The Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Seth Bergey with Citi Research. Pleased to have with us BXP and CEO Owen Thomas. This session is for Citi clients only. Disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Owen, we'll turn it over to you. Introduce your company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today. Then we'll get into Q&A. Red is actually on.
There we go. Good. Thank you for that. I needed a little IT support here to kick things off. Anyway, Nick and Seth, thank you once again for having us. I'm joined by Doug Linde, who's our President, Mike LaBelle, our CFO, and also Helen Han, who's our head of IR. Just a quick overview for those that don't know about BXP. We're the largest public company in the U.S. that focuses on premier workplaces. We're in the S&P 500. We're investment grade rated. We have about over 50 million sq ft of in-service office assets. We grow the company externally, primarily through development. We have over 3 million sq ft under development today.
Though we're large, we're focused, primarily on 4 markets, and plus we have a smaller presence in 2 additional markets. Those are Boston, New York, D.C., and San Francisco, which are the larger markets. What is our strategy? Our strategy, simply put, is we are, want to be and are the pre-preferred provider of premier workplaces to leading U.S. companies. That is our strategy. That's what we do and what we are trying to grow. We had a investor day last year where we articulated a very clear and significant plan to pursue this particular strategy. What was that plan? We said, 1, we were gonna lease space, 2, we were going to sell assets, and 3, we were going to invest in new developments. That's our plan.
What is our goal from this plan? Well, 1, we're gonna grow our FFO per share primarily through increasing the occupancy of the company. We said that we would grow our occupancy, we think about 2% in 2026 and another 2% in 2027. Grow the FFO per share. Second, we wanna deleverage our balance sheet. Then third, we wanna continue to improve our portfolio quality, focusing on the most premier assets in CBD locations. How we doing on that plan? We've had a press release this morning at the open, and we are very much on track with all aspects of that plan. Last year, we leased 5.5 million sq ft of space. In the fourth quarter of last year, we leased 1.8 million sq ft of space.
We announced this morning that this quarter, we've already leased 600,000 sq ft of space. We have about 1 million sq ft of space of additional leasing that's in a letter of intent stage, which we think will get signed. Beyond that, we have a pipeline of 1.5 million sq ft where we're in various stages of negotiations with clients. By the way, of that leasing that I described for 2026, 50% of that is on vacant space. That's the leasing. Second thing we said we were gonna do is sell assets. We announced today the sale of a couple of additional assets. That brings our total sales through, you know, this morning at about $1.1 billion of net proceeds.
In our plan that we announced last year, we said we would do $1.9 billion by 2028. We're very much on track. We have $150 million of additional sales that are currently under contract that we believe will be closing in the near to medium term. On the new developments, we've been one of the most prolific developers of office in the country. Last year, we launched 343 Madison, which is a major development in New York. We announced at the end of 2024 the development of 725 Twelfth Street, which is a largely pre-leased office in Washington, D.C. We also acquired a building, which is basically a development site in Washington last year, 2100 M Street, which is also pre-leased to a leading law firm.
We've made great progress in our development pipeline as well. Specifically on 343, we might wanna get into this in Q&A, but we've made additional progress leasing the property, and we've also made great progress in both securing a construction loan as well as attracting investors into the asset. We've also made great progress in terms of our development spend and achieving our budgets. The last thing that I wanna talk about, because I think it's had a big impact on our shares over the last couple weeks, is the whole what I call AI scare trade. What I can tell you today is that AI has had nothing in our operations, has had nothing but a positive impact on what we've been able to accomplish.
What we've been articulating for a couple years is that AI is gonna create jobs, front office, client-facing, product-facing, create creative jobs, and it's also going to disrupt jobs that are more back office and processing. Our company's portfolio is geared towards that first group of employees. That's what we're seeing. We've had great success leasing in San Francisco, either directly to AI companies or companies that are displaced by AI companies. There's been over 6 million sq ft of net absorption in San Francisco due to AI companies, so it's been very positive. Or by the way, the terms of the leases that we've been signing have been going longer. If a company was worried about AI, why are they, in 2025, signing 10-year leases with us?
So far, you know, in this quarter, the terms are even longer. Again, these companies, these are major financial commitments. They're signing long-term leases, so they're not, you know, I don't think forecasting big impacts of AI on their space demand. We've seen no impact of AI on the asset sale program that we've embarked upon. Interestingly, there's been no impact on our credit spreads. You know, credit trades every day. Credit spreads remain stable. We've had tremendous success attracting lenders to our 343 Madison project. The fixed income markets appear to be very, very steady. With that, Nick, that concludes our opening remarks and delighted to answer questions.
Great. Well, thank you, and appreciate your comments on AI. It's certainly the question we get most frequently on, I feel like, office broadly. Those insights are, you know, are very timely. I guess my question is, do you think there's any merit to the concerns of office medium or longer term and maybe just less office space needed if these efficiencies do come to fruition? Look, maybe it's at different price points, right? Maybe the impact is to lower quality office. Just broadly, do you think they're fully misplaced? Is it just misplaced relative to the quality of the public portfolios? You know, how do you think about it medium and longer term?
Yeah. Well, I think we've again, we've been saying for a couple years that the issue that our shareholders and investors need to focus on is not work from home, actually, it's AI. What we've articulated is a future where AI is gonna create jobs, which it has. You know, the all the firms that are creating AI, creating AI infrastructure, all the financial and legal and business services that support all that, and that's gonna grow. Our goal, as I mentioned at the outside, is to be the space provider to these leading companies. What is AI gonna do? It is gonna automate certain job tasks, and that we think is gonna be more in the support areas in the back office. There'll certainly be exceptions to that, but I think that's where most of that is occurring.
Generally, our strategy is not to be in markets where that are primarily back office and to own buildings that are geared towards back office uses. I absolutely think it's gonna have an impact, and that's why our strategy, I would describe it as a narrower path. Our company has always been. Our founders would articulate a strategy of owning the best buildings in the best markets. We've continued with that, and I would say today we're pursuing an even narrower path, which is up quality, you know, upping the quality further of the portfolio, focusing more on the CBD and getting even bigger in the gateway markets where we operate.
We've gotten some questions coming in on the audience just on that topic of AI. You know, you focus on kind of those front office employees. You know, for those employees who are kind of using AI tools and getting more efficient, how are you thinking about productivity and maybe those companies not needing to hire as many employees in those types of roles?
No, as I've mentioned, I think there is gonna be an automation benefit. I mean, all of us that are using generative AI are seeing the benefits, you know, in whatever we're doing, analysis, research, any of those types of things. There's also a whole industry that's being created that's creating the AI. Again, we at least what we're seeing today in our leasing is those, the creation of those jobs and the footprint that we have far outstrips any destruction of jobs or lack of hiring that might be going on as a result of their creation.
Maybe going back to some of the leasing activity, that you announced this morning. You know, can you just kind of broadly give us a market update? Where are you seeing strength? Maybe tie it to some of those stats that you put out this morning and kind of where does demand remain soft?
Let me go back to where we were in September when we had our investor conference just to sort of level set everyone. What we said was we think we're gonna achieve a couple hundred basis points of occupancy gain in 2026 and then a couple hundred occupancy gains in 2027. Call it 400 basis points, moving from 87% to 91%. We, when we had our call a few weeks ago, said, "Look, we have 1.2 million sq ft of leases that have been signed that have yet to commence, and we have in 2026 lease expirations of just under 1.2 million sq ft." We actually, if we do no leasing at all during calendar year 2026, we're gonna be flat.
For the first quarter, sitting here today, our total activity is about 1.6 million sq ft. 600 of that has been signed, and another 1 million sq ft we are negotiating the document with our counterparty, our clients. Of that space, about 800,000 sq ft is on currently vacant space.
450,000 sq ft is on 2026 and 2027 lease expirations. We will have meaningful occupancy increases in 2026 and in 2027. Our 2027 expirations today are about 1.8 million sq ft. We're gonna gain occupancy this year, we're gonna gain occupancy next year when we have another year of very limited rollover. Our activity, as we sit here today in 2026, is really pretty much across the portfolio. We have somewhere in the neighborhood of 350,000 sq ft of leasing in Manhattan. Almost all of it is on vacant space. That's at 360 Park Avenue South, where we will probably be 90% leased by the end of the quarter.
At Times Square Tower, where we have signed a lease for 3 and a half floors and are negotiating leases for another 1 and a half floors, that's another 100,000 sq ft of space. Then we have signed leases that have yet to commence recently at 510 Madison Avenue, where we had almost 140,000 sq ft of availability starting in 2025. Our rollover in 2027 in our CBD portfolio. We are 98% leased in our CBD portfolio. Everything we are doing effectively is going forward lease expirations. Then in our Urban Edge portfolio, which is our Waltham portfolio, we have another 200+ thousand sq ft of leases under negotiation and a pipeline of another, call it 300,000-500,000 sq ft behind that.
Jumping to Northern Virginia, the majority of our activity is in Northern Virginia/Reston. That's where we are seeing defense contracting and cybersecurity companies growing. Again, we are almost 95% leased there, and the majority of the leasing we are doing there is on known expirations in 2026 and 2027. Interestingly, almost every one of the clients we are talking to is growing in that marketplace, and we're actually being asked by some of our existing clients to see if we can take back space early from their neighbors on floors so that they can grow. Finally, in San Francisco, the two largest components of our, of our activity are south of Mission, so at 680 Folsom and 50 Hawthorne, where on October first, when we had our last call in 2025, we had no letters of intent or leases signed.
Since that date, we have signed 3 leases for 120,000 sq ft and a letter of intent that we expect to be executed in March for another 73,000 sq ft. We'll have done almost 200,000 sq ft of leasing in that building. Down in Mountain View, where we have an R&D park, we are leasing 2 of 3 vacant buildings for a total of about 115,000 sq ft of space. It's across the board. We do have these other 2 sort of smaller markets, which are Seattle and West L.A. While they are not recovering to the same degree as our other markets, there's actually incremental positive news there as well. We are seeing more activity in those markets than we had in 2025.
Net, across our entire portfolio, on the margin, things are better in 2026 than they are in 2025. From a rental rate perspective, we are seeing double-digit rental rate growth in our portfolio in Midtown Manhattan. We're seeing double-digit rental rate growth in our CBD Boston portfolio, which is primarily in the Back Bay. We are seeing pretty strong growth of somewhere between, call it, you know, 5% and 10% in our Northern Virginia portfolio, where concessions in all of those marketplaces are either static or decreasing. We still have some challenges in terms of concessions and rents in San Francisco, particularly in, you know, the high-rise product. We're still having challenges from a rental rate perspective in West L.A. and in Seattle.
You know, just maybe, you know, how is demand it sounds like it's strong geographically? Is there anything to call out among, you know, the different tenant types or industries within tech? You know, any impact from software, professional services? Just on kind of overall leasing and tour activity, are you seeing any changes in terms of time from tour to, you know, lease execution?
Yeah. Our markets are pretty different in terms of the kind of activity we're seeing. To try and do this very quickly. In Boston, in our urban portfolio, it's almost exclusively asset management and legal. In our urban portfolio, it's a little smattering of everything. It's life science, some with, some without lab, general corporate. For example, we have our national retailer that's relocating to Boston, where we're negotiating a lease right now. In Manhattan, it's primarily financial services and professional services. Those are the kind of companies that are looking at 343 in our portfolio in Midtown. At 360 Park Avenue South, we have a little bit more tech. Some of it's AI related, and some of it's fintech. Down in Northern Virginia, the majority of our requirements are around defense contracting or cybersecurity.
In the city, almost exclusively, it's the legal profession, although we're negotiating a lease again with a corporate type in one of our availabilities on Pennsylvania Avenue. In San Francisco, the dominant amount of the activity that we're seeing from a volume perspective is truly artificial intelligence-oriented companies, or interestingly, companies that have been displaced because of that growth. As an example, we did a lease with a construction company at 680 Folsom Street because one of the large language model companies had rights on their space, and they were kicked out of their building. We're doing another deal with another technology company whose space was already sublet by OpenAI. It's that kind of activity.
The financial services and legal services activity on the West Coast in San Francisco still is, what I would say, a step behind what it has been in Boston and in New York.
Is that the type of activity you need to see accelerate in San Francisco for there to be increased demand for kind of your type of product in San Francisco? Do you expect to see kind of increased demand from AI and tech, for that type of tower product?
We have, you know, sort of two spheres of assets in San Francisco. We have Embarcadero Center, we have our South of Mission, and I would include Salesforce Tower in that. Salesforce Tower is very much a place where both financial services and tech can locate or co-locate. 535 Mission Street, again, is also a tech building. We actually have a lot of small tech companies in there. 680 Folsom and 50 Hawthorne are pure tech company buildings. Embarcadero Center is really the only asset that we have that is primarily financially services and/or legal services. I think the question will be, will there be a multiplier effect associated with some of the other growth that's going on?
I think on the margin there will be. There's a lot of wealth that's being created in California, particularly in San Francisco. There's this transfer of wealth that's going on around America that everyone is reading about. My guess is that we will start to see more and more of those types of organizations locating in urban locations in San Francisco, and they will primarily be in towers like Embarcadero Center. I would say that the overall level of tour activity in Embarcadero Center in the first quarter of 2026 is significantly stronger than it was in the first quarter of 2025.
You mentioned that, L.A. and Seattle are a bit kind of slower to recover relative to San Francisco, and those are two markets where you have a smaller footprint. You know, just as you think about kind of the geographic exposure of the portfolio, how do you think about those two markets kind of medium to longer term?
Yeah, look, our goal is not to have two assets in a market. Our goal over the longer term would be to find additional assets and build those into regions like we have in the other cities. Whether it be COVID or what's going on right now with West Coast leasing, it's just been harder to accomplish.
you know, conversely, you know, as you think about where different markets are in kind of the recovery cycle, where would you kind of like to allocate capital to?
I think there are 2 answers to that question. What are we selling, and what are we adding? On the selling, the focus has been on land, on apartments that we built, and on non-strategic office. The asset sales actually have been spread around almost virtually all of our regions, not the 2 small regions, but of the 4 large regions we've been selling or in the process of selling assets in all of those. Very, again, it's not specific so much to the market. It's specific to what the asset is. If it's a premier workplace in a CBD location in those 4 cities, we wanna keep it. If it's not, you know, at some point, I think we will wanna monetize that asset.
In terms of new, again, it's opportunistic based on the investments that we can find. We believe in those four major cities that I described. If we can find attractive investment opportunities that are accretive to shareholders, we're gonna be interested. Right now, we have made some very significant investments over the last 18 months. We started 343 Madison in New York, which is a $2 billion office building project that's located right next to Grand Central. We have launched a new development in Washington, D.C., which is pre-leased to two law firms, and that's about a $400 million project.
We have bought a building, which is basically gonna be a site at 2100 M Street, and we have leased that substantially to a law firm as well. That project doesn't start until 2028. We believe in our markets and the capital allocations being driven by the specifics of the opportunity.
Just, you know, you mentioned 343 Madison, so I think it's a good time to shift to that. You know, you kind of are in the process of seeking perhaps a new kind of equity investor. You know, you've pre-leased 29% of the building. You know, kind of where do you stand today if there's any updates you can provide on how you're thinking about bringing in a new partner for that construction financing? Just anything you can comment on with respect to kind of pre-leasing activity and discussions.
Sure
...with anchor tenants.
We're very encouraged by the progress that we're making at 343 Madison. As everyone knows that follows us, we've signed a lease with Starr to lease 30% of the property, which is right in the. They're gonna take the middle block of the building. We're making great progress with another client that would be in about another 15% of the property. We're focused very much on the lower bank at this point. We have dialogues going with several clients there.
Again, the leasing is going very well and we're hitting the rents that we forecast to achieve the 7.5%-8% yields that we've described. Second is it's a construction project, we're on schedule with our construction. We've purchased roughly half of the job in terms of materials for construction and so forth, and we are achieving savings from our budget on the construction buy so far, which is also a big plus. As we described last year, we continue to de-risk the project. Now we're getting discussing the capitalization, and there's really two pieces of that. One is the equity partner, and the other is, as we bring in a partner, we're gonna need a construction loan.
On the equity partner, we're out speaking with 12 or so investors. We have materials. We're making progress. We have not, you know, signed a letter of intent with anyone yet, but we've had multiple investors express strong interest in the property. My guess is it will probably not go to a single investor. But we'll probably have multiple partners in the project is how it's gonna shake out. Mike should get into the conversation here, talk about the success that we're having with the construction loan.
Sure. Thanks, Owen. In January, we launched a process to get a construction loan. As Owen described, it's a $2 billion project roughly. And at our investor day, we said that we were gonna be looking to raise about $1 billion in construction financing. We went out to the market and, you know, indicated that we would raise between $1 billion and $1.2 billion of construction financing, which is basically 50%-65% of cost. We went out to a group of, you know, large domestic financial institutions which would be capable of leading a large syndicate, construction financing. There's a handful of those types of lenders out there. We got term sheets from all of them.
We ended up creating our own kinda term sheet that was a little bit more aggressive than that, and we were able to, you know, secure interest from all of the institutions that we talked to. We effectively are gonna do a club deal with a bunch of major institutions that are all interested in the project given the high quality nature of the project, the sponsorship that we're bringing, the pre-leasing that we have. We're very excited. At this point, we're finalizing term sheets to try to get to a full commitment in loan documents. You know, we're in great shape to be in a position to close a construction financing, you know, later this year, which would line up with the equity financing that we need to do.
Just overall on the financing, both on the equity and debt, you know, just in the context of AI, you know, have any of the investors kind of expressed hesitations or anything? How have the conversations kind of evolved from when you first announced the project to where you sit today?
AI is not an issue in the private equity market for our product at the current time. The questions and the analysis that we get is, you know, who's gonna lease the space? What's the timeframe for that? What are the rents? You know, things, you know, typical questions that you would expect from an investor investing in a development project. We have not heard anything about AI risk related to this development.
I think overall, the debt markets for office.
Yeah
... have continued to improve. you know, the availability of financing both in the bank market, where those banks have seen an inordinate amount of loan runoff in 2025 compared to what they saw in 2023 and 2024, which is leading them to want to replace and grow, those assets this year, we're seeing that.
The CMBS market, both on the conduit side as well as the single asset securitization side for the larger loans, is also improving through 2025 to the current date with, you know, every month conduit deals going off with office, of, you know, 15%-25% of the pools and these single asset securitizations occurring every month, you know, at more attractive pricing, you know, with triple As somewhere in the low hundreds, today, which is better than it was 12 months ago.
Is there, like, a pre-leasing threshold you'd like to get the building to or that, you know, your debt partners would like you to get to before kind of finalizing a construction loan? You know, how much would you like to kind of get done on that?
I think from the loan perspective, we only need to have the lease that we have signed already. Obviously, they know about the interest that we had, and we expect that we will be signing additional leases this year. As Owen described, we continue to de-risk the project not only from a leasing perspective, but from a construction cost perspective to make the offering that much more attractive to investors.
Maybe just switching gears a little bit to kind of policy and the geopolitical environment in some of your markets. you know, in New York, how are you underwriting the risk of either property tax increases or, you know, income tax increases? you know, how has the policy landscape in Seattle kind of impacted your appetite, to be in that market?
Yeah. I think, you know, let me just step back for a second. We've had a progressive mayor in Boston for the last four years, and we have had a very constructive working relationship with the mayor. There's also shared agendas with
The progressive mayors on things like affordable housing and things like that. Obviously, there's disagreements about how that should best be funded. In Boston, you know, the some of the things that the Mayor wanted to do, like switch the tax base from residential to commercial, couldn't get passed in the state house. I think you have a similar, if not more, direct environment in New York State because the governor, because of the financial history of New York and the fact that the state, to some degree, rescued New York in the '70s, there's a tremendous approval rates for major policies by the state in New York City. And the governor has been very much on the record that she doesn't support, you know, additional tax burden in New York City.
That's kind of the state that we're in right now. I would also point to the fact that, Mayor Mamdani has done things that I think have been well received and feel very practical and commerce-friendly, like reappointing the Chief of Police, Jessica Tisch, which was not certainly assured when he was reelected. You know, law and order is a critical factor for the city's health as well as obviously for real estate, and that's been a positive.
We do wanna touch on AI and kind of the impact to BXP directly. Put aside the, kind of the office questions.
Yeah
... but how BXP is actually using AI to be more efficient or, create value and different opportunities internally.
I would say that, our. We are, we're never first movers on stuff. We are, I'd say, a little bit more circumspect on things. Our perspective on AI is: how can we use AI to reduce cost? Not, quote-unquote, "make people's jobs better and happier," but actually how to reduce cost. At the moment, what we are doing is we are looking at ways, and we've actually, we have an experiment that's gonna go live at the end of the first quarter, where we are using an AI bot to do a series of accounting processes that are currently being done by individuals, not at BXP, but under a contract with Accenture in another part of the country, or another part of the world. We're gonna be eliminating somewhere between six and eight FTEs.
There's a cost associated with that, but the payback is, you know, basically a year-plus. Those are the kind of things we're doing. As another example, we are looking at whether or not we any longer need to do a lease abstract. If there is a large language model that can answer a lease question for us succinctly and clearly, and it sort of works, then we don't need to go out and do a lease abstract. Lease abstracts are, again, outsourced, but somebody has to check them. If we don't need that, then that's creating another reduction in cost. Third, we're looking at how we can bring more of our legal activities in-house by giving productivity-enhancing measures to our legal departments so that we don't have to use outside counsel to do as many things.
Are there tools, as an example, that will reduce the amount of time it takes to review the comments on a lease that are being negotiated with a counterparty? If we can have one of our outside counsel do things much more quickly, therefore they won't need to use outside counsel to do as many things. Those are the kinds of things that we are doing internally. We are not doing it to, you know, quote-unquote, "do our analysis on tenant credits yet." We're not using it to do our accounting internally yet. We're not using it to do a financial analysis of an investment. Those are, I'd say, longer-term kinds of things, and we'll see if, in fact, the language models get good enough to do those things. What we're seeing is the costs of these things are coming down pretty dramatically.
There's not a lot of advantage at quickly deploying one of these tools because 6 to 9 months later, you can do it for, you know, a significantly reduced cost.
Maybe just quickly touching on our rapid fire. Will the office sector have more, fewer, or the same number of public companies than a year from now?
I always say-
This session has ended. The next session will begin in five minutes.
I always say fewer, and I'm right half the time.
What will net effective rent growth be for the office sector overall in 2027?
What do you think?
6%.
6%.
Six.
Thank you.