Good morning, and welcome to Boston Properties Second Quarter and 2021 Earnings Call. This call is being recorded. All audience lines are currently in a listen only mode. Our speakers will address your questions at the end of the presentation during At this time, I'd like to turn the conference over to Ms. Sarah Buda, VP of Investor Relations for Boston Properties.
Please go ahead.
Great. Thank you. Good morning, everybody, and welcome to Boston Properties' 2nd quarter 2021 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8 ks. In the supplemental package, the company has reconciled on 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 Investor Relations section of our website at investors. Bxp .com. A webcast of this call will be available for 12 months. At this time, we'd like to inform you that certain statements made during this conference call, which are not historical, may As noted 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 the company's filings with the SEC, the company does not undertake a duty to update any forward looking statements.
I'd like to welcome Owen Thomas, Chief Executive Doug Linde, President and Mike LaBelle, Chief Financial Officer. During the Q and A portion of our call, Ray Ritchie, Senior Executive Vice President and our regional And now I'd like to turn the call over to Owen Thomas for his formal remarks.
Okay. Thank you, Sarah, and good morning, everyone. I'm delighted to report that for the first time since the pandemic, I'm together with Doug, Mike, Sarah and our Boston team for this earnings call and all BXP employees returned to the office on July 6. BXP is emerging from the pandemic with strength and momentum as evidenced by improving financial results and rapidly elevating leasing and investment activity. This morning, I will cover the economic recovery that is underway in the U.
S, BXP's momentum in terms of financial results and leasing, Private Equity Capital Market Conditions, particularly for office real estate and BXP's capital activities focusing on 4 new investments we announced this quarter, including our official entry into several new markets. So the U. S. Economy awash with fiscal and monetary stimulus is roaring back as we exit the pandemic. U.
S. GDP growth was 6.4% in the Q1 and predicted to be higher for the Q2 and for all of 2021. Over 850,000 jobs were created in June and aggregate unemployment decreased to 5.9%. Industries that use offices have been less impacted by the pandemic and the employment rate for their workers is lower. Despite the annual inflation rate rising to 5.4% in June, the 10 year U.
S. Treasury rate has dropped to around 1.3% And the Federal Reserve's rhetoric remains distinctly dovish given it believes recent inflation is driven by transitory factors. High economic Growth and low interest rates create the ideal environment for strong real estate investment performance. Now BXP's financial results for the Q2 reflect the impacts of this recovery and an increasingly favorable economic environment. Our FFO per share this quarter was $0.10 above market consensus and $0.12 above our own forecast, which Mike will detail shortly.
We completed 1,200,000 Square Feet of Leasing, more than double the volume we achieved in the Q1 and only 10% below our long term second quarter Our clients are making long term commitments. The leases signed in the 2nd quarter had a weighted average term of 7.5 years. Many are expanding as was the case with 2 large media and tech clients in LA and building quality is increasingly Important as evidenced by strong tour and leasing activity at the GM Building, Reston Town Center, Colorado Center and the View Floors at Embarcadero Center. We believe this activity and performance supports our repeatedly stated position for their long term success and that concerns about the work from anywhere impact on the BXP footprint are overstated. Moving to private equity market conditions, dollars 15,700,000,000 of significant office assets were sold in the 2nd quarter, Flat to last quarter, up 77% from the 2nd quarter a year ago and down approximately 44% from 2019 pre pandemic levels and it remains 23% of commercial real estate transaction activity.
Cap rates are arguably declining for assets with limited lease rollover and anything life science related given lower interest rates. Notably in Cambridge this last quarter, a REIT agreed to purchase Charles Park vacant though with identified tenants for $815,000,000 or $2,200 a square foot. Also 1 Memorial Drive in Cambridge, A fully leased 409,000 Square Foot Office Asset is under agreement to sell for 825,000,000 We had a very active and successful quarter with acquisitions. All of the investment strategies we have Drive to you over the last several quarters are represented in the 4 new investments we recently announced, which aggregate almost 2,000,000 square feet. These strategies are grow in life sciences, enter the Seattle market, acquire high quality assets That need redevelopment or refreshment at discounted valuations due to the pandemic and acquire office assets in partnership with private equity investors So let's start with our official entry into the Seattle region with the acquisition of Safeco Plaza.
We have previously discussed the Seattle areas having a strong real estate market as well as a logical expansion region for BXP's The Puget Sound region is the headquarters location for leading global employers like Amazon And has one of the largest clusters of computer science workers in the U. S. Seattle has experienced high levels of population Given no state of Washington income taxes and lower real estate costs for both office space and housing. Rents, Land values and building values are lower in Seattle than any of our other core gateway markets. The broader Puget Sound market has the scale and growth to afford us opportunities to both acquire and develop in multiple districts of Seattle, Bellevue and other Eastside markets.
We've had a BXP executive, Kelly Loshan, who has joined the call this morning, based in Seattle for well over a year. We have an attractive pipeline of additional investment opportunities currently under review and we'll build out a full service real estate execution team over time. Safeco Plaza comprises 800,000 Square Feet, has a LEED Platinum Certification and is located in the center of the Seattle CBD With convenient access to rail, ferry and highway transit options. The building is currently 90% leased with 6 years of weighted average lease term Rents that are approximately 30% below market. Safeco Plaza offers generous ceiling heights, 360 degree views and Our strategy is to refresh the ground plane lobby and amenities and re lease the building at market rates in the coming years.
Liberty Mutual, which acquired Safeco, is the anchor tenant leasing 68% of the building. BXP will own either 51% or 33.3% of the property depending on whether 1 or 2 private equity investors join the partnership. We believe our basis in the acquisition, which is $465,000,000 or $581 a We believe Safeco Plaza to be a very attractive investment opportunity with a future redevelopment play given the quality and location of the building, We are also entering a new submarket for BXP Midtown South in New York City With the acquisition of 360 Park Avenue South, Midtown South has become New York's strongest submarket in terms of rent growth and vacancy given it is is 450,000 Square Feet and is in a prime location at the corner of 26th Street, 1 Block from Madison Square Park. The transaction will close and the building will be vacated by a long term corporate user later this year, which provides us the opportunity Plan in advance and subsequently execute a complete refreshment of the building. With generous ceiling heights The unique elevator configuration allowing for 2 separate dedicated lobbies, we believe the building will appeal to both large and medium users seeking marketing and brand expression opportunities with their space.
In terms of economics, we're paying $300,000,000 for the building or 6 $67 a square foot, which leaves us significant latitude relative to comparable sales to budget generous building enhancements. The acquisition structure is also creative and we think favorable for BXP. Consideration for the purchase will be the Assumption of a $202,000,000 mortgage on the property and the issuance of $98,000,000 of OP units in BXP's operating partnership. We are committed to complete the transaction on December 1 this year and the number of OP units Issued at closing will be determined by BXP stock price at that time, but with a floor of $111 a share. In other words, we would benefit by issuing fewer units if our share price continues to rise through the closing date, but our downside is capped by a floor.
Most importantly, the tax deferral inherent in our contribution structure distinguished our proposal such that it did not have to be the highest The project over time. Next on acquisitions, we added to our life science business and entered the Montgomery County, Maryland life science market Through the acquisition of a 7 building, 435,000 Square Foot Office Park located in close proximity to The Shady Grove Life Sciences Center, the premier cluster for life sciences in the Washington D. C. Region. Montgomery County is the 4th largest life science market in the U.
S. And home or proximate to several large biomedical institutions Such as NIH, FDA, Johns Hopkins University and the University of Maryland. The 4000000 Square Foot Shady Grove submarket At the epicenter is currently 3% vacant with rising rents. We are paying $116,500,000 for the asset or $2.67 a square foot and intend to convert the entire park to lab and life science use over time. There are 7 buildings in total, 3 of which are vacant and will be converted to lab immediately.
The remaining four buildings are 60 3% leased and will be converted to lab use as leases expire and office tenants vacate over the next few years. The entire site is 31 Can accommodate additional ground up development depending on demand. There is a strong backlog of space requirements in the market We are already competing for a large build to suit in addition to other requirements. We have a non refundable deposit posted and plan to close the acquisition in August. And lastly, in the Q2, we completed another life science acquisition 153211 Second Avenue in Waltham, Massachusetts.
These two existing lab buildings comprising 154,000 Square Feet and 100 percent leased to Sanofi are located immediately adjacent to our 200 West Street Lab conversion property, which is almost complete and expected to deliver in the Q4 of this year. This was an off market Transaction completed at a price of $100,000,000 or $6.50 a square foot and a 6.4 percent initial cap rate. Sanofi's lease is short term and below market. The site comprises 14 acres and has 120,000 We're feet of additional development rights, which could be increased when combined with the excess development capacity of our adjacent 200 West Street site. Life Sciences is a rapidly growing segment of our overall business.
Today, life sciences at BXP is 3,000,000 square feet representing 6.4% of our total revenue. We have 920,000 square feet of lab redevelopment and development projects currently underway that are experiencing strong user demand and Expected to deliver in the next 36 months. And we have approximately 5,500,000 square feet of future conversion and development opportunities Under our control in the Cambridge, Waltham Lexington, South San Francisco and now Montgomery County markets. Within 5 years, Assuming continued strong market conditions, we could more than double the amount of BXP's revenue that is generated from the life science sector. Regarding dispositions, we have an agreement to sell our Spring Street Office Park in Lexington, Mass for $2,000,000 or $5.75 a square foot.
We expect the sale to close in September as part of an exchange With the 2 life science acquisitions mentioned previously, year to date, we have completed or committed to dispositions Aggregating $225,000,000 in our share of gross proceeds and are considering additional asset sales in 2021. And as a reminder on investment activities, though we did not add to or deliver from our active development pipeline this quarter, We have 4,300,000 square feet of development underway that is 71% pre leased and projected to add $190,000,000 to our NOI and 3.7 percent to our annual NOI growth over the next 3 years. On a final and important personnel note, John Powers, who as you know is the Head of our New York region, Told us he would like to retire at the end
of this
year. We conducted a thorough external and internal search And are very excited to have Hillary Spann join BXP as an Executive Vice President. Hillary has many years of real estate Management and investment experience as a senior officer of CPP and prior at JPMorgan Investment Management, Having completed $12,000,000,000 in investments in New York City alone, Hillary will join BXP after Labor Day and commence her duties as New York Regional Manager at the beginning of 2022. So in summary, we had a very Active and successful second quarter with strong financial results and multiple new business wins in the leasing and investment markets. BXP has a strong growth ramp driven by improving economic conditions and leasing activity, The recovery of our variable revenue streams, delivery of a well leased development pipeline, completion now A rapidly expanding life science portfolio in the nation's hottest life science markets As well as low interest rates and decreasing capital costs.
Finally, I want to express my sincere Appreciation for the BXP team, which is back at the office, serving our clients and winning new mandates with great care,
Thanks, Owen. Good morning, everybody. Obviously, we have a lot to talk about on the transactional I'm sure there'll be some questions on that, but I do want to spend a few minutes talking about the leasing markets and the activity that we're seeing. There's certainly no question that we're on the precipice of significant change in the atmosphere around in person work, but More announcements come out every day. The fact remains there's still some uncertainty and there's some pre petition about COVID-nineteen, the Delta variant and whatever the next So the transition period that we are now in as many organizations like ours encourage or require their employees to come back to work, It's going to take some time.
So there are going to be some ramifications of that. Many of you participated in our NAREIT meetings and my comments this morning about Impact on work from home, I think you're going to be pretty consistent with what we talked about during that conference. The impacts on space needs are going to really vary depending upon Size of organizations, which we like to put in 3 categories. So the first are the really large employers. And honestly, they are moving forward with plans for space Based on long term growth plans, hiring that's occurred over the last 16 months and thousands of open job requirements that they are trying to fill right now.
Then you have really small organizations that are very stable and they have all recognized that very little is going to change regarding how they utilize the real estate. Maybe some will work more from outside the office, but everyone's going to continue to have a dedicated workspace in their facilities They're really not impacting the amount of space they have. And then there's the 3rd group, which is an important group. And the 3rd group are midsized organizations or younger companies that are Experiencing growth, but where it's very unclear is how their organizational culture is effectively going to be built if people are or aren't in Physical contact and I think those companies are going to have to take some time to figure that out. Will it work or won't it work?
And we don't believe that this is going to happen immediately. We think it's going to take 6 to 12 months and it's going to really depend quite frankly on how they're doing from a competitive perspective. How are their peers doing in their industries And does it matter that they're not in contact with each other all the time? When surveyed, most employers Prefer to have their teams together as much as possible to enhance efficiency and collaboration and serendipitous idea generation, etcetera, While many employees declare their preferences for some or more remote work, well with a tight labor market, employers are acknowledging the reality. There will be an increase of work that takes place outside the office and this will incrementally moderate some space growth in the short term.
But these same companies may over time add collaborative spaces to accommodate their teams when they're all getting together and they may eventually decide that people need to be back more frequently. Unlike any other prior recession, there have been thousands and thousands of new positions created and there are lots and lots of job openings across The service sectors, the technology sectors, the life science sectors, the generators of office demand in our markets. And we believe many of these jobs are going to lead Space absorption over the coming years. Employees are returning to their offices with very few reminders of COVID restrictions And they're getting together formally in meeting rooms and collaboration areas and they're taking the time to reconnect at breakfast and lunch and dinner and restaurants. In many of our CBD assets, we have access control, so we can sort of see what's been going on in our competitive building set.
So comparing to February of 2020, in New York City, about 50% of the employees who had cards are now coming to the office at least once a week. And that number is about 34% in Boston and 20% in San Francisco. So it's very different from market to market. Our sequential parking income grew about 20% from the Q1 and while we've not seen monthly parking permits pick up, Tenants are driving in and paying for daily parking. We actually think that monthly parking permits will be a good indicator for the increase of Office frequency in Boston and San Francisco.
In Boston, true transient parking is actually up and we've Actually had to close portions of the Prudential Center garage around lunchtime every day during a couple of days in July due to lack of capacity, believe it or not. At Embarcadero Center, we've seen about a 20% pickup from the low point on monthly parking, but we're still only at 60% of our historical high. So we have a long ways to go on parking. We expect to see improvements during the rest of the year and at the end of the year we think we're going to be at 70% of where we were in 2019 on a full year comparative basis. As you listen to the apartment company recalls, You're hearing about the dramatic increase in occupancy in urban areas.
The employees are moving back into the cities into those same apartments, which by the way didn't grow During the pandemic and so unlikely they're planning on working at home in those departments on a frequent basis. And we're seeing this in our portfolio As we move from 51% occupancy in January to 82% at the Hub House project, that's the Hub on Causeway project, From 10% to 41% at Skyline in Oakland and from 79% to 93% at Reston Signature. And then our restaurant activity is up materially and only is really being limited now by the challenges that the operators are having with labor, both in the front and the back of house. We have begun to move away from percentage rent assistance to our retail tenants and back to contractual fixed Believe it or not in Reston, we actually had a tenant request a modification back to fixed rent because the percentage rent was creating a higher payment to us. Sublet space continues to be a major topic during many of our conversations with investors.
Last quarter, I described the dynamics of opportunistic sublet space And discuss our belief that many of the visceral announcements made by tenants that were putting space on the market would reverse as organizations began to plan their in person work strategy again. This quarter at 5:35 Mission, a tech company without subletting any space Withdrew 40% of their 100,000 square foot availability. In Manhattan, CBRE is reporting that there's been a drop of about 5,900,000 square feet Out of the total of 19,300,000 square feet that was put on post COVID and about 67% of that was backfilled by the prime tenant. Yes, there is a lot of sublets based on the market, but a large portion is going to be reoccupied, some is not actionable because of short terms, It has unworkable existing conditions or quite frankly users just don't like the comfort of the lessors profile and some of it's getting leased, Like the 3 floors that were completed at 680 Folsom in San Francisco that macys.com had on a sublet market. The headwinds from Sublet space exists, but they're going to dissipate as companies begin to come back to work.
Now as I pivot my remarks to the Boston Properties Office and life science portfolio specifically, I'm going to describe a level of activity that I think is counter to the headlines of weak market conditions across the Office sector in the United States. The BXP portfolio includes a number of iconic, high quality, well maintained and continually upgraded assets. When there is market weakness, our assets outperform. We spent a lot of time discussing our portfolio vacancy last Quarter and our forward expectations. We experienced quicker than expected revenue commencement on signed leases and saw basically flat Vacancy relative to the prior quarter, we were down 10 basis points on a 45,000,000 square foot portfolio.
And this included taking back 66,000 feet of non revenue space that I talked about last quarter at the hub on Causeway from the cinema that had never opened. We now have new signed leases For 640,000 square feet of space that have yet to commence and are not included in our occupied in service portfolio. So on a relative basis, here's my view of the markets and I'm ranking it based upon activity in the portfolio, active lease negotiations, tours, RFPs from best to least. Boston Waltham, we don't have any available space in Cambridge, so we have no activity there. San Francisco CBD, Northern Virginia, Midtown Manhattan, Peninsula Silicon Valley, West LA, Princeton And finally, DCCBD.
All the transactions I'm going to talk about are post COVID negotiations, Meaning they all began in the latter half of twenty twenty or into twenty twenty one. So just to change things up this quarter, let's start with LA. Last quarter, I acknowledge our disappointment that we were unable to keep a 200,000 square foot tenant at the Santa Monica Business Park. Less than 30 days later, we had a signed lease for 140,000 square feet of that space to a growing tech company. During May, we completed a 350,000 square foot long term extension and expansion At Colorado Center with a media company, in total, this 490,000 square feet had a weighted average expiring rent That was effectively equal to the starting rent of that space and 200,000 square feet of the expiring rents were at above market holdovers.
This follows our immediate release of the 70,000 square feet vacancy that we had from a defaulting tenant in the Q1. We have a number of smaller deals in negotiation in Santa Monica Business Park and we're responding to requests from tenants that would prefer to go direct on some of the sublet availability at Colorado Center. In Boston, during the Q2 in the CBD, we signed 6 leases totaling 55,000 square feet and the average rent Starting represented a gross roll up of about 20%. In each case, the tenant was either renewing or expanding. We have 7 additional leases in the works totaling 70,000 square feet.
Obviously, most of them are small since we don't have much in the way of availability in our Boston portfolio. In the suburban Boston portfolio, we completed 60,000 square feet. The average weighted cash rent on those leases was up 17%. Life science organizations are dominating activity in this market. We commenced construction on 880 Winter Street, That's the lab life science renovation that we're doing in Waltham and have signed an LOI for 16,000 square feet.
We started the building on July 5th and And are exchanging proposals with over 180,000 square feet of tenants for the 220,000 square foot building and it will be delivering in August of next year. We've been responding to new inquiries just about every week on that space. Asking rents of the market for lab space are in the high 60s to mid 70s triple net, Which are well above our underwriting when we planned this project about 15 months ago. Many of you have been asking about inflation and construction costs. When we do our construction budgeting, we always include an escalation expectation.
So those numbers are baked into those numbers in our supplemental. It varies depending upon the labor market conditions, subcontractor availability and material costs. We've bid and are on budget for both 880 Winter Street and 180 City Point. So we figured out what the escalation would be And we hit it. Currently, we're carrying about a 4% to 6% escalation for base building jobs that we would bid in 12 months.
Now turning back to leasing. In Waltham, we're negotiating leases for another 70,000 square feet of space with life science companies at Bay Colony That's adjacent to 880 Winter Street and our Reservoir Place building. Our new acquisitions at 2 11, 153 Second, which Owen described, Have a lease expiration in late 2022 and the current rental rates on the space are dramatically below market. The expirations will land right in the sweet spot Of the current demand in the Boston and the Waltham and the Lexington submarkets. There is some pure office demand in the market And with more and more buildings being converted to life science, we actually expect the office markets going to tighten dramatically over the next few years.
In New York, we continue to have significantly more tours than we had in comparable periods in 2019. In the second quarter, It's actually up significantly on a sequential basis from the first. We completed 10 office leases totaling 90,000 square feet, including another full floor Expansion at $3.99 In total, gross rents on leases signed this quarter were about 20% lower than the in place rents. We are negotiating over 400,000 square feet of additional leases, including almost 250,000 square feet at Dock 72. The majority of the New York City leases will be for terms in excess of 10 years and we include 2 more expanding tenants at 399 Park Avenue.
Activity at the street plane of the buildings is also picking up. We signed up a new fitness provider at 601 Lex, a new fast casual restaurant at 399 and We're negotiating a lease for all of the available restaurant space at Times Square Tower and we plan on opening the Hugh Culinary Collective at 601 Lexington in September. In Reston, our buildings continue to have extensive activity. This quarter we completed over 170,000 square feet of leasing Of which more than 100,000 square feet was on vacant space. In addition, we have active negotiations on another 72,000 square feet including almost 60,000 square feet Currently vacant space.
RestonNex is moving towards completion with the first tenant expected to take occupancy by the end of 2021. We have another 85,000 square feet of office renewals and negotiation in Springfield, Virginia. Retail leasing is roaring back in Reston Town Center. We've negotiated 35,000 square feet of restaurant transactions and have almost 100,000 square feet of cinema, fitness and soft goods transactions in the Town Center. Pedestrian activity in Reston Town Center is as active as any location in our portfolio.
Office rents are basically flat to slightly down On the relet since the expiring cash rents have been contractually increasing by 2.5% to 3% for the last 10 years. In San Francisco CBD, We completed 5 transactions totaling 54,000 square feet with an average roll up of 8%. Why is it so low this quarter? While the square footage was impacted by a Full floor transaction that starts in the mid-90s where the tenant elected to forego any TIs for a lower rent. If you exclude that transaction, The mark to market would have been 17%.
In addition, we have 8 active lease negotiations involving 143,000 square feet with an Average rent starting of over $100 a square foot. That's over $100 a square foot in this purportedly terrible market in San Francisco. The bulk of these spaces are in the higher floors of Embarcadero Center and they all have views. Pedestrian activity at the street plane, particularly in the CBD of San has improved over the last quarter, but it's still well behind Boston, Reston and New York. And this has affected tenants appetite for making space decisions.
However, Medium sized technology users have begun to look for space. Sublease absorption has picked up in the city with about a 1000000 square feet of withdrawals or completed transaction. And as I said earlier, macys.com did 104,000 square feet at 680 Folsom, our building. In Mountain View, We continue to see a constant flow of medical device and alternative energy and automotive and other R and D users looking for space. We completed a full building lease with an energy company with a healthy percent markup in rent and we have another 21,000 square foot lease in negotiation.
There are some large tech tenants in the market today looking for expansion space And one recently executed leases for about 700,000 square feet of availability that was in Santa Clara. We are certainly pursuing those tenants And we have begun internal discussions about the appropriate time for the speculative restart of this building. So to summarize, our leasing activity in the Q2 accelerated. Our portfolio is in great shape in LA. We continue to see strong economic transactions in the CBD of Boston, our suburban Boston portfolio and the CBD of San Francisco.
We have significant activity in Reston and are covering our vacancy. New York tour activity is strong. We're doing deals, But economic terms are weaker. We are expanding our life science investments across the company and in Greater Boston and South San Francisco, our new construction is seeing Strong demand at escalating rents. Mike?
Thank you, Doug. I'm going to start my comments by describing our earnings results, which As Owen mentioned, significantly beat our expectations. We reported FFO for the quarter of $1.72 per share, which is $0.12 per share better than the midpoint of our guidance. About $0.06 of our outperformance came from earlier than anticipated leasing And better parking, retail and hotel performance, which I would consider core revenue outperformance. The other $0.06 is from unbudgeted termination income And expense deferrals that we expect to incur in the Q3.
Our office portfolio beat our expectations by approximately $0.02 per share from accelerated leasing. We have several larger leases commence earlier than we expected, including our 350,000 square foot renewal and expansion with large media tenant In LA, a 65,000 Square Foot Healthcare Firm in Suburban Boston and 3 technology tenants in Reston totaling over 100,000 square feet. All of these leases were in our full year assumptions and were completed faster than we anticipated. Leasing in our residential portfolio also improved this Exceeding our revenue projections by $0.01 The improvement was across the board with our stabilized residential buildings exceeding our occupancy by 100 basis points to 200 basis points and the recently delivered projects at the Hub House in Boston and Skyline in Oakland seeing even stronger absorption. While market rents continue to be below pre pandemic levels, concessions are starting to dissipate.
Our parking, Hotel and retail income exceeded our expectations by $0.03 per share. As Doug detailed, these components of our income stream have Started to improve, which should continue as activity levels grow in our cities. The other two areas where we exceeded expectations were in termination income And lower operating expenses. Our termination income totaled $6,100,000 which was $0.03 above our budget. It came from 2 sources.
First, at 399 Park Avenue, the building is full and we have more demand than available space. This quarter, we were able to accommodate 1 of our expanding financial services tenants by recapturing 50,000 square feet from another tenant. The transaction resulted in $2,000,000 of termination income in the quarter. And second, we received about $4,000,000 in unexpected Settlement income from tenants who defaulted on their leases last year. We categorize this as termination income.
While we anticipate a modest amount of termination income every quarter, we do not assume receiving any additional settlement income this year. Finally, in our operating expense line, our maintenance expenses came in $0.03 per share lower than we anticipated. We've deferred these costs And expect it will be incurred in the Q3. One other item I'd like to point out is that we reported 2nd quarter same property NOI growth of 8.9% on a GAAP basis and 7.5% on a cash basis over the Q2 2020. The strong increase honestly is primarily due to the charges for accrued rent and accounts receivable we took in 2020 related to tenants impacted by the pandemic.
If you net out last year's charges, our GAAP same property NOI dropped by 1% year over year due to lower occupancy. However, our cash same property NOI grew by 3.8% year over year as free rent periods expired and we've converted those to cash Rents in 2021. This quarter's leasing statistics also require explanation. The total company in New York City leasing in particularly We're negatively impacted by 2 retail leases in New York City. Excluding retail, the mark to market on our New York City office leases With positive 6% on a gross basis and positive 8% on a net basis.
And office leases in the total portfolio demonstrated strong rental increases 14% growth and 21% net. Now I'd like to turn to our expectations for the rest of 2021. For the Q3, we provided guidance of $1.68 to 1 $0.70 per share, dollars 0.03 above consensus estimates At the midpoint, our 3rd party guidance our 3rd quarter guidance is $0.03 per share lower than our 2nd quarter FFO. Again, this is due to the outsized termination income and expense deferrals from the Q2. Net of those two items, our Q3 guidance is $0.02 to $0.04 per share Higher than the 2nd quarter.
In the office portfolio, our occupancy exceeded expectations in the 2nd quarter due to early lease commitments. For the rest of 2021, we anticipate occupancy will be relatively steady. As Doug mentioned, we have 640,000 square feet of signed leases That have not yet commenced occupancy. We expect 450,000 square feet of these leases to occupy before year end. In addition, we have another approximate 600 1,000 square feet of both renewal and new leases in the works for 2021 occupancy.
This activity combined with already signed leases Are expected to cover the 1,100,000 square feet of lease expirations that remain in 2021. With stable occupancy, the current run rate for the in service portfolio As a good proxy for the rest of 2021, we are expecting consistent quarterly improvement from our other income sources, Primarily from our parking and the continued lease up of our recently delivered residential properties. Our assumptions result in $0.02 of projected incremental NOI Growth in the Q3 from these sources. We also expect growth from the acquisitions that Owen described. Acquisition activity net of dispositions will add approximately $0.01 to our 3rd quarter NOI and $0.02 to the 4th quarter.
So in summary, after adjusting for $0.06 of higher termination income and deferred expenses from the 2nd quarter, We project our in service portfolio for the 3rd quarter to be higher by $0.02 at the midpoint and our net acquisition and disposition activity to contribute a penny. While we are not delivering any developments into service in the Q3, we anticipate incremental growth from developments in the Q4 that will accelerate in 2022. We anticipate that we will start to recognize revenue as the first tenants commence occupancy at our $270,000,000 Hub on Causeway office tower in Boston in the 4th quarter. And by mid-twenty 2, we expect this project that is currently 95% leased to be generating a stabilized NOI. We also expect to deliver our $50,000,000 life science lab conversion at 200 West Street that is 100% leased in December of this year.
It will be at its full run rate in 2022. Our development deliveries will accelerate and be more meaningful to our earnings growth in 2022. In addition to the deliveries in Q4 of this year, next year we have $1,700,000,000 of developments slated for delivery and initial occupancy And they're 85% leased in the aggregate. Overall, we're thrilled with our results this quarter as the markets continue to recover. Our leasing activity is exceeding our expectations, our variable income streams are improving, our development pipeline is on track to add future growth And we're taking advantage of opportunities to acquire some unique assets at favorable prices that we expect will generate additional future earnings growth And value creation.
Operator, that completes our formal remarks. Can you please open the line for questions?
Your first question comes from the line of Alexander Goldfarb with Piper Sandler.
Hey, good morning up there. The first question is, Mike, as you guys think about Your earnings growth and dividend growth, you have the new $2,000,000,000 JV, which obviously provides a lot of capital that it lessens the need for Positions or external raising external equity. So with the potential for more dispositions this year, is the BXP view that Earnings growth and dividend growth will come first, meaning that dispositions will be limited in such a way that it really won't Impair FFO growth and that way all the development and life science stuff and all the good stuff that we see will flow through into earnings Next year or the year after, etcetera?
Yes. I mean, Alex, our goal is to continue to grow our earnings over time. No doubt about it. And we've got a very significant development pipeline and acquisition pipeline that we're working through to add to that growth over This should result in additional dividend growth over time. So dispositions are a way to recycle capital and we select assets Based upon what we think their growth potential is, and we reinvest that capital into assets that we think are going to generate higher returns over time.
Yes.
The only thing I would add is we've been selling $200,000,000 to $300,000,000 of non core assets for about 5 to 7 years and we're running out. We have fewer of them in terms of the non core assets.
Okay. That doesn't sound like such a bad thing. It sounds like you've cleaned the cupboard well. The next question is the rebound in the ancillary income, meaning the parking, the Hotel and the retail, I think last quarter you guys spoke about $130,000,000 or so of sort of missing income that was impacted By the COVID shutdowns, how much of this was back in the second quarter? And then what are your thoughts for timing of full restoration?
So the it was actually revenue of $130,000,000 that we were talking about in those areas. We do have some of it back. Obviously, the hotel, which used to generate about $15,000,000 of It's still losing money. So that has not it's improved slightly, but it hasn't improved significantly at all. And the other areas on an NOI basis, we are somewhere around $60,000,000 to $65,000,000 short of Where we were before on the retail and the parking.
Yes, like I said, So we're with the end of the year, we're going to be at about 70% of our parking revenue. So that's a meaningful number for 2022 as people really Start ramping up our monthly parking again.
Okay, great. Thank you.
Your next question comes from the line of Steve Saquette with Evercore ISI.
Thanks. I appreciate all the detail. And Mike, you sort of But when you just sort of talk to your tenants and you think about next year's expirations and you kind of look at your pipeline, I guess I'm trying to Think through when you think the occupancy really starts to ramp in the portfolio and how long do you think it takes To get back to what you would consider to be normal occupancy.
So Steve, this is Doug. I answer the question in the following manner. We have relatively modest amounts of rollover in 2022 And we are covering vacancy today. The Increase in our development activities that will happen in early 2022 or late 2021 are effectively buildings that are 100% leased. So if you look at our portfolio occupancy in the 1st few quarters of 2021, it will be picking up.
I'm not smart enough to tell you when we get to 92% or 93%. But that's I'd say that's the path We're on today we're very high 88, I think we're 88.6 this quarter. So I would hope that by the end of next year we're going to be in the 90s again And we may be significantly higher than that depending upon the recovery in the market and honestly how well we do with our life science developments. Because right now, we are developing stuff that we believe will deliver 100% occupied.
I think the other thing I would just add is, Which is our strongest market. So we think we're going to do well there and we're going to have roll ups there. We also have some in San Francisco, In the CBD, where again, I think we're going to see roll ups. And as Doug described, we're already working on a lot of early renewals for 2022 expirations That we think will exhibit roll ups. There's very little in LA, there's very little in DC and
New York
City has about 500,000 square feet in 2022.
Okay, thanks. And then maybe secondly, I don't know if this is for Owen or Doug. Just maybe a little bit more commentary on the Seattle entrance. The Safeco sounds like it's got a little bit of vacancy for you to lease up. But I'm just curious sort of what other opportunities you might be pursuing.
And I assume you're looking on both sides of the lake and I assume it would have some kind of development focus, but maybe just expand a little bit on the Seattle comments.
Steve, I'll start and Doug may want to jump in. As I mentioned in my remarks, We have a very active pipeline of investments that we've been reviewing for probably 6 to 9 months. Kelly Lobshan, who is on the call, moved to Seattle in February of 2020 and with her help on the ground, It's been a very active pipeline. I think, it's robust because it's 1, both acquisitions and development and 2, As you're suggesting, it's in multiple geographies. So we've been looking in the CBD of Seattle where Safeco is.
We've been looking At South Lake Union, we've been looking at the Bellevue area and to the east of there. So We think there is it's a robust pipeline and I think we will have success in growing out our region in Seattle in the
And regarding Safeco Seed, look, we are not looking to buy stabilized beautiful assets that are achieving a Stabilized return of 3.5% to 5%. Okay, that's not what we're doing. We're looking to find assets where we can create value through our operating prowess. And if you look at Safeco Plaza, it's an 800,000 square foot building that was built in the late 60s. It's got great bones, It's got great ceiling heights, it's got great views, and it's fine from an architectural perspective in the interior, but it's not fabulous.
And our goal is to do what we did at 100 Federal Street with that asset, which was make that building something that it wasn't, which was a building that Tenants wanted to go to as opposed to just another nice building in a CBD that was sort of moving one way or the other with the And we are actually we got to figure out exactly what it is we think we can do and economically how to do that. And honestly, I would say that we are while there is a little bit of vacancy in the building, we're not in a rush to lease the space in the building tomorrow because we want to make sure we And what the building could become and sell what it will be, not what it is. And so we're going to be thoughtful and constructive with how we do that. And obviously, it's a weaker market today than we believe it will be in 12 months 18 months and we hope when we're at a point where we've done the work, The building is going to have a very different reputation and they're very different positioning in the building and we're going to use the Boston Properties skill set to do that.
Great. That's it for me. Thanks.
Your next question comes from the line of Jamie Feldman with Bank
Thank you and good morning. Clearly, you've become more active on the value add investment side here. Can you just talk about how the competitive landscape is changing and what we're likely to see in terms of people willing to make more bets on vacancy and office across your markets?
Yes. I think, as we described the last few quarters, we felt there'd be an opportunity To pursue high quality but unstabilized real estate at pandemic discounts and we think we're seeing that in the market. I think the Capital for office real estate for anything that's leased with a long weighted average lease term or certainly anything life science is robust, Highly competitive. I could argue cap rates are going down. And as Doug just said, that's just not we don't see that value creation for our shareholders.
What we want to do are things like Safeco that are not stabilized, great bones and we think the competitive landscape for those kinds of assets is less And I think if our thesis holds true, which we obviously think it is, which is people are going to return to the office, I think the capital will follow what we're doing. And I think those transactions will get more competitive. But Jamie, I wouldn't leave you with the impression that there are not other bidders for these assets. But as you see from our Success this last quarter, we have been able to buy quite a few things and I think that is an indicator that pricing is somewhat different for that sector of our market.
And then how are you underwrite or how did you underwrite whether it's stabilized yields or IRRs? What are you and your partners looking for at this point?
Yes. Look, we mark the market rents to market. If we think there is a change in market rents based on what's occurring, we underwrite that. I think we're conservative in the lease up. I think those Assumptions actually drive the bus more than anything and we feel like we're being appropriately conservative.
But over time, what we're trying to achieve is approximately a 6 That NOI yield over time,
which is that's not an IRR, right? So that's when we get done, we're yielding in The low 6s with growth obviously because there are typically escalations in rents. And if you put some leverage on that and you assume some cap rate Differential between what your yield is and what you could sell it at, it gives you a healthy IRR.
Okay. Thank you. And then just a follow-up to a comment you made earlier, Doug. I think you were talking about either the Bay Area or Mountain View specifically about maybe tech, Larger Tech looking for space. Can you just talk like big picture across all the markets about what we should expect to see for Big Tech?
And clearly, they drove the market ahead of The pandemic, I'm just wondering what we might see coming out of it.
I think honestly, you're going to see very much what you saw in the 20 16 to 2020 era, which is Big Tech is looking for really thoughtful talented people And they believe that the markets that they are currently in have some of those people and then there are places where they think they can expand. And so I mean, there's a rumor that Facebook's looking for A couple of 100,000 square feet in the Boston marketplace. We can tell you that there is a rumor that there is that Google and that Amazon Are looking for additional space in the Silicon Valley. We see the requirements What's happening right now in Bellevue and the amount of space that's under construction that we believe Amazon is going to be growing into. They don't announce when they do a lease, That's the perception.
So I think you're going to see more of the same and these companies have enormous appetite for space and for talent. And whether or not antitrust impacts them from if it's 1 company or 2 companies or 5 companies, which obviously is The consideration, I do think that the growth is still going to be there.
Okay. You didn't mention New York. Any thoughts there?
Look, Facebook has put a fork in the ground in their campus, Which they've done very quietly. I'm on the far west side. John Powers on the phone. You can comment about other technology demand. I mean we've announced The market knows that we're interested in doing 360 Park Avenue 2 weeks ago and obviously we announced it last night.
We've seen a significant amount of large tech demand for that building. So I don't think that New York is at all being left behind. In fact, I think it's Similar to what's been going on, remember that in 2020, Google and Facebook took and Amazon took some very large pieces of space. People forget Amazon took the entire Lord and Taylor former WeWork headquarters building which was almost 800,000 square feet, right. Google took a 1,000,000 square feet out at 500 Washington Street and Facebook I think is a math over a 1,500,000 square feet in the Hudson Yards.
So that just happened. So I don't think we feel any differently about New York City. John, do you have any other thoughts?
I can just tell you that at the end of June, There were 295,000 open jobs posted, most of those in tech in New York. So we're seeing a lot of expansion here.
All right, great. Thanks for your thoughts.
Your next question And comes from the line of John Kim with BMO Capital Markets.
Thank you. On Safeco Plaza, according to media reports, The building has already undergone a fair amount of CapEx over the last 15 years, about $100,000,000 What do you expect in terms of Capital spend to reposition the asset going forward. And can you remind us of your views on Liberty Mutual and whether or not you expect them to renew When the lease expires in 2028?
So we're not going to comment on what a tenant wants to do. Liberty Mutual purchased Safeco Insurance. Safeco Insurance has space on the sublet market. That would be an indication that they're not utilizing all their space. So that's probably an opportunity to have a conversation.
With regards to what was spent on the building, almost all the capital that's been spent on the building has been on the bones of the building, not been on aesthetics and Been on place making, and that is that's going to be our primary focus in addition to making sure there's no deferred capital. We don't I don't have a budget I can give you. When we know what we're going to do and we present it to the Seattle office market, we will present it to you.
Okay. And on the co investment program, are you looking at single asset transactions only or is the fund willing to look at Portfolio acquisitions and is also is there a possibility for BXP to contribute assets to fund?
We are we would definitely look at portfolio acquisition. As you know, we tend to aggregate our company and our portfolio one asset by At a time either through acquisitions or development, but that would certainly portfolio acquisitions would be included. And no, we have not Had discussions about joint venturing our existing assets. I want to just use I want to clarify a word that you used That I don't think is necessarily an accurate statement about what we're doing. It's not a fund.
This is a co investment Program. So every asset stands on its own. 1 or both or neither joint venture Partner might elect to invest in a particular asset and they're not aggregated into a fund. So I just want to clarify that because I think it's important you to
understand. Great. Thank you.
Your next question comes from the line of Nick Yulico with Scotiabank.
Thanks. Good morning, everyone. Doug, I appreciate you gave some color on leases signed in the quarter. Is it possible to just get the mark to market on those lease signings in the quarter? And I guess as well how we should think about What that number could look like for the back half of the year based on lease signings so far?
I mean, obviously, the 2nd quarter number was 14%, but how does that number kind of shake out for lease signings in the quarter and how it could look for the rest of the year for commencements?
So timing is everything. And the reason I provide you with the information I do is because It is an indication of what is going on with the spaces that we leased today, which unfortunately May not hit our supplemental statistics from a revenue perspective for 2 quarters, 3 quarters or 6 quarters. So I'm just trying to sort of give you a flavor of what is going on, on a relative basis, right. So it's very hard to sort of predict What's going to happen because I don't know which spaces we're going to lease and what the rent was versus what the rent might be on those spaces until it happens. So again, on average, everything I said was as basically Down in New York City of 20%.
That doesn't mean the market is down by 20%. It may mean that those leases might have had a negative mark to market in 2019 Because the rent went way up in a particular building and the markets just never got to where the increases were. But so things were down in New York And they were flat in Los Angeles again on the portfolio of space we leased based upon what was being paid and what will be being paid on a cash And then the other places in Boston and in San Francisco, we were up about 20%. In Mountain View, we were up 60%. And in Reston, we were down, call it 5% to 7%.
But again, a lot of the space in Reston was vacant. So there wasn't down. Actually a 100% increase because that space had been vacant for more than 12 months, right. So that's the reason that we give you what we give you in terms of the data. So you can Have a sense of what's going on, on a current basis.
Great. Thanks. Very helpful. Just second question on the Midtown South purchase. Maybe you can give us a feel for rough numbers about how you're thinking about the additional redevelopment costs and potential rents you're targeting there?
So let me just
make a few comments and I'll let John Powers give a more verbose answer. As Owen said, we bought the building for a very attractive basis and we're going to be in this building for well under $1,000 a square foot. I'll let John talk about where rents are. Again, we're in the early stages of figuring out exactly what it is we want to do to this building. And I'm expecting John will say, it's going to depend on who shows up because depending upon who shows up, they may want different things for the building.
John?
The building is very attractive for us because it's being delivered vacant at the end of the year. So we don't even have a carry cost for this year. We're paying As Owen said at the end of the year, and it's very difficult to get a building in that market with good bones and this has pretty good floor plates And also get it back all vacant at the same time. So we're in the visioning stage now of this and putting it together. We had a session yesterday.
It went very well. We think we're going to do some very interesting and different things in the lobby space there. And we think there'll be a lot of interest from Different types of tenants. It's very difficult to get identity if you're a 100,000 foot tenant or 150,000 or 200,000 foot tenant. Certainly, that's the case in many of our buildings, which are much larger.
So this, I think, will be a very good branding opportunity, as Owen said in his comments, For some tenants, rents, it really depends upon the size of the lease up and we're budgeting some downtime obviously Next year, and we may convert quicker. We don't know how the leasing is going to go on this. But I would say, if you think of With the 9, that would be consistent with our underwriting and we may do better than that and we hope we will. Thank you. Great.
Thank you, John and Doug.
Your next question comes from the line of Manny Korchman with
Citi. Hey, everyone. Good morning. Just thinking of life sciences as a broader space, You guys are increasing your exposure there as are many other owners and developers. How should we think about sort of differentiating what you're building And overall supply versus what we're hearing in the headlines of seemingly everyone chasing life science?
Yes. So I think the most important differentiation, Manny, is that we already control most of the conversion and land that we're going to develop. I mentioned in my remarks, already have 5,500,000 square feet under control. So we don't have to go out and buy anything. And all those projects are in the nation's hottest life science markets.
They're In Cambridge, they're in Waltham, they're in South San Francisco, they're now in Montgomery County, Maryland. So again, we don't have to go create the raw material To build our business, we already control it. Now that being said, fortunately, this last quarter, we did find some things that we thought were interesting. We bought a smaller Existing lab building that's adjacent to a project they already had in Waltham, which we thought was a terrific attractively priced tuck in opportunity. And then our DC team got very comfortable with the Montgomery County market and found a very interesting transaction To open up basically a new life science market for Boston Properties.
And we're in the process of closing the deal and we're already in discussions With a number of users for that site, so we have high hopes. So anyway, I think that's the big difference is you hear a lot of people Getting into life science or growing in life science, we're going to do it by just executing on what we already control.
Hey, Owen, it's Michael Bilerman. I was wondering if I can follow-up. In your opening comments, you mentioned the concerns about work from anywhere impact on the BXP footprint Are overstated. And I wonder if you can distinguish sort of BXP relative to the whole office market, because obviously you've made that comment That it doesn't impact the BXP footprint, but I have to assume there's going to be some impact overall on office. Are you able to sort of tease out sort of your outperformance relative to the broader office market and why you believe it's sort
I would say 2 things are very important. 1, we like our gateway footprint. I think we would acknowledge that in the short term, cities in the Southeast, Southwest, they're opening more rapidly. And perhaps in the short term, they might have better performance. But we believe over the long term, Our gateway markets that are increasingly driven by tech and life sciences demand and have some barriers to entry are long term the best place to be.
And then the second thing that both Doug and I talked about in our remarks is flight to quality. If you look at the tour activity in High quality building. Our tour activity in New York is much higher in terms of number of tours this year to date than it was in 2019. If you look at assets like the GM Building, there's a lot of not only tour activity, but leases getting signed. And as Doug said in his remarks, When you're in a soft market, people want to upgrade their buildings, and they want to go to quality.
I also think a lot of the future in terms of work From home is I do believe corporate leadership wants to have their employees return to the office. And one of the ways they're going to do that is to have great offices. They're going to want to be in great locations. They're going to want to have great space in place and that's what we try to do.
And the other question I had was, you talked a lot about sort of the employer versus the employee difference, where clearly a lot of the surveys Show that employees want significant flexibility, but obviously when you look at the employers or CEO surveys, you get slightly different answers. With the Delta variant rising and sort of increased masking up in some of the gateway markets again, Do you think that the tone with your tenants on the employer side just may be shifting a little bit sort of acknowledging we're going to be with For a while, right, unless the vaccination rate increases meaningfully, it's going to be hard to get rid of COVID and all the And the things that are happening that all sort of got relaxed a little bit when we had this euphoria that we were done with COVID. Do you think it Changes or slows anything down, should sort of the frustration with going into the office On the employee side, we're sort of both of these things sort of meet the head. I'm just curious how you think about that on a current basis given what's happening?
Yes. We haven't seen much evidence of that. Our footprint as you know and it tends to be in a more highly vaccinated parts of the
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.
Hey, guys. Just Mike, I know you gave us the kind of the impact from the acquisitions in 3Q
and 4Q, but
Can you guys just provide some GAAP going in cap rates that we can think about initially for the different assets? I know you can kind of back into it, but the timing piece as we head into 2022, I just figured might be either going to run right?
I'd rather not give you explicit cap rates because we're these aren't closed and we have confidentiality agreements and such. I would just I just would give you the following so because I think will be helpful. So 360 Park Avenue, as John Powers said, will be vacant in 2022. So I think the cap rate is obvious there. And as Owen said, the Shady Grove development, we intend to basically vacate All of those buildings as quickly as we possibly can.
And so there's very little incremental income there. Safeco is a well leased building and very below market rents. When we close, we'll be able to provide more detail on that. I think we provided some detail on the Second Avenue and the 6.4. And that's a If you back into that and you listen to what I said about where market rents are, you can get to where we think that's going to be in 2022 when we release the building.
Okay. That's helpful. And then just a clarification on 360 Park Ave South, did you guys buy the fee or the leasehold?
We bought the fee interest.
We are buying the fee interest.
We are buying the fee interest.
And then just one last one. I've been asked a couple of times and I'm just kind of curious myself. Is there any potential to redevelop the Cambridge Marriott into life science Office over time or is there something there that would stop you from doing that, if it made economic sense?
So the answer is, there's nothing legally preventing us from having a conversation with the hotel operator About their contract and there's nothing that legally prevents us from going to the Cambridge City Council and ask for a change in use there. So Clearly, we have been successful and other doing other things like that in the city of Cambridge. And again, one of the things that People sort of I don't think they ignore it. They just don't appreciate it. We're going to build almost a 1000000 square feet of new lab or office space In Kendall Square, that is currently being leased at rents of between $110 and 1 $40 a square foot triple net.
We have to build an underground parking structure for the existing space and we have to give Some below grade ground to the local utility company, but that's going to happen sooner rather than later. So we have plenty of opportunity to grow our Cambridge portfolio. Okay, great. Thanks.
Your next question comes from the line of Caitlin Burrows with Goldman Sachs.
Hi, good morning. Earlier you mentioned that the list of non core disposition candidates were shrinking. So I was just wondering as you go through these acquisitions and developments, How you generally plan on funding them? I know this quarter you did mention the use of some OP units in one of the cases. So would you identify Other dispositions, issue equity, only do it when your cash position allows or something else?
I'll start to answer that and then you guys I mean, we've got a very, very strong balance sheet, and we've got a significant amount of pre leased developments that The money has already been spent and the income is coming in, in the next couple of years. So that balance sheet is only going to strengthen as that income comes in And brings our leverage down from a place where we're comfortable now, but bring it down to provide even more capacity. So we will continue to fund through some modest asset sales, some additional debt capital And utilizing private equity to help on any kind of acquisition type of an activity. We typically won't want to do the developments on our own unless somebody else Owns the land, and that's the only way that we can access that. And we're comfortable with that Strategy in the foreseeable future, that doesn't mean we would never bring in additional public equity into the company.
That's really dependent on 2 things. 1, the investment opportunities and profile that we think we're going to have over the Couple of years and then obviously what our share price is and whether we think that's an attractive cost of capital for us. So we look at all of those things When we think about funding future investment? So just to sort
of put a finer line on it, this is Doug. Everything that we have done to date, we are funding with our existing capital capacity in addition to All of the developments that are currently underway and are very comfortable with our overall leverage, our use of capital In terms of where the dollars are going and how those dollars are coming in to the extent that we need additional capital to fund that. I Everything that we've announced to date has been funded.
Okay. And then maybe just on the development pipeline, you guys went A lot of the leasing that was done in the quarter, but it didn't look like the development pipeline in particular recognized that active leasing. So just wondering if you could go through The activity that you're seeing for those projects and expectations going forward?
Sure. So the only holes in our development pipeline to date The Brooklyn Navy Yard, which is no longer part of development, which I described. And then our Reston Gateway Project, which is and I'll let Jake and Pete Otne who are our regional team from Washington DC talk about the leasing
We have about 150,000 square feet left to lease in the 1,100,000 square foot building. We've actually had some great activity, Lots of broker tours that have come through that building. We have trading proposals with a full floor tenant right now. And we're also going to engage a spec suite program on an additional 30,000 square feet, So which has been very successful in the Reston market to date. So really good activity, Hoping to convert a few of those opportunities to leases here soon.
And then Caitlin on the stuff in Boston, I thought I'd describe that. So at 880 Winter Street, which is part of our development pipeline now, as I said, we have a 16,000 square foot letter of intent already And we have 180,000 square feet of active proposals, some of which are actionable right now and we're just arguing about economics. And then we actually are in discussions with some tenants at 180 City Point. These are not discussions that have gotten to the point where we have a letter of intent that we've said is close to being executable. That building also is later.
So the sequencing is 880 is delivered and ready for people to be working in it We also have these 2 new buildings that we acquired at on Second Avenue with a lease expiration in the Q4 of 2022 Right in the sweet spot of where all this activity is. I think if you listen to the market Commentary on demand for life science, particularly in the Greater Boston market. There's way more demand than there are existing opportunity to lease space. Lots of people are talking about building new supply. Most of that supply are larger projects that won't be completed until 20 So the sweet spot of the market from our perspective over the next couple of years has a Significant amount of demand and very little competitive supply.
Got it. Thanks.
Your next question comes from the line of Brent Dilts with UBS.
Great. Thanks. Good morning. On Page 16 of the supplement where you break out 2nd generation leasing info, it's pretty clear, the retail portfolio in New York still is a bit of a challenge. But I think in your prepared remarks, you referred to some current negotiations in that portfolio.
So could you just talk about your outlook for a recovery there?
Yes. So I want to be very clear. So the reason that the numbers are as poor as they are in the retail portfolio in New York It's because we took some space back or we re released some space on an as is basis in 2019, okay, not in 2020 At the General Motors building on Madison Avenue and the rents were dramatically lower than what the in place rents were. That's the reason for Change and that's effectively what happened. So we are now leasing vacant space And the vacant space is obviously all going to be incremental.
The rents are market rents. They're depending upon where Spaces are there commensurate with what you would hear from a retail team. I don't want to negotiate rents on this call, but The spaces that we're negotiating, the fitness center in the basement of an office building or High quality restaurant in Times Square are very, very different because of the nature of the spaces and the marketplaces. But it's we are acting at the market.
Okay, great. And then you have a decent amount of retail up for renewal Boston in 3Q, any color on how negotiations are for that space or if you've got plans to redevelop etcetera?
So our biggest Hole in Boston is at Lord and Taylor. And we have lots of active Dialogue going on, on that space which we haven't seen revenue on for over a year. I think almost 16 months, which we now have back. The expiration that you're pointing to in Boston is actually not an expiration. It's a lease that is in litigation with the other anchor.
They are now paying on a contractual basis, and I don't expect that that lease will be terminated in the Q3. Whether we are able to work something With them on a long term basis, unclear, but they're not going anywhere in the short term.
Basically, how we handled some of those leases We terminated the leases and then we in our rollout, we assume that it expires The next quarter because they're sitting in it. And most of these tenants, we only have a couple left, but they're paying rent. And it's just a matter of time before we're able to kind of negotiate what the So the expirations in the Q3 in Boston are those situations. So as Doug described, we don't expect them to create vacancy.
Okay. Thanks for clarifying that. And then just one last quick one on Seattle. I know you've already talked about it at a decent amount. But do you have a target for where you want to get that market to as a percent of the portfolio over time?
Yes. So we I'll address that. Look, We set strategy top down. We like our gateway footprint. We think Seattle should be part of it.
But The answer to your question is driven more by bottom up opportunities. So we clearly want to be in Seattle. We're being aggressive there. We want it to grow, But it will be dependent on the volume and the timing of the attractive investments that we see.
Yes. Okay. Makes sense. Thanks, guys.
Your next question comes from the line of Vikram Malhotra with Morgan Stanley.
Thanks for taking the question. Sorry, just to clarify on that retail lease at GM Building you mentioned, the 33,000 square foot Can you just remind us what that was and what drove that negative the big negative markdown?
There was a space that General Motors had a big negative markdown and then there was also a space at 601 Lexington Avenue. So and I'm not going to tell you what the rents are. Like I said, I'm not going to negotiate rents for tenants on the phone.
So just so those The spaces were released and that's what drove the markdown.
Yes. And one of them was and just as an FYI, I mean This is technical. One of them was actually paying 0 because they had defaulted on their Lease, but we are using their what was contractual rent to define what the change in mark to market is even though they hadn't paid rent in 6 months Prior to the date that they terminated.
Okay. That's helpful. Just given the talk we've had so far on employees wanting I'm wondering if you can touch on 2 things. 1, just sort of What you're seeing at your co working platform and where you expect that to trend maybe in terms of just Offerings and additional buildings. And then second, just on lease terms itself, are you seeing any variations in discussions on Please length or flexible options for termination or expansion, that would be helpful.
Thank you.
Sure. So, let me just Define what our platform is. So we have in Boston Flex by BXP in 3 CBD office buildings and then one suburban asset. And the character of the leasing there is actually It's picked up significantly over the past quarter. We've done, I'd say, 6 or 7 deals which have leased all of the space at our suburban location and the vast majority of our space At the Prudential Center location and we're in activity at the hub on Causeway.
And the nature of all those tenants are companies that Don't know what their long term growth is. They don't didn't have office space prior to the pandemic. They want to get back quickly and they just need space because they want their people together and they're saying we want to we're going to take this for 6 to 9 months and then we're going to figure out much we need and then we'll decide if we want to do additional flex space with you or we want a long term commitment. And again, our Our spaces are generally 4000 to 6000 Square Feet max, and we have a few that are a little bit smaller, but
it's that's the character And I think Vikram, we don't have plans right now to grow that I mean that could change over time depending on the economic performance, but we don't have we're not planning to expand it at this time.
Okay, great. And then just sorry, just to clarify the lease the kind of the lease terms overall, are you seeing you're not seeing Any change in sort of the components, whether it's term or just out options or expansion options or anything like that?
In the perfect world, the tenant would like to have an ability to get out of their lease whenever they can. We obviously We don't provide that kind of flexibility. As I think Owen said in his remarks, our average leases that were signed this quarter was But again, the leases that are in active negotiation right now are all on average 10 years or more. All the activity that I described including the life science stuff. And I would tell you that tenants would like as I would like to have more ability to be flexible in their space and buy their way out of leases.
And occasionally, we are giving some of that After longer periods of time, you sign a 10 year lease and you can terminate after the 7th year or something like that. But there really hasn't been Any shift in the profile of the amount of time that the companies that are looking at our kind of spaces are expecting And all of our build to suit stuff is still 10, 15 or 20 years.
Okay, great. And then just sorry, just last one. I know Adi, You've talked obviously a lot about Seattle and it makes sense strategically. Just thinking about other markets, one of your West has expanded into Austin recently. And I guess you can never say never, but if we look at the next sort of 2 to 3 years, Is it a possibility that you look at any of the kind of key Sunbelt markets as more tech tenants expand there?
Look, I we believe in our gateway strategy. We think Seattle was the logical expansion As a gateway market and there's plenty to do in the 6 markets we're in now. Vikram, you and others are focused on Seattle. I could We actually went into 3 new markets this quarter. One was the Park Avenue South, below 40 2 Midtown South market, that's a new Submarket for Boston Properties.
The New York market is 3 times the size plus of Seattle. It's got multiple cities in and of itself. We just went to a new one. And then our D. C.
Team went into the Montgomery County Life Science market, which we hadn't been in before that's managed out of D. C. Region. So I think those two deals are evidence of all the robust opportunities we have to expand our footprint And our existing regions.
Great. Thank you so much.
Your next question comes from the line of Daniel Ismail with Green Street.
Great. Maybe going back to the development pipeline. Doug, I believe you discussed the speculative restart of Platform 16. Are there any similar discussions Across the non life science pipeline such as 3 Hudson or anything else?
I would say the only other project that In our land portfolio at this time that we're looking is the Block D residential development in Reston next. I think that could be a start. You could see later this year, early next year.
But to answer your question specifically, We're going to need a really large tenant commitment to start 3 Hudson Boulevard or to start 343 Madison Avenue, which by the way, Won't even be in a position to start for a couple of years, or any of the other land holdings that we have in our more urban locations.
Got it. And then you discussed throughout the call today about the quality of your portfolio and the outperformance that Generating and I'm curious within the leasing activity this quarter or in the pipeline, are you seeing any tenants trading up from Class B space to Class
I would say that we're not seeing people trading up from true Class B space, because true Class B space It's significantly less expensive than Class A, but we are getting tenants who are in what I would refer to as A minus minus buildings that are looking at our assets. In other words, modern inventory of office space that has really not been either Eyes is not where the landlords don't even understand what it means to create great place and great space, where they haven't made the Changes to the infrastructure of the buildings, but where the building is well located. And so those tenants are there because of that and they're sort Wait a minute, given everything that's gone on and the importance as Owen described of having great places for their employees to want to come back to And the health security issues that we've talked about ad nauseam for the last couple of quarters and how we're dealing with those things. There's There's a flight of those kinds of environments that I believe is occurring. And so to answer one of the questions that was asked previously, I do believe that there will be buildings that were built, call it in the modern era.
So in the 70s, 80s, 90s, Thousands that have not been well maintained or well thought of with landlords who really aren't thinking about the long term viability of their buildings We'll be left behind in our core cities as people move to better buildings and better with better landlords and better
And there are no further questions at this time. I will now turn the call back over to the speakers for any closing remarks.
Okay. Thank you, operator. We don't have any more formal remarks. And I just want to thank everybody on the call for their time and their interest in BXP. Thank you.