, but to simply get an idea of where pricing will be. We have a suburban Philadelphia portfolio on the market for sale. We have a couple of joint venture properties that we'll put in that we have in the market for sale. We have one building in CBD Philadelphia that we're exploring for sale. I mentioned we have five wholly owned properties in the Metro D.C. region.
Three of those are up on the market for sale, and then we have a property in Austin, Texas, we're looking to put on the market for sale. The idea is kind of for all the different markets we're in, get different type of product out there to see what the market will present back to us. Clearly, the predicate to that is we know from our financial rigor in-house what the net present value to Brandywine is of holding and leasing up those properties over a 3- and 5-year, 3, 5, and 7-year period of time. We know what we think they're intrinsically worth. They may not be worth what we wish they were worth, but we at least have an idea of what we think they're worth to us in economic terms.
As we get bids in, we'll compare those bids against those internal valuations. In terms of activity, I have to tell you, I'm actually pleasantly surprised with the velocity of tours and folks signing CAs. That could just be a lot of acquisitions people at these firms that have nothing to do, and they're signing package and taking tours. It could be people looking to, you know, take advantage of what they view as a, as a priceless dislocation office. The number of CAs that have been signed, the number of tours has been very, very good across the board. We haven't called for any offers yet. We'll probably doing that in the next 30 days or so on some of the properties. We'll have a better idea of pricing. The reality is that everybody is pricing off of debt.
Pricing coming in is gonna be a variable based upon where debt costs come in. Until the debt markets really settle down, I don't really think we'll have a lot of great traction on sales. That's why even in our 2023 guidance for that $100 million-$125 million of sales, we really program that for the second half of the year. Hopefully, the debt markets will be a little more quiet or calm and more equity that has been sitting on the sidelines for so long will be a little more anxious to put it to work.
Maybe we can segue over to leverage and the balance sheet side of the business. I mean, in terms of leverage, kind of where do you see things shaking out sort of in that longer term? You've done a better job at addressing some of your upcoming debt maturities. For the remainder of that debt, particularly on the JV side, you know, how should we think about this going forward?
Yeah, look, I, I think as I touched on the, you know, our core EBITDA metrics about 6.2x. It's obviously higher when you would take the debt attribution in there. Our long-term goal is still to run the company in the, you know, mid 5s to 6 range. I think we're on a path to get there given the revenue uptick that we'll get from bringing these development projects online. As I mentioned, we have, you know, 20% of our debt attribution in these operating joint ventures. They are reaching the end of their life cycle with us, so we did anticipate that we'll reduce our JV debt by about $100 million by the end of 2023, with more to come during 2024.
We certainly think that, Michael, the combination of driving our top line revenue growth up, reducing some of the exposure to joint ventures and then part of the leverage, as I mentioned, is we still have over $400 million of capital that's being invested in projects that are yet to generate NOI for us. We think the combination of those three items will drive that leverage down to our target levels.
Maybe just to comment on the, on the dividend and the payout ratio. You know, it's expected to remain elevated here in the near term. I think your comments on the call were that the expectations for the dividend remain intact for this year. Any insight, Jerry, you can give us into conversations you might be having with the board or anything on how we should think about that going forward?
Yes, certainly. The board looks at the dividend on a quarterly basis. I think as we framed out the business plan for 2023, the dividend coverage is tighter than it's been in a number of years, but still covered by cash flow. We had really solved and advanced our liquidity goals fairly well by the reporting date for the year-end results. We do have a number of sales that, as I mentioned, we're hoping to get done that could generate gains for the company. As opposed to reducing the dividend, and then having to make a special distribution, I think we're in a monitoring mode right now.
We do think, as I mentioned, that we have the ability to grow that to reduce that CAD coverage level to where it historically has been by driving some additional revenue and even a tighter control of our capital costs. Of right now, the dividend is fully covered. As we've done every year, we always our capital projections tend to be conservative, so we always wind up spending less in capital than we project. We'll monitor that along with our sales activity and really honestly, where the macro conditions are. You know, certainly to the extent that the economy takes a bit of a downturn or baseline rates move up, I think that'll certainly be something we'll be evaluating as we think about the dividend.
Great. That's helpful. We had one come in here real quick for the rapid fire. Can you just give us a sense on confidence in your development, with you and your JV partner at 3151 Market, given the majority of costs have yet to be incurred and the construction loan for this property has been delayed?
Yeah. Actually, it hasn't been delayed. We're actually in the process of pursuing the construction loan now, and I think we'll have a number of prospects to that'll provide term sheets for that. We're very confident, I think, in both 3151 and 3025. The 3025 of course has 326 apartment units that'll be launching the marketing phase in the late summer. The rental rates we've targeted for that are actually below the rental rates that we're getting at our FMC Tower residential project down the street. Very bullish on both the pipeline of life science tenants in both buildings as well as the residential component coming online.
Great. Real quick, rapid fire. Best real estate decision today: buy, sell, develop, redevelop, or pause?
You don't have leasing in there, I'll take pause.
All right. Same store growth for 2024 for the office sector overall?
2%-3%.
More, fewer, or the same number of office REITs a year from now?
Fewer.
Great. Thank you so much.
Thank you all very much.