Good day and thank you for standing by. Welcome to BXP's Third Quarter 2024 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 call is being recorded. I would now like to hand the conference call over to your first speaker, Helen Han, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to BXP's third quarter 2024 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. A 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 the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that 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 Ritchie, 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 clarity 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. Our performance in the third quarter demonstrated BXP's continued resilience and provided evidence of property and capital market recovery. Our FFO per share was $0.01 above our forecast and in line with market consensus for the third quarter. We completed over 1.1 million square feet of leasing in the quarter, 5% greater than the third quarter of 2023. And for the first three quarters of 2024, our leasing volume was 25% more than levels we achieved in the first three quarters of last year. Weighted average term for office leases signed this past quarter remained long at 7.2 years and we continue to receive awards for our industry-leading work in sustainability. In just the last quarter, Time Magazine and Statista named BXP one of the World's Most Sustainable Companies and NAREIT awarded BXP the Sustainable Design Impact Award for our 140 Kendrick Building A redevelopment project. Now, moving to the economic and operating environment. We believe the most important market forces for BXP, that being interest rates, corporate earnings, return to the office behavior, outperformance of premier workplaces, and valuation in the public and private markets are all currently working in our favor, serving as a tailwind for BXP's performance. The Federal Reserve cut the Fed funds rate 50 basis points at its most recent September meeting and has signaled for two more 25 basis point cuts in 2024 and additional reductions in 2025. The most recently released inflation and GDP growth economic data has signaled the economy is possibly stronger than previously believed and put into question the magnitude and timing of additional Fed funds rate cuts. No matter how this debate resolves itself, the facts are short-term interest rates are coming down, which is very positive for real estate valuations as…

Good morning, everybody. So, Owen noted that our leasing in 2024 through the end of the third quarter is 25% higher than 2023. And during this period, we have completed 3.3 million square feet of signed leases. Post Q3, our active pipeline of leases under documentation sits at 1.53 million square feet as compared to 1.39 million square feet post the second quarter. We've done about 315,000 square feet of that pool since October 1st, executed leases. If we execute most of the remaining leases during the fourth quarter, we will end the year at over 4.5 million square feet of transactions. Our January 2024 guidance assumed 3.5 million square feet. Exclusive of our leases in documentation, we also have an additional transactions under discussion totaling just over 1.5 million square feet in the pipeline that will cede our 2025 activity, about 50% of that involves currently vacant space. As of September 30th, we have 1.04 million square feet of signed leases on vacant space that has not yet commenced. There is now a 210 basis point difference between our occupied space and our leased space. No doubt the analyst community is looking keenly towards 2025 and 2026 occupancy. We will provide our occupancy guidance for 2025 on our next call. However, we can provide the following inputs as you think about your own models. Our Q4 2024 and full year 2025 expirations totaled 3.7 million square feet. We have signed leases that we will recognize revenue on of 476,000 square feet during the fourth quarter of 2024 and 483,000 square feet for 2025, totaling 959,000, which creates an uncovered exposure, if you will, of 2.74 million square feet. Our pipeline of leases in negotiation covers an additional 305,000 square feet of currently vacant space and 395,000 square feet of…

Excellent. Thank you, Doug and good morning everybody. I'm going to start with a few comments on the debt markets, and then I'll plan to cover the details of our third quarter performance and the changes to our 2024 earnings guidance as well as provide some insight into several of the moving pieces that you should be aware of for 2025. We completed multiple transactions this quarter and continue to have strong access to the debt markets. This quarter, we exercised our right to extend our $334 million mortgage loan secured by 100 Causeway Street in Boston for an additional year at SOFR plus 148 basis points. We also extended $300 million of mortgage financing for Santa Monica Business Park that was scheduled to mature in July 2025 at attractive terms. We bifurcated the loan into a $100 million unsecured term loan and a $200 million mortgage loan. The unsecured loan is for one year with three one-year extensions, and we reduced the pricing at closing to SOFR plus 105 basis points, and the $200 million mortgage loan will be priced at SOFR plus 160 basis points and matures in 2028. The secured debt markets have shown meaningful improvement this quarter for high-quality, well-leased office buildings at leverage points of 50% or less. Credit spreads have compressed, and there is significantly more liquidity in the CMBS markets for both conduit and SASB executions. The SASB market, which is where most large loans in excess of $500 million are financed, was nonexistent in 2023. It reopened in early 2024, but with pricing for the AAA tranches at spreads in the low 200s. More recently, AAA spreads have improved into the mid-100s, which results in a significant improvement in overall pricing and conduit pricing can be even tighter. This trend is a…

Thank you sir. [Operator Instructions] And I show the first question comes from the line of Nick Yulico from Scotiabank. Please go ahead.

Thanks. I guess just turning to the leasing markets, can you just give a little bit more feel for what kind of needs to change in San Francisco, West Coast, maybe Boston suburbs as well, where I think that's been more of a sort of vacancy drag on the portfolio? What needs to change for that dynamic to improve in those markets?

So, I'll give a general statement, and then I'll let Rod and Bryan give their perspectives on San Francisco and the Boston suburbs in particular. In general, we need to see more technology and life science demand come back to the markets, which means we need to see both company formations with capital, be it private or public, right? A lot of biotech companies are sort of hoping to go public, but aren't able to go public. And then we need to sort of see the new ideas generated into new jobs and therefore, new kinds of businesses being formed. And that has really not been part of the sort of demand picture in either market in 2020, 2021, 2022, 2023, 2024. It's been sort of more of a retrenching of large tech and I would say, a slight downsizing from both technology and life science. So, Rod, you can sort of talk about the CBD of San Francisco and then Bryan can talk about Waltham.

Yes. Thanks, Nick. Good morning Nick. I would just add to Doug's comment that I think what needs to happen, at least in San Francisco, the demand has picked up certainly. So, as you heard, we've got good activity from multiple sectors and the traditional tenants still dominate, but there's plenty of technology companies that are out in the market. But I think what needs to happen before you're going to see some meaningful change in some of the statistics is going to be a burn off of the sublease availability. That still is an overhang. There's about 8.2 million square feet of sublease space. I would say that, the best space has been spoken for. There's still some buildings that are out there, but that's still causing us to compete with sublease space, which is difficult. So I think before you're going to see some changes in the direct vacancy and particularly in our buildings, some of those better sublease spaces need to be leased up, which is happening. So it's been happening for the last couple of years.

In Boston, I'd say, first off, no surprise, Doug did an excellent job of underwriting the total market and where we're at. So I encourage you to re-look at those things because it was spot on. I would say with our Urban Edge, and you've heard us say this before, the Urban Edge is much different than, let's say, the 495 Ring Road and then in particular, the P2 corridor, as we call it, between the Pike and Route 2 on I-95 is much different. The theme for us is drastic differences. So there's a drastic difference between the P2 corridor and anything else in the suburbs in terms of activity and also rental rates. And then the other is product. There's a drastic difference between our product at CityPoint, the premier space that all our leadership has talked about today and let's say, the rest of the market. And it's important to note that these markets product is vintage now over 50 years old. And there's a tremendous amount of that, that's dragging down things. But the difference between CityPoint premier office space at 77 CityPoint, 190, 230, 10 and 20 CityPoint is much different. And that includes what we see in Reston, which is the cluster of amenities. And that is the biggest difference that we're seeing. There's drastic differences between product and then also location.

Thank you.

And I show our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Yeah. Thanks. Good morning. I guess, Owen, you sort of talked about 343 Madison and the work that you're doing there. But also you mentioned the disappointment in not seeing some of the leasing happening at places like 360 Park. So I guess the question is, how are you thinking about the pre-leasing and the risks that you take at 343 Madison to move forward in light of the fact that some of the development has been kind of slower to lease up than you would like?

Yes. I think I'm going to turn it over to Hilary. The big picture answer to your question, Steve, is that north of 42nd Street is primarily a financial services, legal services market and it's very strong and particularly with the access to Grand Central. You go south of 42nd Street, much more tech-driven with the issues that Doug described. But let me turn this over to Hilary.

Thank you, Owen. Hi, Steve. I would just echo what Owen has said, and I would add to that, that there have been several sizable leasing transactions completed in the third quarter in Midtown proper, meaning north of 42nd Street as well as a very large lease that printed post the end of the quarter. So Bloomberg signed a renewal for 1 million square feet. Ares signed a lease for 300,000 square feet. Willkie Farr signed a 315,000 square foot lease. All of these leases were in Midtown proper, and they're all at scale. So there is demand from larger tenants in the marketplace. And I think it's just a question of matching the right demand profile client with the premier workplace that we're planning to build. Very different proposition in Midtown South. The market, as Owen alluded to, is dominated by tech and media tenancy. We are starting to see some more traditional clients poke around in Midtown South as they are figuring out that there's very little high-quality space in Midtown available. But I would say the bulk of that leasing demand continues to be from the more traditional tenant base and tech and media simply have not been adding jobs and space the way that finance and the industries that support it have in Midtown proper.

Thank you. And I show our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

Good morning. We're trying to figure out the occupancy trajectory going forward. Doug, you gave very helpful building blocks on what's the puts and takes over the next few quarters. But at the end of the day, you mentioned 2 million square feet of leases need to be signed over the next five quarters with commencements in the next five quarters for occupancy to remain flat. And I'm wondering how realistic that is. This year, you're on pace to sign 4.5 million square feet of leases and how much of that is commencing this year?

I can't answer your latter question because I don't know the actual number in terms of all the things that were signed this year, how much has commenced. We are, I would say, at this point, optimistic that we will sign 2-plus million square feet of leases that will have revenue commencing in 2024 and 2025 so that our occupancy will be at a minimum be flat. I'm hoping that when we go through our planning process with our EPs, we're going to see some opportunities that will be better than that. But again, we're not giving guidance for 2025 at the moment.

Thank you. And I show our next question comes from the line of Jeffrey Spector from Bank of America Securities. Please go ahead.

Great. Just back on the West Coast, and I know it's -- you have smaller presence there. But given it's such an important question topic, and I know you discussed it already, but there is a lot of skepticism over the latest return to office mandates, in particular, tech. I know earlier in the year, when we did our tour, we kept hearing tech, they're just not using the stick to bring people back. And so I know, Owen, you talked about that a little bit. Doug, you talked about some of the challenges in San Francisco. Are there lessons learned from New York City? Or do we really need to stop comparing New York to West Coast? West Coast just there are truly just different dynamics, and it's going to take several years for tech firms to really figure out their space needs.

So Jeff, my answer is I do think there is a cultural difference between the business community on the West Coast and the business community in cities like New York and Boston. And there is a differentiation. However, that differentiation, I don't believe, will result in any difference in terms of the utilization of space from the company's perspective. It may reduce the number of days any particular company demands their people come to work. And so we are seeing, as Owen said, a lot of organizations saying whatever we have been doing is no longer working for us. and we need to be more aggressive about asking our associates to be more present more of the time. I believe we will see month after month over the next number of months and years, a continual pick up on the West Coast. And clearly, the companies that are involved in the artificial intelligence industry, large scale have said the speed of which we are needing to do all of the work that's required to be " on top and a winner means we need space and we need our people to be in that space. And as that sector of the economy starts to dominate the culture out there, I would hope that we will see an even larger pickup in other companies responding to the need from a talent perspective relative to productivity. And Rod, you may have a different perspective.

I don't have a different perspective. I completely agree. And I can tell you that it has picked up. And Salesforce, in particular, has -- as of October 1, that's when they kind of instituted their policy of getting people back in the office. And they are tracking that data very closely with our team at the building. And it seems to have -- if you were down there in that building today and you were sitting in that lobby, you would feel a different vibe than you did a year ago. And then one other small anecdote coming in from the East Bay, which is where I live, the BART system, which is our light rail train system, the train station that I go to, there's 3 basic parking lots. And the third lot, which was most distant, had very few cars in it for the last few years. That lot is filling up on days, Tuesday, Wednesday, Thursday, and that hadn't happened before. So they're going somewhere, they're going into the city. And so I think we are seeing a shift.

And Jeff, I'll just add one other thing. And again, these are -- this is very anecdotal, but -- but up in Seattle, we've done two leases at Madison Center in 2024. Both of them have been from branches of technology companies that gave space back early during the pandemic and when they changed their policy relative to return to work, needed more space and took an additional floor in both cases at Madison Center. So that does not suggest that any of these companies are going to demand everyone comes back and they're going to start firing people if they don't. We don't know how the stick is going to work. But there are clearly organizations that have said in the technology business on the West Coast that we need to have our people in space, and we want to have the space for those people.

Thank you.

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

Thank you. Owen, you mentioned in your comments, public markets leading private markets and maybe alluding to opportunities to invest. So can you maybe give us a sense as to where you think or where you see BXP's capital cost being versus maybe what you think you might make on something like 343 Madison or on investment opportunities you might be getting shown? And if we should really start to think about external growth in 2025?

Yes. BXP's look-through cap rate today at current share price is in the mid -- call it, mid-6s. In terms of development yields in New York before the pandemic, development yields were about 6%. And today, I think they're materially higher than that, and that's certainly going to be our target. And then on acquisitions, there have been very few deals done in this premier workplace segment, although there were a couple last quarter, which I provided in my remarks. And again, it's a little bit all over the place, depends on the leasing status and ground lease and all those types of things. But it feels to me like the bid at least is in kind of the high 6%s to 7% cap rate on a stabilized basis. So that's where the market is in terms of the acquisitions, there haven't been a lot of takers of that. In other words, sellers are not accepting that price, and that's why there haven't been that many transactions, but that could clearly change. I also think transaction activity will probably go up in the coming quarters because there is more availability of financing, particularly in the CMBS market, which I described.

Thank you.

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

Great. Thanks. So along those same lines, in the past, you guys have been pretty transparent about your desire to grow in some of the markets that you've entered most recently like L.A. and Seattle. I guess can you just talk about whether your appetite to grow in those markets has changed at all given the tougher operating environment? And just whether you guys are seeing any interesting investment opportunities in those markets? Or do you think you'll focus your acquisition efforts on markets that are a little bit healthier now?

Yeah. Our strategy top down is to establish a perimeter, which we have with the six markets that we operate in, including some in a couple of cases like Waltham and Reston, places that are outside the CBD. So that's the top-down strategy. In terms of what we actually invest in, it's bottoms up. We're opportunistic. What can we find, what's available, what can our teams generate? We're going to look for and execute on those investments that have the best risk return opportunities. So we're -- we certainly look at where the contributions come from the various regions to our overall result, but we want to be opportunistic in the way we do deals within the perimeter that I described. The last thing I'd say on this is there are opportunities in the West, but they're clearly harder to underwrite. When you're looking at a building in New York or Boston, for example, or, say, in the Reston area, it's easier to have a view on what are the rents, what can the leasing velocity be? What should we expect? Whereas in the West, particularly for some types of assets, that's more challenging because the leasing is slower. So I'm not suggesting we won't do or try to do deals in the West, but they're harder to underwrite.

Thank you.

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

Great. Thanks. I'm curious if you can give any color just on the Bain renewal in Boston and whether or not they were a potential candidate for that development you've got potential in the Back Bay, 171 Dardmouth. Did you just need maybe more of a commitment in terms of rents or weighted average lease term to maybe justify moving them over to the new development? Just any color there would be helpful.

So I'm not going to comment about what Bain's decision-making process was. Suffice it to say that a new building construction in Boston today probably cost somewhere in the neighborhood of $1,400 to $1,600 a square foot depending on whether or not you want to include a value for land. And if you need a return and Owen described sort of our development expectations, that will create a rent that is materially higher than the rents that are achievable in existing both under construction and recently delivered new buildings in the financial district and the level of rents that we can currently command in the Back Bay. And so I think the timing at the moment for that new development in Boston doesn't really pencil relative to where existing rents are. Now, if the SOFR curve goes from 5.5% to 3% and lending conditions go from 350 to 400 to non-existent over to 150 basis points over and there is some softening in some of the inputs of the building and the building cost comes down, there's probably a different conversation that could happen at some point in the future with a number of tenants in our Back Bay portfolio about wanting to go to the new building at 170 Dartmment Street. And we hope to start that building at some point, but it's not sort of part of the calculus in 2025.

Thank you.

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

Hey, good morning. Just a question on the D.C. market. You guys made some positive comments on what's going on in D.C. and certainly echoes what we saw when we were down that market earlier in the month. Just looking at twofold. One, as you think about the rents that are rolling in D.C., directionally, do you see those rents, especially in the district rolling up, rolling down? Just trying to get a sense given that this market has had a tough time over the past decade. And then two, is there willingness -- are the tenants themselves willing to pay the rents necessary for new development? Or do you see this market as really just trying to cram into the existing buildings that you have right now?

Yes. So Alex, thanks for the question. I'm going to answer the first part, and then I'll let Jake Stroman answer the second part. So -- in the District of Columbia, every lease that we signed has somewhere between a 2.25% and a 3% annual bump. And generally, those leases are at a minimum of 10 years and generally 15 to 20 years. And so if you compound the rents that where we started with those rents, it is almost impossible to have a rent roll up in D.C. on a like building. However, and I'll let Jake describe sort of where the new market might be for rents in new buildings and how that might impact sort of what the opportunity might be for us. Jake?

Yes, sure. Thanks, Doug. Hello, Alex. Look, Alex, there's no doubt that the preeminent office space and the demand for preeminent office space in the district is driven by the legal industry, as Doug alluded to in his comments. And there are definitely opportunities that exist -- and there are active prospects in the market that are looking for better amenitized and well-located new high-quality product. And so we do believe that there will be opportunities in the D.C. market, whereby, hopefully, BXP is able to capitalize on those opportunities.

And just -- and the rent stake that would be necessary for those are what compared to where sort of existing product is?

Yes, they're probably 15% to 20% higher than existing sort of trophy quality product that exists in the market.

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

Hey, Owen, guys thanks for taking my public you sort of alluded, if I look at the public, and you sort of alluded to this a little bit earlier in your remarks, the public office owners, not all of them, by the way, but some of them like yourselves are getting a green light to grow externally from the market. You're all trading at a premium to consensus and estimated NAV. What -- but you have this issue about the lack of transactions in the market as well. How do you think about the timing or potential, what are the catalysts that are going to need to occur for transaction activity to pick up? And how do you think about your cost of equity to fund those potential transactions going forward?

Yes. Well, I mentioned -- I answered the second question earlier, which is our look-through cap rate today, depending on different models, but it's in the mid-6s. In terms of what is going to spark new activity, I think one of several things or multiple of several things. One, lower interest rates would certainly help. I talked about the -- a new market phenomenon, which is very constructive, which is the opening of the CMBS market for the office sector. I think that will help buyers create liquidity to buy things. So I think that's a catalyst. And then I think lastly, fatigue on the sell side. You're an owner of an asset, you have a business strategy, you want to downsize your office exposure, you want to sell a particular building, you want to reuse the capital to do something else, you have goals. And at some point, you're going to move forward and try to accomplish those goals. So I think that will be part of the calculus going forward as well.

Thank you.

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

Hi. Good morning everyone. I know you aren't giving 2025 guidance, so you're probably less inclined to talk further out. But with that said, I guess, bigger picture, as you consider occupancy improving, development coming online, in-place debt being refinanced, any comments you can give on kind of the trajectory of FFO? Or could you quantify any of those building blocks?

I will just say, Caitlin, that we are an optimistic group here, and we believe that the markets will continue to recover, and we believe that we will pick up a meaningful amount of occupancy over time. And our average rent is somewhere around $80 a square foot, and we should hopefully get to a stabilized level at some point of 400-plus basis points or more of occupancy gain. And you're talking about 80x a 50 million square foot portfolio. So every 100 basis points is 500,000 square feet. So you're talking about 80x 2 million square feet of space. That's a significant amount of growth, both in occupancy and therefore, internally. Owen just described, hopefully, the ability to do some external transactions, which we would believe would be accretive, maybe not a lot in the short, short term, but certainly on a medium- to long-term basis. So we're optimistic about the growth of our earnings over time. And I am sort of the outlier of BXP relative to where long-term interest rates are, but it's clear that short-term interest rates are coming down, which is a good thing. So I think that, that will sort of be a little bit of a sort of neutral for us over the next number of years because we have $1.8 billion of floating rate debt that's going to come down. And as we refinance things, we'll have some amount of increase in our interest expense on the "fixed rate side. But we just feel -- we feel good about the long-term perspective.

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

Great. Thanks for taking my question. Could you give us some color on the sublease market across your markets? I know you talked about San Francisco already, but what about the others? And then do you have a sense of what percentage of your tenants are currently subleasing their space?

So, sublease is -- the biggest issue is clearly on the West Coast, and it's most dominated in San Francisco and then in Seattle. After that, it falls off pretty dramatically. We really don't have much in the way of a sublease problem in New York City, certainly not in the markets that we are competing with. In our portfolio, there's probably 2 million to 3 million square feet overall of space that has been sublet that's not on the sublease market. Again, we've had these transactions like I just described in Westin where Biogen sublet their space for a long time. And two quarters ago, we had the Riverbend space. So we have some sort of chunkier pieces like that. We have one of those in Reston, Virginia with the College Board. So I'd say it's sort of at that level, but we're not competing with our own tenants relative to transactions in our buildings because most of it was done a long time ago. And in the short term, there's been very little in the way of new sublet space that's been brought on in our portfolio per se.

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

Yes. Thank you for taking my question. So you talked about the survey for CEOs. I think that something like 83% or 85% see their people coming back five days a week over the next couple of years. I guess just could you sort of square that with what you're seeing real-time sort of on-the-ground conversations? I know some of the tech tenants have been calling their folks back to the office five days a week. And you gave some helpful anecdotes there on the West Coast. But just kind of curious with how we square survey results like that with the reality of what your conversations are yielding.

Sure. So the way you need to think about this is when you say someone is coming back to the office five days a week, they are never in the office five days a week, right? So in 2019, in the best building that we had in our portfolio, if 80% of the seats that were "in the building were being used on a given day, that would have been nirvana". And so what we are seeing is that in New York City, we are basically at that level. In Greater Boston and even in Washington, D.C. now, where we have measurements return styles, we are sort of at the sort of 85% to 90% of that level. However, on the West Coast, in San Francisco, we are still sort of at a 65% of that level. And so that's the sort of -- that's what the buildings are telling us. They're also telling us that in all of the markets, the people that are coming in are coming in three-plus days a week. So individual card swipe by a human being that we can identify in general, when you are doing -- coming in, you're coming in very frequently. And so I think it's just a question of building the number of those people who are coming in more frequently that is going to sort of be the thing that creates more "activity" in these buildings.

Yes. And just to add to Doug's data, and I've mentioned this a few times on prior calls. First of all, CEOs are very -- they're not positive about remote work. They want employees back in the office. They have been reluctant to do so for competitive purposes. Remote work is a benefit that many employees want, but it has a real cost. It's like compensation and other benefits you provide employees. And I think it's notable that groups like Amazon and Salesforce and particularly all the start-up AI companies are saying, you know what, this is a benefit that we're no longer able to provide. We need you to come back. And I think those companies taking those actions will allow their competitors to take similar actions because they're all competing for talent. So I'm not surprised by the survey. It's what we hear from our CEO clients. And I think slowly over time, this issue will continue to dissipate and important.

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

Good morning guys and thanks for taking the question. Doug or maybe it was Owen, you talked about tech touring activity picking up in New York. Can you kind of compare that acceleration or pickup in tech tenant touring activity to some of your West Coast gateway markets, excluding any of the AI tenants that are in the market? I guess, what I'm trying to get at is, are you seeing that New York even lead on the tech touring activity front as well?

So I will let Hilary talk about the tech in New York, and I'll let Rod talk about the tech demand in San Francisco, and you can make your own conclusion.

Hi, Dylan, this is Hilary. The tech demand, I would say, really started to perk up a little bit after Labor Day. And I think it was pretty close to coincident with the timing of the interest rate cut. And it just seems like businesses across the board are having an easier time making planning decisions at this point. That having been said, to Doug's point earlier, it is taking people an exceptionally long time to actually get through the process of making a decision about what space they want to take. So OpenAI recently committed to space in the market at the Puck building. There are other tech tenants that are touring in the marketplace, but I think it's too early to say that there is a solid trend toward them increasing the amount of space they're taking. Certainly, as we've been talking to executives amongst tech companies, they're more constructive on back to office and therefore, the amount of space they need. But I think we're still in the process of sorting out what that means for the actual amount of space that's going to be taken in the market, particularly in Midtown South.

I would just add on the West Coast that I think in addition to the headlines coming out of the AI companies, which has been great, there's definitely a broader base of other technology companies, particularly down in the valley. And I would just make one note of the autonomous vehicle industry. There's a handful of tenants that we're talking to down there that are -- some of them are already our clients, but there's others. And so it's not just AI, definitely.

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

Hey, guys. Thanks for the time this morning. Just quickly, looking at the health of the New York market overall and the quarter-over-quarter decline in occupancy, can you guys just speak to how much of that was baked into your expectations into the quarter? And looking forward, do you expect a rebound in the fourth quarter? Or are there any headwinds that facing the Manhattan office market that maybe were not as well appreciated by the market? Thanks.

I hope that we've been pretty clear that we were going to lose O'Melveny & Myers at Times Square Tower in the third quarter, and that's entirely the only major change in our occupancy in Manhattan. And I would say, in fact, our other leasing activity in Manhattan is above expectation. Now many of those leases haven't commenced yet. So they haven't rolled into occupancy. But our buildings in Manhattan, 360 Park Avenue South aside are seeing a significant amount of interest. And we have active dialogue at buildings like Times Square Tower, at buildings like 200 Fifth Avenue, a lot of activity at 599 Lex. And so it's -- we feel really good about the overall level of sort of transactional demand that is possible for 2024 and 2025 in our Midtown and hopefully, our Park Avenue South/Midtown South market as well.

Thank you. And I show our last question in the queue comes from the line of Brendan Lynch from Barclays. Please go ahead.

Great. Thank you for taking my question. It sounds like you're potentially interested in acquiring more residential and you have some residential projects beginning the entitlement process. Just wondering if you could give us some color on what the playbook is there?

Yes. So all of what you said is true. We have -- we own today pushing 2,000 units, and we have several projects on land we control that we're pushing forward with. And as Doug described in his remarks, we're looking at some other sites that were -- we thought in a prior market might be well suited for office, and we think that they can potentially be re-entitled to residential. Our playbook in residential is going to be different from what we do with office and life science. Skymark is a good example of this at Reston Town Center. We own the site. We entitled the site. We did all the development work. We're supervising the construction. We have an 80% capital partner, and we also don't lease and manage the properties. So I think what you should expect from our residential business is less long-term hold and more generation of fees, generation of profits on a minority LP interest and generation of carried interest as opposed to long-term hold.

Yes. And I would just add the following about our land inventory. And again, I said this in my prepared remarks, we have a significant amount of land inventory where we are carrying that both from an operating perspective as well as a cost of capital perspective. And we are not going to sit around and just wait for the markets to recover. And so we are actively looking at how we can put those resources to use in an accretive way. And it's both multifamily units where we will likely be the developer with third-party money, townhouses where we will probably sell the parcels and Owen referred -- described a couple of parcels that are potentially going to get sold. That's what those are. We are also -- we have some sites that might be good for big box use. We have a site that we've been in contact with somebody who wants to do data centers. And so we are looking to try and as effectively and as quickly as possible, create value from this land inventory because it's not anywhere on our balance sheet, and we get no credit for it relative to our share price. And we think there's actually a significant amount of opportunity there that we are going to try and mine over the next couple of years. And you will start to see some of this occurring in the first quarter of 2025 when hopefully we'll be announcing the commencement of this development at 17 Hartwell Avenue in Lexington, which will be the first of these things.

Thank you. That concludes our Q&A session. At this time, I'd like to turn the conference back to Owen Thomas, Chairman and CEO, for closing remarks.

Yes. We have no more formal remarks. Thanks to all of you for your interest in BXP.

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