Greetings. Welcome to Hudson Pacific Properties' fourth quarter 2017 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Laura Campbell, Vice President, Head of Investor Relations. Thank you.
Thank you, operator. Good morning, everyone. Welcome to Hudson Pacific Properties' fourth quarter 2017 earnings call. Early today, our press release and supplemental were filed on an 8-K with the SEC. Both are now available on the investor relations section of our website, hudsonpacificproperties.com. An audio webcast of this call will also be available for replay by phone over the next week, and on the investor relations section of our website for 90 days. During this call, we will discuss non-GAAP financial measures, which are reconciled to our GAAP financial results in our press release and supplemental. We will also be making forward-looking statements based on our current expectations, which are subject to risks and uncertainties discussed in our SEC filings. Actual events could cause our results to differ materially from these forward-looking statements, which we undertake no duty to update.
With that, I'd like to welcome Victor Coleman, our Chairman and CEO, Mark Lammas, our COO and CFO, and Art Suazo, our EVP of Leasing. Victor will give an overview of our performance, Art will discuss leasing activities at our markets, and Mark will touch on financial highlights. Note they will be joined by other senior management during the Q&A portion of our call. Victor?
Thanks, Laura. Hello, everyone. Welcome to our fourth quarter 2017 call. 2017 was a great year for Hudson Pacific. We grew FFO by 11%, our same-store property NOI by 13%, and our dividend by 25%. We had one of our best years for leasing. We signed 2.1 million square feet of deals with 34% cash and 50% GAAP spreads. We had 1.6 million square feet of expirations in 2017, yet our stabilized office portfolio lease percentage ended up 30 basis points for the year at 96.7%. Our in-service office portfolio lease percentage ended up 90 basis points at 92.1%. Our same-store media and entertainment portfolio trailing 12 lease percentage was up 160 basis points for the year at 90.7%. We took advantage of the strong market conditions to improve our portfolio and sell $437 million of non-core assets.
All were sold at premiums to our basis, making significant capital available for future growth. We delivered 754,000 sq ft of development and redevelopment projects, nearly 80% pre-leased. We expanded our Sunset studio portfolio with the acquisition of Sunset Las Palmas for $200 million. Through that acquisition, we gained access to an additional 500,000 sq ft of studio-adjacent development opportunities in Hollywood. Specifically, in the fourth quarter, we signed 558,000 sq ft of deals, 17% and 28% cash and GAAP spreads, respectively. Our biggest deal in the quarter was the two-year extension of NFL at 10900 and 10950 Washington in Culver City. This deal has a smaller mark, about 11%, since we only recently signed their extension through 2021. NFL will now occupy these buildings through 2023.
This, along with the capital they recently invested to upgrade interiors, is just another sign of their continued commitment to this asset. Also in the fourth quarter, we broke ground on Epic, our third Hollywood development, for 300,000 sq ft of office space. We sold 65% interest in the Pinnacle One and Two in Burbank for $350 million, netting us $85 million of proceeds that we believe can be put to better use. Before I'm going to turn it over to Art, I'd like to give you a little bit of our big-picture thinking regarding our markets and what's ahead for 2018. Our strategy has and continues to be focused on markets and assets that are the first choice for the best talent, for the most cutting-edge firms and innovators.
These locations and properties, we believe, have the best growth potential, the best chance for outperformance, and in the event of a downturn, the best staying power. Maturation and proliferation of tech, the rapid growth of cloud, AR, VR, and data science, the growing dominance of streaming content creators. These are all trends we're watching and buying, selling, building real estate around our portfolio. Our leadership in Silicon Valley and Peninsula markets is the heart of this strategy. It's the birthplace of tech. Its innovation clusters are impossible to replicate, and we believe that we will continue to translate into growth opportunities for us. In Q4, Silicon Valley had the highest quarter on record for net absorption at 1.7 million sq ft. The Peninsula had its highest annual total net absorption since 2011 at 1.3 million sq ft.
Sublease space declined by 9%, with decreases in every submarket except Palo Alto, where Theranos put its corporate headquarters on the market. Other construction projects are 60% pre-leased. Companies like Facebook, Amazon, Hitachi, Veritas are all taking down large blocks of both sublease and new construction availabilities. We are very well-positioned in those markets. We bought well, and where needed, we've deployed capital to transform these assets for next-generation tenants. Some of the works continues, but they've generated superior cash flow growth for us thus far, and we believe they will continue to do so in the future. What Silicon Valley is to tech, Los Angeles, especially Hollywood, is to media. The content revolution has, in effect, amplified the demand to be in these key markets. Our footprint and growth potential in Hollywood is unmatched. I mentioned Epic earlier.
There's no other project like it in Los Angeles in terms of building design, infrastructure, and outdoor space. Given the demand we've seen, we're moving forward with designs for another 100,000-square-foot development at Sunset Las Palmas, which we're calling Harlow. A few words about the Arts District. We own great assets in that sub-market, but it's definitely taking more time than we anticipated for the neighborhood to activate. While there are tenants inquiring and touring, there's just not sufficient volume of quality users for large blocks. We're actively evaluating our alternatives and are prepared to break up the space for smaller 5,000 to 15,000-square-foot users if that's what it takes to get momentum. Rest assured, Art and the entire leasing team will leave no stone unturned. In many ways, Seattle speaks for itself.
PricewaterhouseCoopers' Emerging Trends in Real Estate® report just named the city the number one market to watch in 2018. I've said this before, Seattle tops every list every day that you pick up the paper. We're finishing a lease up on our recently delivered 450 Alaskan development and actively looking to grow our downtown Seattle footprint. Our head of that region, who's new, Andy Wattula, has strengthened our Seattle presence, and he's closely working with Alex and his team on multiple potential deals. What can our investors expect from us in 2018? Well, we're still taking advantage of our strong markets to sell non-core assets. We already closed two sales, Embarcadero Place and Building Six at Peninsula Office Park. We have 2180 Sand Hill and 9300 Wilshire under contract and then scheduled to close March 1st.
That's another $255 million of dispositions at an average of 20% premium to our basis we've completed or teed up. We're also taking a serious look at multiple value-add acquisition opportunities across our markets, and I'm confident we're going to find ways to strategically grow our portfolio this year. Other than Epic, we have two redevelopment projects under construction, our 99,000-square-foot Maxwell building in the Arts District and our 32,000-square-foot 95 Jackson project in Pioneer Square, which is already 80% leased. In all, that's 431,000 square feet or $225 million of remaining project costs, which is equivalent to about 3% of our total market cap. We're typically at 10% or less of the total market cap in terms of ongoing construction spend, so we have a lot of room to take on more, such as Harlow.
Finally, we have 1.1 million square feet of expirations to address in 2018, which are 20.1% below market. We've renewed or backfilled 24% of that square footage already, and we're in leases, LOIs, or negotiations on an additional 26%. Occupancy gains in our lease-up portfolio as we approach stabilization will also provide us with continued cash flow growth. With that, I'm going to turn it over to Art for some additional commentary on our markets and our assets. Art?
Thanks, Victor. In Silicon Valley, large deals are supplementing small deal activity and driving absorption. Even with 3.9 million sq ft of new deliveries, Class A vacancy of 11.7% and asking rents of $66 per sq ft remained unchanged in the quarter. Deal volume was up 63% quarter-over-quarter and 145% year-over-year at 2.4 million sq ft. We've got great activity at Campus Center. Last call, we referenced six proposals representing 1.4 million sq ft of net new requirements. This was before we'd even completed improvements to adequately show the asset. Those deals went elsewhere, but they were all signed in Milpitas or adjacent Silicon Valley markets. Outside those proposals, we've seen another 6 million sq ft or 22 large block deals in the market, all net new demand and mostly targeting Santa Clara or North or downtown San Jose.
About 2 million of that signed, which takes even more product off the market. Right now, we're working with 15 requirements representing an aggregate of 4 million sq ft. Those range from about 50,000 sq ft to full building users. Truly our sweet spot. We're well-positioned as we get ready to formally launch Campus Center into the market with a huge broker event in mid-March. The asset has been transformed and shows exceptionally well. A couple other comments about the Valley. Over the last several quarters, we've consistently seen lots of demand for smaller sub-10,000-sq-ft users. We've completed 29 deals at those assets this quarter, and the average deal size was about 4,000 sq ft. Now we're also seeing a resurgence in demand for medium-sized blocks. We have 12 10,000-25,000-sq-ft spaces for lease, with about 82% of those in proposals, LOIs, or leases.
In San Jose, we're working with large tenants on renewals and expansions, and we've got great activity over at Gateway. We're activated on all fronts, and we feel good about addressing our 354,000 sq ft of expirations in the Valley this year. Those are about 20% below market. As Victor noted, we also have good activity further north along the Peninsula. This was the fourth consecutive quarter of occupancy gains with 162,000 sq ft of positive net absorption. Class A vacancy fell 80 basis points quarter-over-quarter to 6.9% and 210 basis points year-over-year. Class A asking rates were flat in the quarter but still up 11% year-over-year and at $84 per sq ft. Palo Alto Square is a great success story for us. We've now completed our significant capital improvements, and we've really modernized the facility, both in terms of design and amenities.
Historically, as you know, this property appealed to professional service firms, but our improvements have allowed us to tap into tech demand. Post Q4, we signed a 40,000 sq ft lease with tech company Orbital Insight, and we brought in Specialty's Café & Bakery for about 5,000 sq ft, and the property is now 89% leased. We still have significant wood to chop this year in the Peninsula, as we have 496,000 sq ft of expirations, but those leases are at 26% below market, we've got room to get deals done. The strength of the tech industry is very evident in downtown San Francisco. Expanding tech companies were responsible for 14 of 30 large lease transactions in 2017. That's a record 3.9 million sq ft of deals contributing to 762,000 sq ft of positive net absorption.
Class A vacancy ended the year down 90 basis points at 5.1%, and asking rents stayed flat at $76 per square foot. Clearly, with 2018 construction deliveries already 84% pre-leased, the city is going to continue to be a landlord-favorable market. Our stabilized portfolio is 98% leased in San Francisco, and we have about 113,000 square feet of expirations, which are about 10% below market. In L.A., Q4 occupancy gains were driven by seven large deals north of 100,000 square feet. Several of those were tech and media-related. In Hollywood, vacancy stayed flat at 13.4%, while Class A asking rates were up 2% in the quarter and 5% year-over-year at $55 per square foot. For Epic, our demand pipeline now exceeds 3 million square feet, including multiple full building requirements.
At Fourth and Traction, we have about 100,000 square feet in proposals, LOIs, or leases ranging from 5,000 to 75,000 square foot requirement, and we've had another 500,000 square feet of tours and inquiries to date. We're feeling a comparable amount of activity from Maxwell, and we're still targeting large users for that project. Our stabilized portfolio in L.A. is 98% leased. We have about 133,000 square feet of expirations this year, and those leases are approximately 15% below market. That's a great spread, particularly for L.A. Downtown Seattle is still driving the overall Seattle office market. Vacancy nudged up 80 basis points to 8.9% in the quarter due to new projects delivered. Rents were up 3% to $45 per square foot, and the market had positive absorption of 351,000 square feet as supply remains in check.
Projects delivered in the last 12 months are largely spoken for, and under construction projects are 65% pre-leased. Although the lease commenced on November 30th, our anchor tenant, Saltchuk, moved into 450 Alaskan in January. It's really a stunning custom build-out, and that project is currently about 70% leased. We have two full office floors remaining to lease. Right now, the views on these floors are obstructed by a viaduct, which will come down early next year, but we're seeing interest pick up as that date approaches. Obviously, there are advantages to holding to rate, but we still have over 130,000 square feet of tours and inquiries from high-quality tech and non-tech tenants. Our stabilized Seattle portfolio is 96.8% leased, with very little in the way of expirations this year.
We're already in negotiations with tenants to backfill a significant portion of our 133,000 square foot Capital One lease, which expires in 2019 at 83 King. Those deals are at a blended 54% mark to market. With that, I'll turn the call over to Mark for financial highlights.
Thanks, Art. FFO, excluding specified items for the fourth quarter 2017 totaled $81.7 million, or $0.52 per diluted share, compared to $68 million or $0.46 per diluted share a year ago. Specified items for the fourth quarter 2017 include a $1.1 million write-off of original issuance costs associated with the paydown of 2 five-year term loans in connection with our October public debt offering and the sale of our interest in Pinnacle One and Two. There were no specified items for the fourth quarter of 2016. FFO, including specified items for the fourth quarter of 2017, totaled $80.6 million, or $0.52 per diluted share, versus $68 million or $0.46 per share a year ago. At the end of the fourth quarter, our stabilized office portfolio was 96.7% leased, up 80 basis points relative to third quarter.
Our in-service office portfolio was 92.1% leased, up 60 basis points compared to third quarter. Our cash same-store office NOI increased 7.9% in the quarter and 13% over the year. On a GAAP basis, those percentages were 10.2% and 9.9% respectively. The trailing 12-month lease percentage at our same-store media and entertainment properties ended the quarter at 90.7%, up 10 basis points in the quarter. Our cash same-store media and entertainment NOI increased 15.5% in the quarter and 13.1% over the year. On a GAAP basis, those percentages were 12.9% and 7.4%, respectively. At the end of the fourth quarter, after accounting for asset sales, the remaining 20 former EOP properties were 88.3% leased. If you factor in our lease with Orbital Insight, a fairly significant deal signed just after the first of the year, those assets were 88.9% leased.
As a point of reference, those same 20 properties concluded the third quarter at 88.5%. We had 270,000 sq ft of expirations at these assets in the fourth quarter. Note that we're giving you the stats for these 20 assets only because we naturally tapered our leasing efforts with respect to the dispositions well before they were under contract. More importantly, cash NOI for the former EOP portfolio continues to improve. From Q2 2015 through Q4 2017, we've generated over 21% cash NOI growth. We've now sold or are under contract to sell 8 assets for close to $620 million. That's nearly $100 million of gross profit at an average 19.5% premium to our original purchase prices. Sale and financing activities throughout last year, and especially over the fourth quarter, significantly improved our balance sheet, debt metrics, and future access to capital.
On account of relief of asset-level indebtedness in connection with the sale of Pinnacle One and Two, paydowns of our 2 five-year term loans in connection with the October public debt offering and the Pinnacle sale, we reduced our total consolidated indebtedness by more than $216 million in the fourth quarter, extended our weighted average loan maturities from 4.8 years to 6 years, and reduced our floating rate indebtedness from 22% to 7%. All of these metrics improved with only a modest increase to our weighted average interest rate from 3.56% to 3.75%. Our unencumbered portfolio and debt capacity also continues to improve. Unencumbered NOI increased from 78% to 83% from the third to the fourth quarter, and further increased to a current 86% upon the February 1st repayment of the loan secured by Rincon Center.
We have no indebtedness maturing in 2018. Upon the completion of the pending asset sales, we expect our revolving credit facility to have all $400 million of total capacity. Turning to guidance, we are providing full-year 2018 FFO guidance in the range of $1.87 to $1.95 per diluted share, excluding specified items. Specified items include the write-off of approximately $700,000 of original issuance costs associated with the anticipated recast of our unsecured revolving credit facility and five- and seven-year term loans. As always, our full-year 2018 FFO estimate reflects our view of current and future market conditions. This includes assumptions with respect to rental rates, occupancy levels, and the earnings impact of events referenced in our press release and on this call. Our estimate excludes any impact from future unannounced or speculative acquisitions, dispositions, financings or repayments, recapitalizations, capital market activity, or similar matters.
I'd like to give you some perspective around our same-store cash NOI 2018 guidance. Our final 2017 office and media and entertainment midpoint guidance was 9.5% and 9%, respectively. By comparison, our 2018 office and media and entertainment midpoint guidance is 3.5% and 4.5%, respectively. To some extent, this is the result of our own success. Our 2.1 million square feet of leasing activity at 34% cash rent spreads drove our strong same-store office performance in 2017. Specifically, last year in our 31-asset same-store office portfolio, we had 1.4 million square feet of total lease expirations, with renewal and backfill activity getting done at 46% cash rent spreads. Not surprisingly, we have lower expirations in our 29-asset same-store office portfolio for 2018, with only 547,000 square feet expiring at approximately 29% cash rent spreads.
By nature of the leasing we've completed, a decrease in the same-store office pool and lower 2018 lease expirations, we have relatively less opportunity in 2018 to drive growth within our same-store office assets. We have a similar effect within our 2018 same-store media and entertainment portfolio. We improved occupancy at Sunset Gower and Bronson by 160 basis points to 90.7% and rents by 6.3% to $35.26. These assets are now approaching maximum occupancy under longer-term, higher-rent leases. With this improved stability comes moderation in our same-store media and entertainment cash NOI growth. If you look back at our operating history, our same store has never fully captured the NOI growth potential. Our 12 non-same-store in-service office properties and our non-same-store, Sunset Las Palmas studio property, are poised to contribute cash NOI growth in 2018, in excess of 15% and 135%, respectively.
Two development properties, two and 450 Alaskan, and two redevelopment properties, 95 Jackson and Fourth and Traction, are projected to contribute $3.9 million, or approximately 100 basis points of additional cash NOI this year. In aggregate, our non-same-store properties will comprise 31.5% of our total projected cash NOI for 2018, and thus, a substantial portion of our growth compared to last year. Now I'll turn the call back over to Victor.
Thanks, Mark, and thanks, Art. Fundamentals in our markets remain very strong. We are well-positioned to continue to realize value from within our existing portfolio and look forward to taking on some exciting new growth opportunities in 2018. As always, I want to take the time to thank the entire Hudson Pacific team, and especially our senior management, for their hard work and dedication for this quarter and for the entire last year. To everyone listening, we appreciate your support of Hudson Pacific Properties, and we look forward to the upcoming quarters to come throughout 2018. With that, operator, I will turn it over to you for the line to be opened for questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please, while we poll for questions. Our first question is from Alexander Goldfarb with Sandler O'Neill. Please proceed with your question.
Good morning out there.
Morning.
Hey. Morning. How are you? Just two questions here, and certainly, Victor, the perennial, where you guys are trading and certainly how the market hasn't been kind to REITs year-to-date. As you guys think about the disposition proceeds, the $255 million, how do you weigh that about looking at a stock buyback? Then also just given how the stock has been depressed for the past year, how has this changed your investment hurdles and your thoughts on new capital allocations?
Great, Alex. Thanks for the question. As you know, and if you don't, you will recall, we have a stock buyback plan in place. We're authorized to buy back stock at any given levels that we deem appropriate, and that will continue to be in place. Unfortunately, with the blackout windows that have occurred at these substantial downturns, we were not able to execute on that basis. We will always continue to evaluate it based on our use of proceeds and the access to capital, and what's more accretive for our shareholders, whether it's a development, redevelopment, acquisition, or the opportunity to buy back stock. That will never change. It hasn't changed, and they're not dissimilar or mutually exclusive. They're going to be one and the same. That being said, our return hurdles have really not changed much.
We're buying to, or redeveloping and developing to what we perceive to be Alex's team, a stabilized seven. That's sort of what we're looking at as a company. That's what our stock ironically, I think, was at the low point trading to right around a seven cap. I think as I said, they're not going to be mutually exclusive and we're going to look at those alternatives, and we still are evaluating redeploying capital from the dispositions as well as our existing capital L.A. that we have excess capital at right now for opportune opportunities that are going to be very conducive to the existing portfolio.
Do you think, Victor, at some point that you'd start to weigh more toward You guys have been reporting the press as maybe doing a deal out there with another REIT, but at what point do you say, "Hey, look, buying back stock is the better use of capital than a new commitment given the environment?
As I said, I think if we're underwriting new deals north of that, it's going to be more compelling to use that capital. If we're not underwriting deals north of that, we will always consider buying back stock.
Okay.
It's definitely always on the table.
Okay. Then the second question is just more of a specific. The downtown L.A. project that you said you're going to take a different crack at by breaking up the space. Was that just one of the buildings or was that both? Then how does that impact the economics of the deal if you have to break it up into smaller spaces versus leasing it at bigger blocks?
Let me take the second question first. On the economic side, it won't change the economic return on the assets. The interesting thing. Listen, I think our team should have taken a hit on the Arts District. I've been pretty challenging for the entire team from management through leasing, both internal and external leasing guys. They know what my feelings are and some opportunities that we've missed. A couple of things is the rental rate in that marketplace has not changed, so we've not lost deals off of rate. The first part of your question, I think, is related to both assets. At Mateo, we are looking right now, there's an interest level for an entire tenant for the whole building. That's the building that I think we're still going to use a single user.
Ironically, our prepared remarks were based on us breaking up the space at Fourth and Traction. We've got plans to do spec space, which won't change our game plan to break it up from an economic standpoint. Yet, as soon as I mentioned that this morning, we got a call, I found out from a tenant who wants the whole building. It's based upon the fact that there are less large users out there for Fourth and Traction than we had initially thought. Maybe we waited long to break up the space. But I'm confident with the amount of leasing activity they have for anywhere from 5,000 square foot-15,000 square foot tenants. There's over 100,000 of them right now. My guys are telling me that I shouldn't be wary. I think optimism is on the plus side.
Okay. Thanks, Victor.
Thanks, Alex.
Our next question is from Dave Rodgers with Robert W. Baird. Please proceed with your question.
Yeah. Good morning, guys. Maybe start with-
Hey, Dave.
Art, with regards to the Silicon Valley assets. Just going back to your comments, I think you said something about 350,000 square feet of expirations, maybe 250,000 square feet of demand. Curious what you're seeing just in terms of the need to use the VSP program, and how much of that kind of expiration this year, in your mind, is going to have to be re-tenanted versus how much you could kind of make ground up on some of the under-leased assets in that market.
Dave, I'm going to have Art run through that for you, okay?
Yeah. Listen, just across the market, we're seeing an uptick in overall activity, and with our commitment to repositioning the assets that we've outlined and our VSP, which we've been really aggressive at. We're poised to take advantage of the increased market demand. We see that everywhere. We've started to see this in a quarter-over-quarter, and I feel like we've poised ourselves to do that. Listen, we've done 118 VSPs to date. We've leased 70% of those. Most of those are in our priority assets. The balance of those, we've got somewhere in the neighborhood of 65% activity on, which means LOIs, proposals, or leases. We feel good. We feel like we've put ourselves in the right place, and we see a lot of activity.
The other part of that was just on the expirations. What type of retention are you looking for in those particular sub-markets this year?
As every year, we have known vacates that come up. Right now, we're looking at, as we sit here in February, we've got probably 16% of our expirations either renewed or backfilled. 16% already. We've got 32% of those in negotiation. Probably another 30% that are in some level of discussion. We feel good right now where we sit.
Just to reassemble that, Dave, it probably looks to shake out around 70% of renew and backfill relative to the 2018 expirations in the EOP portfolio.
All right, great. Thank you for that. Maybe just a follow-up for Victor in combination to Mark as well. How much of the asset sale proceeds do you plan on kind of putting through the 1031 versus maybe just kind of putting back into the balance sheet? When you talk value add, Victor, how deep are you willing to go in some of these projects? Are you willing to convert some retail assets, et cetera, that have been in the news, or is this kind of more leased-up assets in the office space?
On the 1031, listen, we've put it into an accommodator, but we don't have to accommodate. It's really at our option. Mark has managed the balance sheet to a point with these assets that we will not have to 1031 if we so choose not to. That gives us the freedom to use that capital for virtually everything. We're seeing some very interesting opportunities in Seattle, in the Bay Area, and here in Los Angeles on a redevelopment play. I'm obviously not going to comment on any deals we haven't announced.
Okay. Thank you.
Thank you.
Our next question is from Jamie Feldman with Bank of America. Please proceed with your question.
Great. I appreciate your comments to start the call on Silicon Valley and the Peninsula. It sounds like you're going to be entrenched there for a while. Just how do we think longer term about your market concentration and how you're thinking about it, and how big do you want Silicon Valley and the Peninsula to be in terms of the whole company?
Well, Jamie, it's interesting. I think I'll take that a little differently. We've made a pretty clear determination on the office side. In the markets we're in Seattle, there's ample opportunity for us to grow. In San Francisco and the Valley, there's clearly ample opportunities for us to grow. The particular markets that we are in Los Angeles, there's ample opportunities for us to grow and get a lot bigger if we so choose to do so in those markets. They're still, in our opinion, the best markets in the country for a company like ours to invest in, and the economics and metrics that we are looking at seem to support that. We're not afraid of going to the Valley to continually buy assets or sell assets in that marketplace to upgrade to find other assets.
Alex and his team are still seeing deals in Palo Alto that we think are opportunistic. We just sold in Palo Alto, or we're about to close another deal there. We will consistently do that in the office portfolio. I think the depth of those markets are going to show that we clearly have room to grow in those marketplaces, and we're comfortable with it.
Okay. As you think about projects, how large of projects would you go after here in terms of total size of your portfolio today? It sounds like you have some redevelopment projects out there. Just what's your appetite for magnitude?
Well, listen, I think that's sort of an ambiguous sort of question. It's not the dollar amount, it's going to be the project amount. It's going to be the valuation of the project, the IRR that we think we're going to be able to attain is going to lead. That could be $100 million, or it could be a $500 million project. I don't think there's a benchmark around that. Remember, we do have significant joint venture partners Beyond our current relationship with CPP, and that have come to us with opportunities that they want to share. We'll evaluate each deal as it sits by itself and evaluate that with also our stock buyback program. It's a combination of the entire totality of what's the highest and best use of our dollars today.
Okay. Art, you had mentioned six tenants looking at Campus Center that ended up signing elsewhere in the region and a nice pipeline behind that. Can you talk about where the six went and maybe how close they were on Campus Center? Maybe what they liked or didn't like?
Yeah. I think a lot of it was timing, but without getting into specific detail, we can probably do it offline, but it's all greater Silicon Valley. Again, timing, I think, was probably it. We're right in the middle of a repositioning which will be finished, and we're going to showcase kind of mid-March with a huge broker event, as I said. I think going to be poised to get a lot of traction.
Okay. All right. Thank you.
Thanks, Jamie.
Our next question is from Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.
Hey, guys. Mark, curious, you kind of laid out the full line availability, pro forma, the dispositions. Just curious what you think your total kind of deployment capacity will be once the asset owner contract close.
Yeah. I think on a levered basis, to stay within kind of the debt ranges that we target, there's about $600 million of total capacity funded on the debt side, either through the line or we have over $200 million of availability on our Gower Bronson facility as well. We think we end up at a comfortable range at about that deployment level.
That's helpful then. Maybe a follow-up or a different way to ask Jamie's question. Victor, you laid out that there's mass that you're looking at in a bunch of different markets. We've referenced some of the bigger repositioning opportunities in L.A. Just curious how you kind of bucket stuff from maybe just an easier lease-up or repositioning of an asset versus a longer-term redevelopment play that may have a higher magnitude over time, and kind of how you look at how much you want to deploy today into each type of bucket to not have the balance sheet get to a point where everyone knows you're going to need to raise capital with where the stock price is today.
There's two points that I want to make. One related back to Jamie's. Your last point is, listen, we have zero intent to raise capital at these levels, and we've been very strict in terms of our process and policy. We raise capital when we need the capital, the stock is at a point where we think it's opportunistic capital deploy, that is not clear even remotely at these levels. Going back sort of tackle to your point, first to what maybe Jamie was going at. Listen, we've talked about building up the diversification in the Seattle marketplace and the Los Angeles marketplace to get those barbells to a point where they're more closely aligned to the Bay Area.
If that means we sell more assets in the Bay Area, that's what we do, and redeploy the capital in those markets, or if we buy in the Seattle and Los Angeles marketplace to help grow those portfolios. Remember, our portfolio is going to take a little bit of a change when we have Epic online, and when we have Fourth and Traction and 405 and Harlow online. CUE is coming online now. The size of that portfolio will change. I think the numbers will be determined as to seeing more weight in those markets. Specifically to the redevelopment/development side, we've made it clear, Christian, his team have gone out and filed for the expansion of Sunset Gower for us to get an additional half a million square feet. That's public now. That's a multi-year process for us to get done.
We're doing the exact same thing at Sunset Las Palmas for an additional 450,000 square feet. We're breaking ground on the 100,000 square feet at Harlow, which is a small building. Bill and his team there have already had reverse inquiries from multiple tenants that want to take that production space. From a redevelopment standpoint, there's some unique opportunities of taking existing assets and repositioning the creative office campus style that we typically look at, both in Seattle and Los Angeles. We're going to continue to look at those based on the yield requirements and the tenant needs. There's been very little new development and development in the Los Angeles area that have those types of assets, there's a huge demand and backlog of existing tenants that are looking for space in the next two, three years and beyond.
We've got a pretty aggressive leasing team that knows who those tenants are and when the expiration schedules are in play, and we're going to try to capitalize on that, whether it's Epic or something else that we do.
That's helpful. Just if you guys were to look at a mixed-use, I know with KeyArena, there could have been some resi and retail involved. Are you guys comfortable if you find something to do that on your own, or is that where you bring in more of a strategic partner versus the money partner?
I think we have full capacity in the development team here to tackle and be extremely successful on the mixed-use process. We're not going to shy away from it. It's not something that we're looking to do. If it comes with, that's something we'll evaluate at the time. Currently, you referenced the KeyArena. That was a unique opportunity with the partner. That was going to be office, and there was going to be some resi, and we would have done that alone with our partner at the time, which was AEG, who has capacity and capabilities that would be aligned both on a capital side. The stuff we're looking at right now, I can only think of one project
That has got a mixed-use component on it, and we're not even remotely close to doing that deal. I don't think we're going to cross that bridge right now.
Great. Thanks, guys.
Thank you.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question is from Rich Anderson with Mizuho Securities.
Thank you. Mark, you said in your remarks that there's 547,000 sq ft expiring in the office portfolio in 2018. I'm looking at your lease expiration schedule. First part of this question is, I see over 1 million sq ft. Have you done some stuff already this year to tackle that? Is that the net number?
Rich, sorry. I was referring specifically in the prepared remarks to the same-store portfolio.
Okay.
You're seeing the numbers exactly right. That is to say, it's $1 million portfolio-wide. It's just in the 29 assets same store, it's the $547.
Got you. Okay. Leading to my next question, maybe as a way to enhance the same-store growth profile, to what degree do you think you guys will start looking or are going to include early lease expirations, in other words, 2019 and 2020 even, expiring leases. I know you do that as a normal course, but I'm wondering how significantly those rents are below market, and if there's a chance to see the same-store growth profile kind of accelerate as you go through the year because of that dynamic.
Hey, Rich, this is Art. Yeah. In advance of 2019, well, we're in 2018, in advance of 2019, we're already talking to some of the large movers that you'll see kind of posted that are coming up, and we've got a lot of traction on those. Yeah, we're out in front of that already, even kind of the late 2018 renewals. Kind of go out as far as a year and a half, really, especially if they're large tenants, right? Multi-tenants. We're always talking to these guys.
Hey, Rich, Victor.
Yeah.
Just to follow on that. I think if you recall, 2019 we have a couple of fairly larger guys, 2019 and 2020 in Seattle, and Technicolor in Los Angeles that are fairly below. So those are already in conversations now. Not considered at this point in your guidance.
No.
Okay.
They're on the list.
Okay. In terms of CapEx, and specifically, that which we would use to derive an AFFO number, do you see that sort of trending down now on a year-over-year basis? Where do you think CapEx lands, just maybe up or down versus 2018?
Thank you. Rich, I can't tell you how satisfying it is to get a question we prepared for. It would seem like it was not part of our prepared remarks or anything like that. Yeah. Just to give you a sense of it, on a year-over-year basis for recurring TI commission, that actually stands to trend down a bit, not quite 10%, somewhere between 9% and 10%. On recurring CapEx, that is to say CapEx that has a depreciable life of less than 10 years, but is not TI or commission. There's a little bit of a trend upward on that, in part associated with some of our bundled projects and some of the other stuff we continue to do to enhance, say, the EOP portfolio. As an overall component, it's not as much of the overall spend.
We actually are modeling about being more or less flat year-over-year on a combined recurring TI commission and CapEx. Down about 1% year-over-year.
Okay. Last question maybe for Victor, or anyone, I suppose. It sounds like maybe a little bit of incremental activity in Silicon Valley and Peninsula. I know that's been an area of frustration for you guys in terms of getting the message out there. Is there a common thread to all this net absorption that you're seeing from tenants? Is there something maybe systemic or broad-based that is causing people to make a move? Is there anything you'd comment in terms of the conversations you're having with folks about why we're starting to see more activity in those two areas?
Well, I think a couple things. Rich, first of all, there was a huge movement to large tenant users in the Bay Area, I mean, into the city. Now there's very little space available for them. We always talked about the larger users, even though our space was not as conducive, except for campus, to the larger users. The numbers that Art just gave on the amount of square footage of the 6 million sq ft, those are all large users. 2 million have signed, 4 million are still in the marketplace because they can't go in the city, so they're coming back to the marketplace there. Last year, as much as I think people were questioning the Valley, the statistics in the end of the year proved out that the Valley was very strong.
The numbers are the strongest what we've seen, we talked about that in our prepared remarks, in many years. In some instances, it's been the best statistics that we've seen since before 2000. The interesting thing is if you look at the IPO and the venture capital marketplace in the Valley, those are extremely strong. It's the strongest IPO start of the year so far, and there's very little change in that coming out. At the end of January, companies raised over $8 billion, over 17 deals on that basis.
You don't have names like Dropbox or Spotify there yet, and that looks like it's going to go. The most important statistic is the fourth quarter had the third straight quarter of $20 billion plus VC investments. It wasn't too long ago that people were questioning us and everybody else about, oh, VC's dead, and there's no more VC capital. I mean, those statistics are very, very impressive. 2018 is expected to see the similar level of optimism with VC funding, and the gap in the IPO marketplace is starting to shrink. So I think, clearly, it's tech related. It's the larger companies we've talked about. They are continuing to grow, and they have a vision of not three, four, five years, but it's five and 10 years.
We're seeing that with the Amazons and the Googles and the Hulus of the world up in those marketplaces, and you're going to see more of that. We're seeing that in the flow of traffic, so it's nice to see that they're not leaving those marketplaces like people kind of perceived them to leave.
Okay. Excellent, call . Thanks.
Thank you.
Our next question is from Blaine Heck with Wells Fargo. Please proceed with your question.
Thanks. Probably for Mark. One of your West Coast peers recently talked about higher utility and payroll costs that were causing a headwind to their same-store NOI growth in 2018. Are you guys seeing those same pressures? Just generally, I guess, what's your outlook for expenses going through 2018?
I mean, we're not seeing it in terms of erosion to margin, which I think is where you would primarily discern it. I mean, union costs tend to be trending up a bit higher. I'm sort of looking towards Josh to see if he has further commentary on that.
I think, overall, union labor increases have gone up, but we largely recover these costs, so it hasn't been a material impact.
Answer is, I don't know that we're seeing anything contradictory to that. I don't think we would note that as a particularly troubling trend or anything.
Okay. On a similar vein, the media margins this quarter were a good amount higher than they were in the fourth quarter last year. Seems like demand from content providers continues to grow. Do you think we should expect better margins from that business as we look forward?
I mean, I think as we, Bill and his team, continue to just hit the cover off the ball on pushing rents, maintaining high occupancy. There's a natural opportunity to improve the margins, right? I mean, because your bigger expenses are fixed, right? Property tax, insurance, and so forth, largely fixed expenses. As we improve that top line, those margins, I think, can steadily improve.
All right. Makes sense. Thanks, guys.
Ladies and gentlemen, we've reached the end of the question and answer session. I'd like to turn the call back to Victor Coleman for closing comments.
As obviously apparent, I want to thank the team of people around the table here at Hudson Pacific and the entire company for all the support and all you investors and people who cover us. Thanks for participating today, and we look forward to talking to you on our next call.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.