Good day, and thank you for standing by. Welcome to BXP Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, to Helen Han, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to BXP's fourth quarter and full year 2023 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. The webcast of this call will be available for 12 months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP believes that expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday's press release and from time to time in BXP's filings with the SEC. BXP does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&A portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call to please limit yourself to only one question. If you have an additional query or follow-up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning, everyone. After a brief review of our quarterly and annual performance, I intend to focus my remarks this morning on BXP's significant capital allocation activity over the last quarter, related real estate capital market conditions and key areas of focus for us in 2024. The operating trends I've described in prior quarters, specifically the steady return of workers to their offices, the importance of corporate earnings growth to leasing activity and the outperformance of premier workplaces, all remain important and substantially unchanged. BXP continued to perform in the fourth quarter as we did throughout 2023, despite withering negative market sentiment for the commercial real estate sector. Our FFO per share was $0.01 above market consensus for the fourth quarter and for all of 2023, was $0.15 above the midpoint of the guidance range we provided one year ago. We completed over 1.5 million square feet of leasing in the fourth quarter and 4.2 million square feet of leasing for all of 2023, well above our prior forecast. Over the last year, signed leases remain long term over eight years weighted average and portfolio occupancy remained stable, despite a challenging leasing environment. In 2023, BXP raised over $4 billion in new capital in the public unsecured debt, private secured mortgage and private equity markets. In the fourth quarter alone, we completed a new $600 million mortgage financing, a $750 million asset-specific equity capital raise, both among the largest comparable transactions completed in our sector last year as well as three new and highly accretive equity investments, one of which closed in January. So on capital allocation activities and starting with capital raising, last November, BXP announced the sale to Norges Bank Investment Management of a 45% interest in 290 and 300 Binney Street, both life…

Thanks, Owen. Good morning, everybody. After a moment of silence to Bob, I'm going to start. In early 2023, we established our baseline leasing expectations for our portfolio of about 3 million square feet in flat occupancy. As Owen commented, we ended the year with 4.2 million square feet and the fourth quarter included our 467,000 square foot early renewal with Snap at Santa Monica Business Park. We executed about 500,000 square feet more than we expected in 2023 and it was primarily pulling forward some 2024 transactions. The Snap lease was part of our baseline expectations and interestingly, it was only 1 of 2 leases in excess of 130,000 square feet that we executed in the portfolio during the year. On 12/31/22, so over -- just over a year ago, our in-service occupancy was 88.6% and we finished the year, 12/31/23, at 88.4%, essentially flat. Our in-service portfolio is 49 million square feet, so 20 basis points amounts to 98,000 square feet sort of a rounding era. Maintaining portfolio occupancy in the current environment is an accomplishment in its own right. Our large lease expirations in 2024 are 200,000 square feet at 680 Folsom, 230,000 square feet at 7 Times Square, where we own 55% and 230,000 square feet at Carnegie Center and they all occur in the first half of the year. A few comments on WeWork. We are actively engaged in lease modification discussions at our 4 units, Dock 72 in Brooklyn and our 3 sites in San Francisco. Our occupancy expectations assume, we reach agreements that result in a smaller overall footprint and a reduction to the $33 million of rent they are currently paying. It is obvious that WeWork emerges from bankruptcy as an operating business that is positioned for success. Mike will discuss the…

Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of the fourth quarter and our full year 2023 performance, but I'm going to spend most of our time describing our 2024 initial earnings guidance that was included in our press release, with additional details in our supplemental financial package. So for 2023, we reported full year FFO of $7.28 per share and that was $0.02 per share of the midpoint of our guidance range provided last quarter and $0.01 above Street consensus. Owen described the strong 1.5 million square feet of leasing activity in the quarter, and included in this is 270,000 square feet within our unconsolidated joint venture portfolio, where we generate leasing commissions that exceeded our budget by $0.02 per share. We also outperformed our guidance for the quarter with $0.02 per share of lower net interest expense. There were two real reasons for that. Last quarter, we announced the closing of our $600 million five-year floating rate mortgage on three of our Cambridge buildings. When interest rates rallied in December, we opportunistically hedged this financing to fix the rate at 6% for the term. This reduced our interest rate by 160 basis points, contributing to lower interest expense in the quarter. Additionally, the closing of the sale of a 45% interest in 300 Binney Street raised $213 million of equity. That transaction closed earlier than we expected, so the interest earned on the cash represents an increase to our net interest guidance. These two items were offset by about $0.02 per share of onetime unbudgeted transaction expenses related to the forming of the joint venture for 290 and 300 Binney Street as well as slightly higher G&A costs in the quarter. Our portfolio NOI performed in line with our expectations, though…

Thank you, sir. [Operator Instructions]. And I show our first question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Thanks. Good morning. Appreciate all the detail. I guess, Doug, I wanted to maybe circle back on the 1.4 million that you talked about. I think that's kind of the effectively the new leasing number that you need to hit this year. And I think you said you've got some things in the pipeline. But how do we think about that number at unfolding over the course of the year? And I guess, at what point of the year do those leases need to be signed in order to take effect to hit the occupancy target that you're looking for this year?

So that's, unfortunately, the technical question that keeps everybody up at night here at BXP, which is what will the actual condition of the space fee that we're leasing and what will our requirements be to either modify or change the space relative to simply handing the space over to the tenant? And I wish I could give you a precise answer to that, Steve. Right now, of the -- just over 1 million square feet of space that we are currently under negotiation with, about 500,000 of that is covering what I would refer to as pure vacancy. And I think there is a good probability that 50-plus percent of that will be "in place" from a revenue perspective in 2024 -- but it's -- that's the really hard question for us to gauge, which is, I'm comfortable that we're going to get the leasing done and that when we are also showing our "occupancy", including signed leases, that it will illustrate that we have had a very successful year from a leasing perspective. It's really hard to know when that revenue is going to hit. And so that's the variable that we can't control because it's really a question of how the lease comes together. And all of that is embroiled into Mike's same-store number. So that's why I think, to be fair, we are being, I think, conservative but they're conservative, not trying to -- we're not standing backing anything here because we just don't know.

Thank you.

And so our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

Thank you. On your joint venture acquisitions, two of them were centered around major lease extensions. Was that timing related to your partners exit, because they no longer wanted to fund the future CapEx? Or did the signing of those leases really provide valuations for your partners to exit? And what does this mean for your other assets that you co-own with CPPIB and your other selling target?

Yes. Yes, as I said in my remarks, the lease extensions did spark the acquisitions that we made. And it's for the reasons that you outlined. So with each of these extensions came a capital requirement for tenant work, leasing commissions and, in some cases, building upgrades. And the two partners had a shift in strategy to disinvest or reallocate away from office. And that basically sparked the acquisitions. The other thing I would point out, other assets had future capital requirements as well. So in the case of Santa Monica Business Park, we have the Snap renewal, but also we have a fee purchase option coming up in 2028. That could -- if we elect to purchase the fee, that will have a capital requirement. And those 360 Park Avenue South, there was not an anchor lease renewal because that project is under redevelopment. It's in the middle of the redevelopment. So the partner basically sold out their position in the middle of funding that development. So it also had a future funding requirements. So those are really the drivers.

Yes. And John, I would just say the following, which is there are institutional investors who have just had a perspective that at this moment in time, investing additional capital in our sector is not what they want to do, relative to their portfolios. We obviously have a very different perspective on the long-term value that's going to be created by doing these transactions or we wouldn't be doing them. So we're excited about the lease that we signed with Snap. We're excited about the lease we signed with Finnegan Henderson. And we're excited about what that means for the long-term value of these properties. And it was the disconnect between what they wanted to do and what we wanted to do that really created the opportunity from our perspective to deploy capital in a very accretive way. And we're looking for other opportunities in our portfolio and away from our portfolio, where these types of disconnects between the current owner and what our perspective is they're different.

Yes. And just lastly, John, to the second question that you asked, never say never. There might be other opportunities to acquire interest in properties that we own, but I certainly don't think the volume would be anything like what we experienced in the last quarter. For example, today, our largest joint venture partner is Norges. And in the last quarter, they actually increased their number of joint ventures with us because we did these two major JVs in Cambridge. And obviously, they have a different strategy from the JV partners that we acquired interest from. So it could be more, but I don't think it will be anything close to the volume that we experienced last quarter.

Thank you.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Hi, good morning. And first, Bob Pester, congrats on retirement. I guess now we can all look for Rod's steady hand. Just, Owen, and Doug, just I guess a two-parter following up on John Kim's questions. One, obviously, is the debt side of the equation, looking what your expectations are for potential debt resolution, where Boston may be able to pay off debt at cents on the dollar. And two, as you look at these JV buyouts, is it purely that the partners, whether the existing or potential ones in the future, just don't want to put in capital or is it that they view the investment of that capital to be highly risky, whereas you guys seem quite confident in your returns? And just trying to understand if it's a capital issue that your partners just want to know more versus a risk of investment decision?

Yes. I think the -- Alex, to answer your question on the debt side, Mike should answer. But in general, as you know, we primarily finance with unsecured financing, and we have great access to that market and have been accessing it and we think it's very attractive. And in most cases, we've been able to extend or refinance existing mortgages that we have on our joint ventures. Look, I think in terms of the answer to your question, the JV partners would have to answer it in terms of how they thought about the returns that they were forecasting from the extensions that we committed to. But when we do our own math, and we shared some of it with you on this call, we think it's very attractive and it's very accretive to our company, and we think it makes a lot of sense. So our suspicion, as a result, is that these decisions that they made were more related to a change in strategy as opposed to a lack of enthusiasm for the return. I'd also just make an additional point on this. These are two different partners, and they come from a little bit different position. So the partner on 901 has been a long-term investor in that project, and they have been in it, and they have made a good return and has been very successful for them. So maybe it was a change in strategy, but it also might have been, look, we've been in this for a very long period of time. We've done fine. Maybe this would be a good time to exit. I think on the partner on the other two deals, Santa Monica Business Park and 360, definitely, they were newer to the JVs, and I think that clearly was more of a change in strategy.

Thank you. And I show our next question comes from the line of Nick Yulico from Scotiabank. Please go ahead.

Thank you. I was hoping to just get a little bit more feel for the decision to reinvest in Santa Monica Business Park. Why you think it's still an attractive long-term opportunity? And secondly, if you could just give us any feel for -- in terms of the Snap renewal, how the mark-to-market worked on that plus the level of TIs and free rent if you had to give there?

Yes. So I'll turn it over to Mike for the second question. But in terms of the first question, I mentioned the yield that we bought this and the per foot that we bought the asset on a fee simple basis, we think that's very attractive pricing. We were able to derisk the asset materially through the extension of the anchor tenant, which leases 400-plus thousand square feet of the 1.2 million square feet. And also, we think that Santa Monica Business Park is a very interesting redevelopment opportunity for our company, and we're in the process of commencing that redevelopment process. And we think over a long period of time, it's going to be a very accretive asset to our company. So we are excited about the asset.

Yes. And Nick, this is Doug. On your answer to the other question. Without -- we're not going to get into the specifics of a particular tenants economics. As I said in my remarks, our West Coast leases that were signed this quarter -- executed this quarter was down 3%, but San Francisco was up 9%. So you can go through the statistics and sort of decide yourself how you think that might have played out. And relative to transaction costs in free rent, it was actually a very low transaction costs and low free rent early renewals. So those economics were built into the lease rate.

Thank you. And I show our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead.

Thanks, good morning. You talked about playing offense and it sounds like you'll use some third-party capital as you've done in the past. But just for BXP's portion of deals and playing offense, where do you think we see capital come from for you all?

Well, as you said, as I mentioned in my remarks, I do think there will be opportunities that will present themselves for the company this coming year. And as you said, we will -- the joint venture partner more than likely using third-party capital, and we will be using our balance sheet to fund our joint venture interest in whatever we come up with. But it's -- again, we are receiving inquiries. We are looking at things, but we're not, I would say, advanced in anything at this time. But if we look at what we think will happen in 2024 versus illiquidity in the market in 2023, I think activity will be greater this coming year.

And I would just add that a lot of what we're looking at is doing things more on a capital-light basis, and taking a lower percentage interest percentage potentially or entering assets in a different way and kind of similar to these transactions that we did, and this didn't require a lot of incremental capital. We took on a little bit, obviously, their share of the debt, but the overall impact on our leverage was very, very small with these transactions. And in fact, we've kind of delevered overall because we brought in the equity from the Cambridge transaction. Overall, we deleverage. We're -- we don't expect that we're going to increase our leverage significantly. And our goal is to kind of maintain it in a range that is pretty close to where we are. So I think that when we think about investments, we keep that in mind.

Thank you. And I show our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Good morning. Thanks a lot for taking my questions. We've talked a little bit about San Francisco, and there's some clear differences in the markets. Do you think we're kind of hitting the bottom in these tech markets that are lagging in their portfolio? And just any visibility from the demand from AI or other sources that are providing some near-term excitement for a rebound in San Francisco and Seattle?

I would say, Michael, that the technology demand on the West Coast is lower than we would like it to be, largely because there have been a significant amount of technology layoffs over the past, call it, 12 to 18 months, and they're still happening. Clearly, they're happening at a much lower rate and they're on the margin. So I would tell you that I think we've been sort of in the "bottom" for a period of time. And I don't look at the world and say that there's another “shoe to drop”, I think we're just sort of in a portion of time where there's just no interest in growth from a real estate space perspective for technology companies. I believe that will change. The fourth quarter and the third quarter of 2023 in San Francisco for AI was a great quarter, and we had 2 really interesting transactions occur, which we've described previously. There was 1 million square feet of positive absorption. I'm not smart enough to know if those 2 tenants may double or triple or quadruple over the next 2 to 3 years. I also don't know whether or not there are going to be other AI companies that are either BC or seed invested with angel investing that are going to explode. I'm hopeful that those types of things will happen. And from our perspective, that will all be to the good for the West Coast and for the city of San Francisco. 2024 is not going to be that year in terms of, in our view, space absorption.

And I show our next question comes from the line of Michael Griffin from Citi. Please go ahead.

It's actually Nick Joseph here with Michael. Owen and Doug, you guys have touched on the opportunities expected this year and with some institutional owners, maybe change in strategy or lowering exposure. I guess on the other side, are you seeing more competition for some of these potential deals? Are you seeing people actually looking either distressed opportunities or other opportunistic opportunities looking to actually add exposure to office? And then how are you thinking about actually underwriting the deals, just given the current environment?

Yes. So Nick. Good morning, so there have been more office transactions in the fourth quarter. In my remarks, I gave some stats, and it was kind of interesting to me the percentage of the commercial real estate transactions that are going on from office increased materially in the fourth quarter to the third. So what's happening? I think there are more distressed players that are out there, buying assets at very low per square foot prices. Some of these assets are challenged physically, most of them are not very well leased. And I think those buyers are family offices, for example, they're smaller deals that don't need leverage. Because again, getting a secured mortgage for an office building is virtually impossible. And I think these buyers are just saying, look at this per square foot price, we think the market will ultimately recover, and we're in at a good basis. So I think that's the kind of market that's out there. Those aren't the kind of deals that we want to do. I mean we're looking for premier workplaces. We're looking for assets. They may not be fully leased. Maybe there are some challenges with it or an asset that we can make a premier workplace, and they're going to be larger and they're going to probably require funding from the financing market in some way. And I think there's much less competition for anything like that. And I think, hence, that's BXP's opportunity.

Thank you. And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley.

Hopefully, you can hear me. Just one, 2-parter, one on the same-store NOI guidance of down 2%. Just hoping a little bit more color. You talked about WeWork being a 45 basis point headwind. Just could you talk through maybe what some of the larger expirations that you're expecting in the first half the impact will be and what you're assuming at the top and bottom end of the guidance range? And the second part, if I could sneak it in, is just on the life science market, as you sit here today versus 3 to 6 months ago, can you just characterize what the leasing activity is like for the larger versus the sort of mid and smaller tenants? Thanks.

So I'll start with that on the same-store question, which is really related to kind of the trends in our occupancy that we expect. So we gave the range of that. And our anticipation is the first half of the year has some of these larger expirations, there's one in New York City. There's one in Carney Center and then there's one in San Francisco, and Doug kind of described how big they were. And then the leasing that we have signed that are going into vacant space is more spread across. So my expectation is that you're going to see occupancy decline a little bit in the first couple of quarters, and then it's going to build back up through the year. And that's what's built kind of into our guidance ranges. And then obviously, our boundaries are kind of the upper and lower boundaries of what that year-end occupancy range that we provided is that Doug talked about. So that's kind of how we build that range. And I think that pretty much answers your question, Nick.

Yes. And let me add on Rod deal go first on life science activity in the San Francisco -- South San Francisco, North Peninsula market and then Bryan can talk about life science activity in our Waltham portfolio, which is where obviously where our availability is. Rod, do you want to start?

I would just say that relative to 6 months ago, at least in the Bay Area, I would say the life science demand is about what it had been, which is that it's not with the larger users. There have been some smaller tenants. That's how we were able to land the 3 deals at our 651 Gateway project. Those are single-floor tenants roughly 22,000 each. So in that section of the demand, we're still seeing a little bit of activity, but not so much on the larger groups. So relative to 6 months ago, I think it's probably about the same.

Boston, this is Bryan Koop. It really reflects the same thing. The second half of last year was far different than the first, and activity picked up on life science tours. But let's say, from summer beginning, smaller users out there still questioning, is it time to make a commitment or not? A lot of questions about their funding, etcetera. And then fourth quarter, we did see a couple of, let's say, the life science titans come out and emerge. And they were all caught let's say, potential clients that are in the market already in Cambridge that were, let's say, looking, sourcing the Waltham market for what could be available. In general, we just had a summary with Doug and Owen yesterday about last year's performance. And we were quite surprised. We have 360 tours last year. So you're averaging 7 a week, which was surprising, given how dismal the attitude about office was. Two comments. One is that the clients are spending far more time with us and aggressively looking for what their strategy is going forward. And we have also seen verification of possible spoke plays, where you have a large headquarters in the CBD district and then looking for a spoke location further closer to the suburbs to people's homes. And we've had 2 great executions of that and there's been a lot of interest in that.

Thank you. And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Hi, everyone. Maybe just a question. Google announced last night meaningful office optimization charges, 1.2 billion in the quarter. So given your 2.8% exposure to the tenant, will this impact any of your properties? And I guess, more broadly, I think you mentioned that tenant defaults are included in your guidance. So what's your watch list like or outlook for early exits by tenants this year?

With regards to your first question about Google, the answer is absolutely not. We have -- Google is in only one asset of ours, which is in our Cambridge portfolio and they're in there for a long, long time, and they're actively using their space and talking to us about increasing parking needs and things like that. So we have no sense that there's any change in their portfolio composition at least with us at BXP. I would say most of our defaults have been in the life science and they've been in the sort of start-up tech world, and we have 1 in Waltham, that's probably going to occur and we have 2 or 3 that occurred in the latter parts of 2023 on the West Coast, 1 CBD and 2 in the suburban market, and they're all sort of in this 20,000 to 25,000 square feet of piece, and they're just part of the -- what's going on in the economy with regards to capital formation, where VCs want to put their money, where they don't want to put their money, whether technologies are successfully getting companies to the point where they can raise additional capital again and we have some exposure to that, but it's not significant.

Thank you. Our next question comes from the line of Camille Bonnel from Bank of America. Please go ahead.

Good morning. On the 6 projects that are scheduled to be stabilized in 2025 and have started or are starting initial occupancy this year, how far along are the leasing prospects on those buildings? And how much do these development prospects represent in the active leases under negotiation pipeline?

So Mike is pulling out which ones theoretically are...

180, 103.

So the developments that we have, I believe that you're referring to are 290 Binney Street, which is the 2026. That's AstraZeneca, that's 100% list [ph] 103 Fourth Avenue, which we don't have any leasing velocity on. 180 CityPoint, where we have about 140,000 square feet of available space. Those 2 are coming online in '24 in terms of when they're going to be in service. And we need to find some clients to lease those buildings in order for them to be stabilized in 2025. At 651 Gateway, it's a similar conversation, in that we've started doing leasing. We will be through 12 months of the lease-up in early 2025, and we need to do more leasing in order to get that one going in the 360 Park Avenue South, which -- where the building construction is complete and Hilary and her team in New York are aggressively pursuing anybody who wants premier space in the Midtown South market, where we've done one lease, and we have another lease that we're close to having a letter of intent on for a floor plus. And then there's other interest in the building. And that one also we need to do additional leasing in order for it to be stabilized in 2025. The rest of the -- I believe the rest of the stuff is residential, and that's obviously a question of when those buildings start and how long the ramp-up is in terms of turning over the units and I think when Skymark opens, which is the Reston property in the third quarter of 2024, we have probably a 15- to 18-month lease-up. I know you can correct me if I'm wrong, in or for that one to be stabilized.

No, those are both correct. And that also has, as you know, 75,000 square feet of office and then some ancillary retail. And we're working on a couple of deals for the retail space. And we've got, I would say, a real prospect for about half of the office space that we're speaking to, but not at LOI stage with at this point in time.

So Camille, that was really in my notes, I kind of described that the deliveries in '24 are these deliveries we're talking about. And we don't expect '24 to have a really significant impact from those, but we do expect to have some leasing momentum in '24, with income starting in '25. So our expectation is that that's when we will start to see more revenue come from these buildings.

And I show our next question comes from the line of Blaine Heck from Wells Fargo.

Great, thanks. So it seems like we're still seeing the flight to quality trend play out with most net absorption and leasing activity taking place at high-quality buildings with high rents. But recent media reports have tried to kind of poke holes and even the top of the office market. So just wanted to get your thoughts on whether anything has changed with respect to leasing activity or rents at the top of the market and whether you've noticed that tenants have maybe become more cost conscious and less likely to lease at those highest quality spaces?

I would tell you -- I didn't go through it this quarter because we had so much other stuff to go through. But the premier workplace data that I generally provide on this call shows accelerating distancing between premier workplaces and the rest of the market from a vacancy, net absorption and rental perspective. So at least at a high level, the trend to premier workplace continues to run unabated.

And I would tell you that the most activity that we are having on a building-by-building basis is, in fact, in our CBD most premier assets. And in no case, are we seeing changes in the economics of what the market or we are asking for and ultimately achieving in those client conversations. I'm not sure where that information that was in the article in the Wall Street Journal came from, but it's just -- and I'll let Hilary describe what's going on in Manhattan in terms of our activity level, which I think is sort of the poster trial for Premier. And she can sort of give you a perspective on why I think that article is just not -- it doesn't hold water for us.

Thanks, Doug. Yes. So we have seen consistently since, at least 2019, gains in occupancy in Midtown Manhattan for Premier workplace, with corresponding declines in occupancy for non-Premier workplaces. And the same is true in terms of rental rate gains for Premier Workplaces in Midtown Manhattan. So while you might expect, given the weakness in some of the overall office statistics to sort of affect the Premier Workplace, in fact, the opposite is true. And at present, the vacancy rate for Premier Workplaces is hovering just around 10%, which we consider stabilization levels for Midtown Manhattan. And although the capital markets environments are not constructive for new development, that is generally the point in the market at which you would start to see people interested in building new products. So if you think about the availability of high-quality space in Midtown, there are only 3 available spaces in the Park Avenue submarket of 250,000 square feet or greater. One of them has a lease out on it. So if you are a tenant of size and you're looking for premier space in Midtown, it simply is very, very hard to find and getting harder. And that drives pricing, obviously. So we feel very, very good about our Midtown portfolio. And we think that rents will continue to improve across the board for Premier Workplace in New York.

And then just -- Jake, you might comment on the phenomenon you're seeing at the high end -- in the premier buildings where, I guess, what we would refer to in Washington, D.C. as the trophy buildings in terms of both the demand and the economics there.

Sure. I will just sort of tack on to what Hilary had noted in Washington, D.C. We continue to see a significant sort of material outperformance for trophy class assets and repositioned assets in our market. There's an incredible amount of leasing velocity that we see at those assets, relative to what we see across the rest of the market being commodity space. So we've achieved a lot of leasing success in a lot of our premier assets in downtown Washington and continue to see a lot of traffic.

We're seeing the same thing in Boston. And as noted in our discussions internally this last week, for our Boston portfolio, we're at 4.4% vacancy and Cambridge is 2.5, which is just phenomenal. We are seeing -- I wouldn't say that this is outstanding trend, but we are seeing users that normally would not be in our office building, where they want more square footage in, let's say, a Class B or C building, looking to us for reaching up with smaller square footage just used more efficiently.

Thank you. And I show our next question comes from the line of Upal Rana from KeyBanc. Please go ahead.

Hi, good morning. The D.C. market seems to be a bright spot, given the JV acquisition of 901 and the lease extension as well as the increase in occupancy there. Do you see the strength that is sustainable? Or could you provide your thoughts on the D.C. market in general? Thanks.

So I would tell you that the D.C. market is the most -- one of the most interesting markets from our perspective in the sense that there are more, what I would refer to as over finance buildings with institutional owners that are no longer interested in providing capital to those assets, which is manifesting itself in an inability for lease transactions to occur in those transactions. And Jake and his team are, I would say, highlighting our financial stability and the things that we are doing in our buildings. And there is no question that the lease transaction that he just pulled off with Finnegan Henderson was a direct result of the lack of opportunities for a large tenant to go to other existing buildings, the inability of any new construction to commence and BXP's ability to both provide TI capital as well as figure out a way to reposition that building to be as close to a brand-new trophy building as you possibly can have. And Jake, you might just sort of describe the choices that are out there and how the distress in the market is impacting our ability to transact.

Yes, sure. I can just -- Doug, to that point, if we look at 901 New York Avenue as an example, in the last 30 months, we've done 140,000 square feet, plus or minus, of transactions at that asset. And we've had great activity. And I think a lot of that is because we've been incredibly responsive to the clients in the market. And I think people have been responsive to our sponsorship at the asset. So we feel really comfortable with the plus or minus 100,000 square feet of vacancy at the asset, given the repositioning program that we're going to undergo. And so we're really excited because these repositioned assets and investing this new capital into remonetizing the ground floor plane of the building and sort of really repositioning the lobby experiences, it really drives the activity of that asset, and it really becomes a new building in the market. And so there are fewer and fewer of those opportunities available in downtown Washington. And ever since news of the transaction that Doug noted was completed, we've seen great activity already and continue to at 901. And it's just representative of the fact that there aren't a lot of great opportunities in Washington, D.C. that exist today for premier office or repositioned office.

The one other thing I would add is the performance of Reston Town Center. I mean again, the majority of our portfolio in the Greater Washington areas and Reston Town Center. And Reston is 94% leased, and we've had positive absorption there. In this past quarter, we did a 60,000 square foot new lease with a technology company coming from another place into Reston Town Center. Again, because it is such high quality kind of a live work play kind of place, and these clients really, really value that. So we're outperforming from a rental rate perspective, and we're seeing positive absorption there.

Thank you. And I show our next question comes from the line of Peter Abramowitz from Jefferies. Please go ahead.

Thank you. I think Owen mentioned there's an early termination option for part of the Snap extension at Santa Monica Business Park. Just curious how that's kind of factoring into your conversations with the lender ahead of the loan maturity in 2025. And wondering just how to think around parameters for pricing as you start to have those conversations?

This is Doug. There is no termination option on the lease that we just signed. As part of the lease, we allowed them to terminate on 140,000 square feet at the end of 2024. The remaining 467,000 square feet is going out for 10 years starting in 2026 to 2036. So Mike can describe any conversations that we've had with the lender, but we're very comfortable with the refinancing opportunity associated with that building and how that will play out, relative to both the new leasing that we hope to do as well as the potential purchase of the ground, which is -- can occur in 2028.

And Peter, the loan is with a syndicate of banks who are relationship banks of ours. It does expire in 2025. And I'm confident that those banks will be supportive of us, and we will likely extend that loan for, I would say, a bridge period that will get us through the purchase of the ground lease. And after the purchase of the ground lease, because it's an above-market ground lease, there will be an improvement to the economics of the asset and we would probably do a longer-term refinancing after that or focus on a portion of the part that might be redeveloped, and then we could split it into a portion that is going to stay as is for a while in a portion where we might do a kind of mixed-use redevelopment.

And now that it's effectively a wholly owned joint venture, we have no partner. We don't need to use third-party financing. We can choose to use unsecured financing. So I mean there are lots of options.

Thank you. And I show our next question comes from the line of Dylan Burzinski from Green Street.

Hi, guys. Thanks for taking my question. I guess just appreciate the comments on potential acquisition opportunities in the future. But could you just talk about sort of how maybe your co-investment partners are viewing office today and sort of the return threshold needed for them to deploy capital to the sector?

Yeah. I think it's a mix. As we've just described some partners that are trying to reallocate away from office. And -- but there are others that are interested, they're intrigued. I think they see the same opportunity that we do. You know that – you know there is the all of these negative sentiment about office is creeping into the premier workplace segment, which doesn't deserve it, given all of the color that we just gave you on this call. And I think there are investors, who have capital that see that and are interested in co-investing with us. And so in terms of pricing, I think it's to be determined. I think it depends a lot on the building, leasing status and what exactly the issues are. There's no doubt that pricing has changed. And we demonstrated what some of those changes are with the deals we did last quarter.

Thank you. And I show our last question comes from the line of Floris Van Dijkum from Compass Point LLC. Please go ahead.

Hi, good morning and thanks for taking my question. I guess following up on the last question a little bit, Owen, maybe I'd love to get your thoughts on cap rates, and what is happening in office? And when could we see, in your opinion, the stabilization of cap rates? It appears that clearly, the Santa Monica deal at a 9% cap rate, that would be probably 200 basis points north of where it was maybe 18, 24 months ago. Maybe talk specifically about your view on what's happening to cap rates in some of your key markets like New York, San Francisco, Boston, D.C. or L.A. And what -- and at what point would you -- where do cap rates need to be for you to actually deploy more capital?

Floris, you're asking a very good but unanswerable question, and I'll explain why. We tried. I try every quarter to give all of you comparable market deals. So we all understand together what pricing is. And this quarter, I could not come up with one. The only one was the deal in West L.A., but it had a lease buyout, and I'm not sure it was per se, a comparable deal. We gave you some data on partner buyouts that we did. Each one of those deals have different facts. For example, the Santa Monica deal was an unlevered fee simple cap rate. Well, that's got an assumption in there about Land Valley. So how accurate and how usable is that cap rate, I don't know. But we did just give you 3 cap rates on deals in New York, West L.A. and Washington, D.C. on partners that we bought out. So that is some data. And then lastly, in terms of what would be interesting to us, we pay attention to what is the look through cap rate for BXP and what would be accretive to us. And today, I think that number is around 7.5%. And we need to -- if we're going to do things that need to accrete our earnings. And so we're going to be focused on that, look through cap rate as a guidepost for what we do.

Thank you. This concludes our Q&A session. At this time, I would like to turn the call over to Owen Thomas, Chairman and CEO for closing remarks.

I can't imagine you all want to hear any more remarks from us. So I thank you for your patience. This is a complicated quarter. We got through a lot of data. And again, thank you for your time and interest in BXP.

Thank you, sir. This concludes today's conference call. Thank you for participating. You may now disconnect. Good day.