Being said, Boston Properties is hedged and well prepared for a downturn if and when it emerges. Our corporate leverage Our corporate leverage remains modest. We are completing new leases and early renewing a large number of tenants. Our weighted average in service lease term is approximately 8 years and rising. And our development pipeline has modest risks given the buildings under construction are 81% pre leased.
Now moving to the private real estate capital market for assets in our core markets, it remains strong and liquid. Every on market transaction we have pursued this year, either buildings or sites, has been hotly competitive with multiple qualified investors. There are many very large institutional investors globally interested in making private equity real estate investments across sectors and geographies. Significant office transaction volume in the U. S.
Ended the 2nd quarter at $25,400,000,000 which is up 42.3% from last quarter and up over 24% from a year ago. Yet again, there are numerous significant asset transactions in our markets this past quarter. Starting in Boston, a 90% leasehold interest in Osborne Triangle in Cambridge sold for $1,100,000,000 which is about $16.50 a square foot and a 4.3 percent cap rate. This is a 680,000 square foot office and lab complex that fully leased and sold to a joint venture of a private equity investment manager and a local operator. The seller retained the freehold interest.
In West LA, Culver Creative Campus sold for $260,000,000 or $9.20 a square foot and a 4.8 percent cap rate. This is a 280,000 square foot creative office property that's fully leased and sold to fund manager. Moving to San Francisco, 650 Townsend in the Mission Bay District sold for just under $700,000,000 which is 10.40 a square foot and a 5 cap. This is a 670,000 square foot office building that's fully leased, sold to a private real estate investment firm. And then finally, in Washington DC, a 49 percent interest in Terrell Place is under agreement to sell for $475,000,000 about $10.50 a square foot and just a square
foot and just under a 5 cap.
This is a 451,000 square foot office building, 95% leased sold to a Sovereign Wealth Fund. Sticking with dispositions, we are targeting approximately $300,000,000 in asset sales this year and are well on our way to achieving this goal, having completed $251,000,000 in dispositions year to date. Notably, this quarter, we closed on the sale of 540 Madison Avenue in Midtown Manhattan, of which we owned a 60% interest. Our partners in the project exercised their right to sell their 40% interest in the asset and we elected to join them to market the entire building. After seeing significant interest in the property, we closed on the sale of the 284,000 square foot office building to an advisor on behalf of a U.
S. Pension fund for $310,000,000 which is $10.92 per square foot and a 3.8% yield on current NOI, which stabilizes at 4 5%. The pricing was very attractive to us relative to the growth potential we saw in the asset given its market position. The sale also served as an opportunity to prune our New York City portfolio at the same time we were reinvesting in our 53rd Street campus in the GM building. And lastly, of course, asset sales helped raise capital for our development pipeline and other new investments.
The competitive process we experienced during the sale renewed our confidence in the depth of the market for Midtown Manhattan office buildings, particularly for assets of this scale. Moving to other capital activities, development continues to be our primary strategy for creating value for shareholders and our pipeline of current future developments remains robust. As mentioned, this quarter we added 325 Main Street in Kendall Center to our development pipeline, representing an additional $418,000,000 in expected investment. Not only does this development grow our relationship with Google, an important client, we also extended our other leases with Google, creating an 850,000 square foot relationship across 3 buildings in Cambridge through 2,037. With this addition, our current development pipeline stands at 12 office and residential developments and redevelopments comprising 5 point 7,000,000 square feet and $3,200,000,000 of investment for our share.
The commercial component of this portfolio is 81 percent pre leased and aggregate projected cash yields are approximately 7%. We also expect to add 2,001 100 Pennsylvania Avenue to the development pipeline next quarter. This 480,000 square foot building with 66% of the office space pre leased will add an estimated $360,000,000 in investment.
Lease will
add an estimated $360,000,000 in investment. Most of the development pipeline is well underway and we have $1,500,000,000 of capital remaining fund. Given selected asset sales, the scheduled delivery of our current development pipeline and forecast NOI growth from our in service portfolio, we anticipate being able to fund the current development pipeline without either accessing the public equity markets or increasing our leverage ratios. As we pursue and add additional new investment opportunities to the pipeline, we will be increasingly accessing private equity partners to extend the use of our equity capital and enhance our return. For example, we are close to completing a joint venture with a private capital partner for our Platform 16 future development project in San Jose.
So to conclude, tenant demand remains robust in our core market. Companies across sectors continue to make long term commitments to our high quality properties, allowing them to attract and retain talent with leading edge workspaces and amenities. Financially, we are delivering the highest FFO per share growth in our sector and among most REITs overall this year, while maintaining modest levels of leverage. Our focus on new development has been and will continue to be our differentiator and advantage, allowing us to drive strong growth and returns and create long term value for shareholders. And given our robust current development pipeline and new investments under pursuit, coupled with our strong balance sheet and available financial resources, we are confident of continued growth and value creation in the years ahead.
And I will turn it over to Doug.
Thanks, Owen. Good morning, everybody. Last quarter, we described pretty healthy leasing activity across all of our markets except the District of Columbia. And to the extent that there have been adjustments to these conditions over the past 90 days, the changes have been positive, expressed in the form of more active requirements, more early renewals and more tenant growth. While the slowdown in global economic growth and the trade disputes Owen referenced are impacting sectors of the economy, the tenants in our buildings and the tenants that are considering new space in our markets are showing great resiliency and or have not impacted to the extent that their behaviors when it comes to using space to attract, recruit and retain employees remains constant.
We are not seeing tenants put requirements on hold, move to short term decisions or list space on the sublet market. The demographics of the labor markets, the tight unemployment rate for the workforce with college or graduate degrees and the continued changes to how businesses workforce will be impacted from technological innovation are creating continued demand for our markets and our buildings. The demand, as Owen said, is driven by growth from technology, life science, media, but also some financial service tenants. In San Francisco, CBR reported in 2013 that Teck made up about 22% of the embedded occupied market or about 15,000,000 square feet. As of the end of the Q2 of 2019, Teck made up 38% of the market and 31,000,000 square feet.
In Midtown Manhattan, in 2010 CBRE reported that 5.5 percent of the market or 17,600,000 square feet was occupied by technology companies. At the end of the Q1 of 2019, the tax year had increased to 8.8 percent or 32,500,000 square feet. And this excludes jobs in traditional financial service organizations like banks that have significant technology employment. There's more tech occupancy in New York than there is in San Francisco. As we said at the NAREIT conference in June, the technology leasing we have seen in Manhattan over the past few years is obscured by the size of the market and the significant speculative supply that has been delivered.
Demand in Manhattan remains robust. At this moment, there are at least 4 technology companies in active discussions on requirements of between 400,000 and 1,500,000 square feet and they represent significant growth for each tenant. In addition, there are a dozen non technology firms, law firms, banks, media companies, insurance companies with requirements in excess of 300,000 square feet that are seriously considering our relocation to either new construction or products. Some of these non tech clients are growing and others are contracting their footprints, but on balance demand remains strong. Interest in new developments, including our project at 3 Hudson Boulevard has picked up.
Large blocks in the new products, which is in almost every case, price of starting rents in excess of $100 a square foot are leasing up more quickly than we anticipated. There will still be significant existing supply from known relocations. So while we are optimistic about shrinking availability of newly constructed space in the medium term, we continue to have a cautious view of transaction economics over the next few years. Boston Properties has one lease expiration in excess of 150,000 square feet during the next 5 years in our Manhattan portfolio and we are in renewal discussions with that tenant today. Our portfolio in New York focus remains at the General Motors building and our remaining block at 399 Park Avenue.
We completed a lease on one floor at the GM this quarter. The high end market defined a space with starting rents in excess of $120 a square foot really hasn't changed much over the last 90 days. As I said previously, leasing activity in this submarket is not about incremental price or concessions, it's simply about a smaller demand pool and that demand remains light today. I described the economic impact of our known 2020 Manhattan availability last quarter and it hasn't changed. We have about $13,000,000 of income in 2019 from space that is expiring in 2020 at the GM Building.
When combined with the currently vacant space here in at 399 Park, we should see future revenue of about $27,000,000 from those spaces. I also want to note that at 159 East 53rd Street, we will be collecting cash rent in November of 'nineteen on 195,000 square feet. But as we sit here in July, our incoming tenant has yet to begin their improvement construction, which means they are unlikely to be completed in 2019 and this will push our revenue recognition date into 2020. Dock 72 is expected to open in September for WeWork and we expect to open the space in October. We continue to have some tenant discussions, but there are no imminent lease signings in our sites.
In Northern Virginia, where almost 10% of the company NOI originates, the tech tenants that have identified the DC Metro employment as a fertile area for growth are continuing to grow. In addition, the contractors that service Defense and Homeland Security are expanding. The demand picture is robust. In Reston Town Center, we have active lease discussions involving 285,000 square feet with 7 tenants that includes 160,000 square feet of positive absorption to take up the space we're getting back in 2020. We have 3 other technology and defense contractors that currently occupy 85,000 square feet looking at 63,000 square feet of expansion in early stage discussions.
We have a new leasing leader in DC, Jake Stroman, and his and his team are aggressively working to cover that 2020 availability. Just west of the Town Center, a few weeks ago, the team completed a 15 year renewal a defense related government entity for 492,000 square feet. We anticipated this renewal and it's not part of the known Fully committed build to suits seem to be announced every quarter. This time it's a Roche subsidiary for more than 575,000 square feet, part lab and part office. The speculative portions of new construction aren't delivering until 2022 or later, and there are very few blocks of contiguous New construction rents are close to $100 on a gross basis.
In Cambridge, the availability rate is even lower under 2% And even with the departure of tenants moving to new construction in Boston or the Western suburbs, office rents are over $90 triple net and lab rents are over $100 triple net with a higher TI allowance. In Walsall and Lexington, the growth in migration of lab tenants has resulted in over a 1000000 square feet of new requirements in this market with less than a 1000000 square feet of available product, which most of which was converted office space. This has pushed office rents for older space into the mid 40s growth and new construction into the mid 50s. Our Boston CBD portfolio is 99% leased and hence the majority of our CBD portfolio activity involves expansions and early renewals at higher rents. At 2 100 Clarence Street year to date, Pat Mulvihill, who has recently taken over the leadership of the Boston leasing region and his team have completed 118,000 square feet, including 75,000 square feet of 20.22 early renewals this year and they're currently negotiating leases for another 140,000 square of 2022 expirations with existing tenants, including 34,000 square feet of expansion.
Our largest ongoing transaction at the Prudential Center involves the recapture of a floor from 1 tenant along with an immediate release to a growing financial services firm that is also committing to 2 additional floors in late 2023. To date in 2019, we've completed 775,000 square feet of Boston CBD deals on existing space with an average increase in rents up 21% on a gross basis. In the development pipeline, in addition to increasing our pre leasing at 100 Causeway with a lease for 67,000 square feet, we have 2 other leases in negotiation totaling 77,000 square feet, which when signed would bring pre leasing to 93%. Last quarter, I described our plans to terminate leases in anticipation of converting 200 West to a lab infrastructure starting in the Q4, that's a Waltham suburban property. And this in fact is happening, hence the decline in occupancy this quarter.
Occupancy will drop as we vacate 50 percent of the building to enable the lab conversion. We'll be investing about $40,000,000 on the applicable square footage to convert the base building systems, provide enhanced TI transaction costs and carry the development while the space is out of service. Lab rents are between $48 $63 triple net in the Waltham Lexington market. We expect a high single if not double digit return on this incremental Point, our next development site in Waltham is a 300,000 square foot building that's fully permitted that fits this bill. We recently made 180,000 square foot proposal to a lab user 120,000 scrip per proposal to an office user for the same building.
We have a few additional known move outs in Waltham in 2019 and we are reviewing whether these buildings can also support a lab conversion. Similar to Boston, San Francisco has a vacancy rate in the low single digits. While we can point to significant future development opportunities in the Boston market, in San Francisco, the issues with PropN and CEQA create a much more constrained situation. Nothing has changed with the CEQA litigation involving the Central SoMa plan, but the city has moved forward and approved LPA's large project authorizations for 598 Brandon, the Tennis Club and Flower Mart sites and subsequently authorized partial Prop M allocations. The city is currently processing our LPA for Fort and Harrison and we expect to formally go before the Planning Commission in the fall and receive our LPA and prop ML allocation for 500,000 square feet, a partial allocation.
Recently, a ballot initiative was proposed for the March 2020 election that would allow for a full profit allocation for the current Central SoMa superblock sites including ours, but tie future allocations to citywide affordable housing goals, further tightening future supply of office space in the city. The vacancy rate in San Francisco is at its lowest level since this last cycle began after the great financial crisis. Our city portfolio ended the quarter at 93% occupied, but we have signed leases for 285,000 square that have not commenced that would bring it to 98% occupied. This quarter, we completed 160,000 square feet of leasing at Embarcadero Center. To date in 2019, we've completed 435,000 square feet with an average gross rent increase of 34%.
If a tenant wants a full floor DC, it has one option prior to July of 2020. We have only 1 multi floor expiration prior to the end of 2021. But if a tenant is looking for an available block of space, a good comparable to the Embarcadero setter or other properties we have is the low rise at 101 Market with an asking rent for that block starting at over $100 a square foot. We have a large portfolio of development opportunities in the Silicon Valley. This market continues to experience strong growth led by Google, Apple, Facebook.
Google recently purchased the former Yahoo! Campus from Verizon and Verizon has leased 650,000 square feet in close proximity to the Caltrans station in Santa Clara and Uber has taken 300,000 square feet Sunnyvale, again close to a Caltrans station. We are aware of other San Francisco headquartered companies that are looking in the Valley for large blocks of space as well as Valley companies continuing to grow. At Platform 16 in San Jose, we are enabling the site and making presentation to tenants that are looking for large blocks of space. In our existing Mountain View product portfolio, we continue to release our renewed space rents in excess of $60 triple net for single story product.
This quarter, we completed 3 leases for 113,000 square feet with an average rental increase of over 90% on the net rents. So to summarize, in New York, the headline is that the market is active and our growth is going to be driven by the lease up of our limited high end space availability. In DC, we're making good progress releasing our 2020 availability in Reston. In Boston and San Francisco, the strong rental growth along with occupancy increases is really what's driving our overall portfolio performance. When we add the contribution from our $3,200,000,000 development pipeline, which will deliver in 'nineteen, 'twenty, 'twenty one, 'twenty two and 'twenty three, we are excited about our continued growth prospects.
I'll stop here and turn it over to Mike.
Great. Thanks, Doug. Good morning, everybody. As Owen described, we had another strong quarter. We increased our full year FFO guidance again, and we're now projecting 12% year over year FFO growth at the midpoint.
Before I get into the financial results, I would like to touch a little on our capital raising because we've been very active in the capital markets, raising capital through both debt issuances and property sales. We raised $150,000,000 with the sales of 5 40 Madison Avenue and 2 smaller non core suburban assets this quarter. We raised $850,000,000 in the bond market in June with our 2nd 10 year green bond at a very attractive 3.4% fixed interest rate. We also closed on 2 $55,000,000 of construction financing for the Marriott headquarters development where we have a 50% joint venture interest. And we are in the final stages of closing a $400,000,000 construction financing to fund the development of our fifty-fifty joint venture 100 Causeway Street Office development in Boston.
We now have over $1,000,000,000 of cash on hand plus our full $1,500,000,000 credit facility available. We are in a strong position to fund the remaining $1,500,000,000 of costs to complete our development pipeline, which totals $3,200,000,000 of total investment. We continue to have no need to issue public equity to complete our pipeline and we expect that our overall leverage currently at a reasonable 6.3 times net debt to EBITDA will improve as these projects deliver. We are pleased with our balance sheet and our ability to maintain modest leverage and strong liquidity while funding a growing development pipeline that will drive future growth and shareholder returns. Now let's get into the details for the quarter.
Our 2nd quarter results were strong and exceeded our expectations with revenue up up 10% and FFO occupancy up 50 basis points and now at 93.4 percent and the roll up in our replacement rents was outstanding up 25% on a net basis over the prior lease on approximately 600,000 square feet of leasing that commenced this quarter. Our FAD this quarter came in at 2 $24,000,000 which is an improvement over last quarter's result due to higher revenues and lower leasing costs. This provides strong dividend coverage with an FAD payout ratio of 73%. Our FFO for the 2nd quarter was $1.78 per share. It exceeded the midpoint of our guidance range by 0 point $4 per
share or about $7,000,000 $0.02
per share of our B came primarily from higher portfolio revenues where we commenced leases earlier than our prior projections. We also gained $0.02 per share from lower operating expenses. This consisted of repair and maintenance items not completed as quickly as we expected. We anticipate incurring these expenses in the back half of the year. So of this quarter's $0.04 per share earnings beat, only $0.02 per share will benefit the full year.
This quarter, our share of same property NOI is up 7.6% and on a cash basis up 9% coming from a combination of increases in occupancy and achieving higher rents as we release our expiring spaces. We anticipate that this growth rate will not be as high in the back half of twenty nineteen, partially due to higher comparable periods in the second half of twenty eighteen. We also project our occupancy to moderate for the rest of 2019 due to pending expirations primarily in suburban Boston and suburban San For the full year 2019, our assumptions include growth in our share of same property NOI of 6% to 6.75% over 2018. This represents an increase of 25 basis points at the midpoint from our guidance last quarter and it's from the combination of the revenue outperformance in the 2nd quarter and continued strong leasing activity in most of our markets. We have activity on nearly all of our available space in San Francisco and we're working on a number of early renewals at higher rents in Boston, New York City and West LA.
At the end of the Q2, we sold 540 Madison Avenue for $310,000,000 of which we owned 60%. The loss of our share of the NOI for the next 6 months is $3,100,000 or $0.02 per share to our 2019 full year projections. We transferred the mortgage on the property, so our share of interest expense will be $1,000,000 lower. We've also reduced our net interest expense assumptions due to higher cash balances from asset sales, lower interest rates, the impact of our bond deal as well as changes in the timing of our development funding. We expect net interest expense for the year of $398,000,000 to $410,000,000 a reduction of $8,000,000 at the midpoint from our guidance last quarter.
And we've modestly increased our fee income projections by $2,000,000 at the midpoint coming from higher projected construction management fees. So overall, we are increasing our 2019 guidance for funds from operations by $0.06 per share at the midpoint to a new range of $7.02 to $7.08 per share. The increase consists of $0.02 per share from higher projected portfolio NOI, dollars 0.05 per share from lower net interest expense, dollars 0.01 per share from higher fee revenue offset by the loss of $0.02 per share in NOI from the sale of 540 Madison Avenue. In summary, we are projecting an industry leading 12% FFO growth in 2019 at the midpoint of our guidance range. We are executing effectively in the leasing markets, which is driving strong organic growth through increases in occupancy and locking in higher rents as leases roll.
Given our higher starting points of occupancy gain that we project this year. However, the portfolio continues to offer opportunity for 2020 growth by capturing incremental occupancy as well as a positive mark to market on near term expiring leases. We also have a substantial pipeline of developments that are now 81% pre leased and will contribute to our growth in 2020 and for multiple years beyond. That completes our formal remarks. Operator, can you open the line for questions?
Your first question comes from the line of Nick Yulico with Scotiabank.
Thanks. Owen, you talked about how the macro environment is slowing and asset pricing is still very strong. So I guess I'm wondering how that changes your thinking on capital allocation. Does this mean we'll see more JV capital for new developments you start? You did mention San Jose as a candidate there or maybe how you're thinking about sales of buildings or JV stakes in the core portfolio?
Yes. So let me break that question down, talk about sales and then talk about new investments. I think on sales, I know on sales, we're going to continue to sell non core assets as we've done successfully and I would say fairly aggressively over the last few years. And that's been always in the kind $100,000,000 to $300,000,000 range. And then, look, our core assets are not being sold, but from time to time, something opportunistic presents itself as it did with 540 Madison, and we certainly want to take advantage of that.
On the new investments, I'm not sure there's going to be a big change. We are we will continue to not be purchasing stabilized assets in our marketplace, which I give these examples every quarter and I can pick a deal or 2 out in almost every one of our cities that trades at a 4 ish cap rate. And that's dilutive to what we're trying to do and those kinds of opportunities don't have the same growth that our development opportunities do. So we're not focused on buying core assets. But relative to that interest rate environment and relative to that cap rate environment, we continue to add new developments to our pipeline that are approaching or at 7% cash yields, which we think are very accretive to shareholders, both from an NOI perspective and NAV perspective.
And then lastly, on your question about JV partners, we are spending more time in the private capital markets. We are meeting new partners. We entered into a number of joint ventures recently. I talked about Platform 16. That decision is really more about our ability to fund.
As we mentioned, we don't want to issue our equity given our share price. We don't want to increase our leverage given where we are with the economy. So if our investment pipeline exceeds our financial resources given those constraints, that's when the financial private equity partners get introduced. And that's been our logic on it.
All right. That's helpful. Just one other question is, you've mentioned how 2020 is there's some items in 2020 that create some slowing in same store growth, move out to GM, some other buildings that are known. But I guess, can you just remind us about how you can what the benefit could be to next year if you got some of the vacancy leased this year at 399 Park and GM, how that could actually then be a benefit to 2020?
Sure. So this
is Doug.
The reality of the situation, just to be perfectly blunt, is that the perfectly blunt, is that the space at $399,000,000 is in a shelf condition. And so if we do at least today, in all likelihood, there won't be a build out for a significant period of time in 2020. But net net, the space that is available today and the space that is rolling over in the General Motors building would have a positive contribution of about $27,000,000 and we currently have $13,000,000 from that pool of assets today. So you can divide by 12 months and figure out how you want to think about that. And then the other major exposure we have is we have, I said this before, in excess of 500,000 square feet of known expirations in our Reston portfolio in the beginning of 2020.
And the average rent is about $50 a square foot. So you can put a number of about $25,000,000 on that. So there's a higher a higher probability of us getting some of that back sooner because we have tenants that are in some of that space that are expanding. And we have some we have space that is currently built out and ready for occupancy and therefore we can recognize revenue earlier. So that's those are the sort of the 2 big building blocks.
And that's helpful. I just wanted to add one more thing. And the other thing I said, which is
important
is that we have cash revenue at 159 East 53rd Street. And because that's when our lease says they have to start, but they have been delayed in their planning and their construction documents for that 195,000 square feet. And you'll notice in our supplemental, we pushed out the stabilization date because we just were a little unsure as to right now as to when they're going to complete their build out of that space. And so that will impact our 2020 number as well.
Okay. I guess just one follow-up there is just any commentary on how the leasing is going, discussions are going for that remaining space at $399,000,000 and GM that you're trying to get done?
Yes. John, do you want to cover that one?
Yes. Well, we have good action on $399,000,000 We've got some proposals and some paper going back and forth. Some of it for a 4.5 or a floor. So I think we'll make progress on that this year. GM, we have a number of prospects for the space.
Some of them are looking hard at the market and there's a little more supply in the market on the high end than there has been in the past.
Thanks everyone.
Your next question comes from the line of Manny Korchman with Citi.
Hey, good morning, everyone. Maybe Owen or Doug, on 3 Hudson, remind us given the amount of demand or the number of large tenants looking for space, what level of pre leasing do you have to be at to get that project started? Or is that high level of demand giving you the confidence to go more spec on that budget?
Manny, as
we've answered this question in the past,
let me talk a little bit about the
building and then we'll talk about the pre leasing. So as Doug described, there is a lot of activity, a very positive activity in the marketplace, both from new requirements from tech companies, but also more traditional companies relocating. We've been very encouraged by the level of activity that we're seeing and we've been very encouraged by how the market has been receiving our offering. An exciting building and again it's being well received. We won't start the property without a very significant pre lease.
We are not going to state a specific number.
Okay. And then Mike, the expenses being delayed, are those the same expenses that were delayed last quarter? And how do we think about how they're actually going to come in for the rest of the year?
I don't necessarily think they're the same expenses that were delayed last quarter, but it is typically this R and M item that our property management teams have. I think they just conservatively project these things. And then I think the time of year when most of the stuff gets done is kind of later in the year, Q3 is a very big period for that. So I would think that the Q3 expenses are seasonally higher anyway and I think that much of this will be pushed into the Q3. However, I think that some of it may drip also into the Q4.
But I do expect it all to get done in 2019. So I don't expect to see kind of savings associated with some of the stuff just dropping off.
Great. And one final one for me. The LA 2nd generation cash rent spreads were negative. I realize it's on a small amount of space. Is that something specific with that space or is there something broader going on in sort
of your submarket there? Yes, there's nothing broader going on. The reason I didn't talk about LA this quarter, Manny, was because we are all we're doing right now is large renewal discussions and we have very little available space. And interestingly, I think the one thing about the Santa Monica Business Park, which by the way is where all that space came from, is that we're actually seeing lower transaction costs than we anticipated, because we're talking about basically 5 to 7 year renewals, which probably is the right thing for us given the relative issues associated with the ground lease and the repositioning of the property.
Your next question comes from the line of John Kim with BMO Capital Markets.
Thank you. Actually just sticking with Santa Monica, there was a discussion on another call about SNAP downsizing their new own presence. And I'm wondering if there's a similar
situation in your portfolio? Our interaction with Snap that's a tenant Santa Monica Business Park is that they're going sequentially through all of their must take space and they're building it out and occupying it.
Okay. GM Building Retail, I think the last official update you provided a couple of calls ago was that Apple is moving into the first half of this year. Has that delay impacted cash NOI at all? And if you
could just provide an update?
No, it hasn't impacted our cash NOI. Apple is at the very, very late latter stages of opening the store and I think we're excited about what that's going to do not only for the retail, but for the environment on the corner of 59th Street and Fifth Avenue, which has been a rather the Maria's construction site for the past couple of years and we're excited to have it all come to a conclusion.
Final question for me is doc 72.
This is John. I would just say the store is spectacular. When it opens, you all have to come to see it. It's going to be amazing.
And just on that, when is Under Armour when do you expect Under Armour to open?
Right now, we expect Under Armour to take possession of the space sometime in early 2020. And there we expect that they'll be working on their plans and opening hopefully before the end of the year. But again, that's we're just we're not aware of specifically what their timing is and how that visavis deals with their product launches and their store openings and their seasonal issues. So we just don't know.
Okay. And then final one on DUC72, I think last quarter you were you mentioned tenant interest was picking up. It doesn't sound like you're as bullish on leasing prospects this quarter. I don't know if that's accurate. But can you provide an update and also what the impact to 2020 FFO would be at that asset?
So I'll start and I'll let John comment. I would say that the reason that you're not hearing me be more bullish than it was last quarter is because the tenants that we're talking to last quarter are the same tenants we're talking to this quarter. There aren't any additional ones. And so things are just sort of being drawn out. Our assumptions for the revenue pickup for that building assume a pretty prolonged lease up, which is why we extended out stabilization last quarter to sometime in 2021.
And obviously the space has to be built out. So we can't recognize revenue on those future tenants until they build out their space. So WeWork is building out their space now, so we will get some incremental benefit in 2020 from that space, but other space would need to be leased and built out. So as Doug says, we've kind of elongated the revenue projections for some of that.
Understood. Thank you.
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.
Hey, good morning guys. Owen, maybe just going back to your commentary on the private equity partners for JVs, could you just discuss kind of the appetite and of them for different stages of development? How you guys view kind of the right time to bring them in to maximize the value creation and not give away too much of the upside?
Yes. No, it's a good question. I think, look, there is as I mentioned in my comments, I think there is very significant capital available for commercial real estate generally. Some of that is interested in office. And then even among that demand, not all of it will go into development.
Some of it's more core, core plus, some of it is more value add and some of it wants development. So you have to kind of parse it. But there's clearly interest in development. Our view is on a project like Dock 72, excuse me, on Platform 16 that we're bringing in the joint venture partner, in that case, we recently bought the site and we bought it in title, so we paid for an entitled site. So that risk is not there.
So the risk is in the leasing. So I think what you'll see in those kinds of deals is the joint venture partners are introduced more or less at our basis because they're taking the same risks along with us. If we had a development site that we had owned for a long time and we had got it entitled and we had done some of the pre leasing and we decided to introduce a partner, we would expect to bring that partner at a higher basis because a lot of the risk had been mitigated and we had created the value and we would expect to be paid for that upfront. I would say most of the JV partners that we're talking to in development, they probably don't want to come in at the, I would call the venture capital stage, which is when both the project needs both entitlement and tenants. I think they are more interested in coming in later stages of these projects.
And Craig, the other thing I would say about joint venture particularly with development is that we are creating significant value and we are not doing this on a peripath sue pro rata basis. We are putting ourselves in a position where to the extent that we're successful, we're being paid for that success in one form or another. So the old story or the old challenge is, would you rather have 10% of an asset that's yielding 25% return or drive 100% of an asset that's yielding 10%, right? And if you could do the same amount of the 25%, you'd obviously rather do that, but you can't. And so we think long and hard about JVs and the ability to put ourselves in a position where we can enhance our return on equity for the shareholder by if in fact we're going to use 3rd party capital and we're going to be a great fiduciary for an institutional investor.
And then just second, Doug, you kind of touched on some expirations of Waltham could free up some more opportunities for conversions. Could you give us just a sense of dollar amounts and timing of when that could come your way?
Sure. So we're 200 West Street is likely to start in the 3rd or Q4. And that is going to be about a 12 month project to complete the base building work and as well as the TI work. And so that's a 2019 to 2020 project. We're also getting back on 195 West Street in August or September of this year.
And that's another asset that is being looked at hard for lab usages. And depending upon how quickly and how committed we are with 200 West, we will probably start that one as well. And then we also have some space up at Bay Colony that is available and it potentially has the opportunity to be lab converted as well. Interestingly, we had a lab conversion that was done a number of years ago and that tenant was called Juno Therapeutics and they chose to sublet the space. We actually recaptured it and released it and got a $20 premium from the existing tenant that rolling over.
So we clearly have a demand opportunity in the Waltham suburbs for these kinds of assets that will work very effectively and efficiently for both the lab and in offices.
So it will total dollars be like $100,000,000 to 120,000,000 in total for those 3?
If we did all 3 of them, it would be somewhere in that area.
Okay, great. Thank you.
Your next question comes from the line of Blaine Heck with Wells Fargo.
Doug, you sounded much more positive on Manhattan. Can you or John just more generally speak to the market rent growth you're expecting in Manhattan over the next 12 months and whether that expectation has gotten higher recently with the activity you're seeing on the demand side or is the supply still at a level that it's going to keep kind of that rent growth muted?
So my view is and I'll let John express his and it may be slightly different is that there is the demand growth is what it's going to result in is a quicker opportunity for there to be growth in the market, but there is not growth in the market today. So we are not asking or receiving any more or less than we were receiving 6 months ago at 399 Park Avenue or the General Motors building. It's still a competitive market. And as the move outs occur, there will be more availability. But there's no question that the reduction of the new supply or the highly regarded renovated supply has diminished.
And so rents for new construction and for those types of assets are going up. John?
Yes. Leasing activity is very good in the market, but we still have excess supply coming on. And as Doug said, there's a preference in the market clearly for new product or renovated product. So we have we're having a little bit of a skewed situation in the market with the availability rate pretty constant, but different supply characteristics in different types of products. Net right now, net, we haven't seen prices move up.
They were holding and there are limited opportunities in the market when tenants look for space. If a large law firm is looking for space now in Midtown, let's say 400,000 square feet or so, they maybe have one alternative or 2 alternatives. So still limited supply in certain areas and strong leasing velocity.
All right. That's very helpful. And then wanted to touch real quick on acquisitions in LA in particular. It seems like we've seen more deals coming to the market recently. Can you talk about your comfort with your current footprint, whether you guys have pursued or are pursuing anything out there at this point?
And whether there are any submarkets outside Santa Monica you guys would target in particular?
Yes. No, we want to grow in LA. We're happy with the footprint that we have, but we definitely want to grow it and make LA more in line with our other regions in terms of size and market presence. So but as we've been saying, we're going to do it in a disciplined fashion where each deal has to make money for shareholders. We're not going to just grow for growth sake.
John Lang and his team in LA are actively looking at most of the deals that are in the marketplace that fit our portfolio and fit our criteria. But to my points earlier about lower interest rates and flows of capital, it's hotly competitive and it's very difficult to find things that we think make sense. We have expanded our footprint outside of Santa Monica. We're looking at things in Beverly Hills, in Culver City, in El Segundo, in other West LA markets of that nature. We continue to hope to be able to we kind of been describing it as we want to try to do a deal a year.
It's a very informal goal, but it's a goal and we continue to hope to do that in 2019. But whether we're able to accomplish that yet right now is a little bit undetermined.
All right. Thanks guys.
Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill.
Good morning. Good morning out there. Two questions. First, Doug, maybe just in San Francisco, if you could just give your comments on the Mission Rock and Pier 70 projects or potential could be projects on the Portland. How that affects your thoughts on 4th and Harrison?
And if the amount of demand out there and the amount of RFPs is so much that even with these two projects, there's still sort of a shortage of space for the tenants who want to take new construction. Maybe you can just talk about that.
Sure. Why don't I I'll make a brief comment and then I'll let Bahip sir give you his view as well. So my view from the cheap seats in Boston is that there is a significant amount of demand from the where when Pinterest and Salesforce.com both took space in significant blocks on buildings that weren't yet entitled. And so there are a number of requirements out in the market today and there are no blocks of space. And Mission Rock and Pier 70 are both good locations.
They're a skew from the central core. But they're also phased projects, not big projects, sort of on a one off basis. And I think many of these tenants are looking for larger blocks of space in bigger tickets at one time. So we feel really comfortable with the relative de minimis amount of new construction that potentially could be put into play with the sites in Central SoMa that have been approved for the Harrison when it gets approved and then the sites that the port controls. Bob?
I would just add that there's several 1,000,000 square feet of tenants looking in Downtown San Francisco and in the Mission Bay area, and I would bet that both those projects will be gone within the next 18 months from a leasing standpoint.
Okay. And then switching coasts, maybe if Ray is on the line, just want to get a DC update. We just had the budget passage, which takes the debt ceiling off for 2 years and sort of both houses of Congress got their spending I guess spending needs fulfilled. So do you think there's a pickup in the demand from government leasing or has the sequester of almost a decade ago really permanently changed that government demand in such that this 2 year sort of budget reprieve really won't manifest in any more demand for leasing in the district?
Hey, Alex. What we were seeing is not so much incremental demand in the district. The district is still pretty much a policy focused type of environment. We're really seeing the increased demand is from both the government space consumer, but more importantly the general the contractors in that market that as Doug alluded to, in our 25 years of rest and we have never seen the level of both existing tenant expansion and new leasing in the Dulles Corridor and very limited supply. The Tysons is a little more restricted in terms of access and in terms of the parking costs and Loudoun County to the West is being totally absorbed with data centers.
And as a result, those of us who have great assets in the Dallas quarter between those two markets are really experiencing a revival in demand from our core tenants, which is the corporate user and the defense contractor.
Okay. So basically Not too much downtown, but much more in the suburbs. Okay. So basically
Ray, it's still private and contractor. The government is really not driving the leasing anymore and even with those budget reprieve?
But we are seeing some incremental GSA leasing. We just renewed that large tenant. We're seeing continued growth with new deals downtown, but it's really the private sector driving the demand in Washington DC right now.
Thank you.
We have time for one final question and that question comes from John Guinee with Stifel.
Great. Ray, you did such
a good job on that one.
Let me just ask a couple more. Are defense contractors taking space anywhere else except the Dulles corridor? And are they still as price sensitive as they have been? And then second, I guess, maybe Doug, 3 Hudson Yards, what do you think that new build will cost? And did that influence your willingness to sell 540 Madison for about 1100 a square foot?
So let me answer first about the demand in the Dallas corridor. That's the primary focus because that's number 1 where the tech employees live and number 2 that's where major defense and cyber commands are located. And we're seeing a move, John, to a fight to quality because all these defense contractors and cyber guys have to recruit the best possible talent. And going to a Greenfield suburban office park is not going to be it. So the demand for amenitized space like in Rusted Town Center, again, as I said, is probably the strongest I've seen in 25 years.
Great.
And John, so I'm not going to give you a specific number on our cost at 3 Boulevard, but suffice it to say that it's significantly more than $1100 a square foot, which is what
the 540 Madison
Avenue building sold for. I do think that the market demand for 3 Hudson Boulevard on a relative basis is more than the market demand for what I would refer to as moderately priced, but well positioned Plaza district properties. So we think that the high end is where the demand is going to be more fertile for us from a growth perspective. And so as we about what the 540 profile would be from a growth perspective as Owen alluded to, we just thought it was muted relative to the other things that we have opportunities to continue to invest our capital in both existing assets and new product in Greater Manhattan.
Just a follow-up question. 5 years ago, would you ever thought that statement possible that 3 Hudson Yards would have stronger demand than 540 Madison submarket?
I would say that anything is possible. I would say that we were late to the game, which is something that we've admitted to in the past. We had the opportunity to be in one of the sites that for various reasons we chose not to do. And retrospectively, it was the wrong decision.
All right. Thank you.
And you do have an additional question from the line of Jamie Feldman with Bank of America Merrill Lynch.
Great. Thank you. I'll be brief here. So I guess, Mike, just can you talk about what your latest guidance means in terms of AFFO and dividend coverage for the year?
So, sure, absolutely. So, obviously our AFFO improved this quarter and last quarter it was obviously the coverage was less because we had so much absorption of space last quarter. It was just a huge quarter and it showed up in the leasing cost because of the pure kind of square footage of space that we had. Last year our AFFO was $4.43 a share that was an increase over 2017 and we still expect it to increase this year. We've got the cash same store growth coming in.
We've got incremental cash revenue from our developments. I think that the FAD should be somewhere in the 80% plus or minus kind of range. And if you think about kind of where the pieces are, if you look at our leasing costs, year to date it's 160,000,000 dollars That is probably more than half of what we will experience for the year, we can because the Q1 was so high. I think that the rest of the year will be a little bit lower and maybe we're somewhere in the $250,000,000 to $270,000,000 range for the year on leasing costs. We gave the non cash rents in our guidance, which $105,000,000 to $120,000,000 And we think recurring CapEx is somewhere in the $90,000,000 to $100,000,000 range.
And then if you kind of look at the rest of the adjustments, which are stock comp and then other non cash items, you get adjustments to our FFO of somewhere in the high 300s. So you're talking about an AFFO of somewhere in 460 to 480 type of range, which is again higher than last year, which is 4 43.
Okay, great. Thank you. And then just one follow-up on the markets. I think you had talked about a pickup in large space users in Silicon Valley. Can you just talk more about that and just kind of what that might look like for you guys over the next couple of years?
So look, we've made a bet on the Silicon Valley from a development perspective. We have the site at Platform 16. We have the site at Almaden, which is another $1,500,000 We have a site at Peterson Way, which is 650,000 square feet and we have our site at the station at North First, which is somewhere between $1,000,000 $1,300,000 And so we're very optimistic about the continued growth of these larger technology companies. And when Verizon sells the Yahoo! Campus and leases 650,000 square feet and the buyer is Google, which is more growth, I think it's just indicative of what is going on down there.
And as I said, we saw the folks from Uber take 300,000 square feet and we are very aware of other active CBD headquartered companies looking in the valley for big blocks of space. And then there are a number of large valley headquarters companies that are continuing to grow. Apple is continuing to grow. Facebook is continuing to grow. There are a number of others.
And so we're just we're optimistic about the ability for the sites that we have, which are relatively speaking very close to public transit and the Diaridon Station site and the Caltrans as being the attractive places for those tenants to be looking for large campus environments. And so we're very encouraged by the opportunity set that we have in front of us over the next few years. And by the way, none of that is in the pipeline of development opportunities that we described when we talked about what we have coming forward on the $3,200,000,000 plus the $400,000,000 that Owen described that, that's going to be put in service at 2,200 Pennsylvania Avenue. So we have a lot of growth in front of us and a significant portion of it is in down San Jose.
Okay. And with those deals pencil at today's rent or do you need
to move them?
Yes. No, I mean, look, we think that there's the pro formas that we bought the land at penciled and the rents are higher than the pro form a. So it's the for us the question is, how much pre leasing do we want? Do we want to build some of it on a speculative basis? What's the absorption going to be?
Those are the questions we're asking ourselves.
Okay. All right. Thank you.
Sorry, operator, go ahead.
Go ahead. I was turning the call back over to you.
Okay. I think that concludes our remarks and concludes all the questions. Thank you very much for your attention and interest in Boston Properties. Have a good day.
This concludes today's Boston Properties conference call. Thank you again for attending and have a good day.