Q3 2023 Boston Properties Inc Earnings Call

Participants

Bryan J. Koop; EVP of Boston Region; Boston Properties, Inc.

Douglas T. Linde; President & Director; Boston Properties, Inc.

Helen Han; VP of IR; Boston Properties, Inc.

Hilary J. Spann; EVP of New York Region; Boston Properties, Inc.

Michael E. LaBelle; Executive VP, Treasurer & CFO; Boston Properties, Inc.

Owen David Thomas; CEO & Chairman of the Board; Boston Properties, Inc.

Rodney C. Diehl; Senior VP & Co-Head of West Coast Regions; Boston Properties, Inc.

Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Blaine Matthew Heck; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division

Caitlin Burrows; Research Analyst; Goldman Sachs Group, Inc., Research Division

Dylan Robert Burzinski; Analyst; Green Street Advisors, LLC, Research Division

James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division

Jason Adam Wayne; Research Analyst; Barclays Bank PLC, Research Division

Jing Xian Tan Bonnel; REIT Analyst; BofA Securities, Research Division

John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division

Michael Anderson Griffin; Research Analyst; Citigroup Inc., Research Division

Nicholas Philip Yulico; Analyst; Scotiabank Global Banking and Markets, Research Division

Omotayo Okusanya; Analyst; Deutsche Bank

Peter Dylan Abramowitz; Equity Analyst; Jefferies LLC, Research Division

Richard Anderson; Analyst; Wedbush Securities

Ronald Kamdem; Equity Analyst; Morgan Stanley, Research Division

Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division

Upal Dhananjay Rana; Director; KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good morning, and welcome to Q3 2023 BXP Earnings Conference Call. (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.

Helen Han

Good morning, and welcome to BXP's Third Quarter 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. 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 believe the 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. (Operator Instructions).
I would now like to turn the call over to Owen Thomas for his formal remarks.

Owen David Thomas

Thank you, Helen, and good morning, everyone. Today, I'll cover BXP's operating outperformance in the third quarter, key economic and market trends impacting our company, and BXP's capital allocation activities for the quarter.
BXP continued to perform in the third quarter despite escalating negative market sentiment for the commercial real estate sector. Our FFO per share was once again above both market consensus and the midpoint of our own forecast. We completed over 1 million square feet of leasing in the third quarter with a weighted average lease term of over 8 years, and increased portfolio occupancy despite a weaker operating environment for most of our clients. We completed multiple company and asset-specific financings, both elevating our liquidity position and demonstrating BXP's sustained access to the capital markets.
Moving to the economy. Notwithstanding the Federal Reserve having increased the discount rate, 5.25 percentage points and the 10-year U.S. treasury having risen nearly 3%, all since March of 2022, the U.S. economy's headline statistics remain remarkably strong, with GDP growth at 4.9% in the third quarter, 336,000 jobs created in September and the unemployment rate steady at 3.8%. This rosy economic picture is misleading, as it does not accurately reflect the market tone and operating environment for many of our clients.
Assuming forecasts for negative earnings growth in the third quarter are accurate, S&P 500 annual earnings growth has been negative for the last 4 quarters. Much of the recent strength in GDP has been consumption related, and job creation has been in the leisure and hospitality, health care, education and government sectors, not in the office leasing sector such as information and financial services.
Our clients are corporations that actively manage their head count and operating expenses in times of weak or negative earnings growth. And as a result, they are more cautious in making new space commitments. The remote work is obviously not helping space demand. We believe economic conditions are the primary driver of our slower leasing activity in 2023, and leasing will rebound, when earnings growth returns.
We continue to be encouraged with the return to office trajectory we are experiencing in our buildings, as well as the rhetoric and actions of many of our clients with respect to their in-person work policy. We believe the broadly reported turnstile data from Kastle Systems, indicating buildings are generally 50% occupied versus pre-pandemic levels over the course of a whole week, is a measure of aggregate human activity important to cities, but is not an accurate measure of premier workplace space utilization. We collect turnstile data for approximately half of our 54 million square foot portfolio.
And as of mid-October, for Tuesday through Thursday, our New York City buildings experienced 95% of the turnstile activity achieved before the pandemic. Those figures for Boston and San Francisco were 74% and 45%, respectively, and the space utilization data in all our markets continues to improve. Workers in premier workplaces are returning to their offices in greater numbers, and it is difficult for users to reduce space if all employees are expected in the office on specific days of the week.
Lastly and importantly, all office buildings are not the same. We share in our IR materials every quarter, CBRE's report on the performance of the premier workplace segment of the overall office market. In the 5 CBDs where BXP operates, premier workplaces represent approximately 18% of the total space and 10% of the total buildings.
At the end of the third quarter, direct vacancy for premier workplaces was 12.4% versus 17% for the balance of the market. Also for the third quarter, net absorption for the premier segment was a positive 0.5 million square feet, versus a negative 600,000 square feet for the balance of the market.
For the last 11 quarters, net absorption for the premier segment was a positive 8.1 million square feet versus a negative 30.8 million square feet for the balance of the market, and asking rents are 44% higher for the premier workplace segment. Including 2 buildings undergoing renovation, 94% of BXP's CBD space is in buildings rated by CBRE as premier workplaces, which has been important in driving the increasing office attendance statistics in our buildings, and is a critical differentiator for BXP in the leasing marketplace.
Now moving to private real estate capital markets, U.S. transaction volume for office assets in the third quarter was muted, dropping 48% from the second quarter to $4.4 billion, the lowest quarterly level of office transaction activity, since the first quarter of 2010.
Investors in the sector face material uncertainties in both office demand due to factors previously mentioned, as well as the cost and availability of debt financing. The 10-year U.S. treasury has been and is rising and approaching 5%, and consensus market sentiment currently believes rates will be higher for longer given pernicious inflation.
Most U.S. lenders are trying to reduce their exposure to commercial real estate loans and have limited available lending capacity for repayments. No sales in BXP's core markets were completed in the third quarter of significant assets that would be considered premier workplace.
In Boston, there were 3 completed office transactions, all under $100 million of reasonably well-leased assets that sold for $290 to $690 a square foot and 6.7% to 7.5% cap rates.
In Santa Monica, the Pen Factory, a fully leased 220,000 square foot redeveloped creative office complex, sold for $178 million, representing pricing of over $800 a foot and an 8.4% cap rate. The existing leases in the asset have turned, but are significantly above market and seller financing was provided.
In New York City, a user is under agreement to purchase the 400,000 square foot vacant Neiman Marcus store at 20 Hudson Yards, for $550 million or $1,375 a square foot.
In the financial district of San Francisco, there are 4 sales, either completed or pending for buildings that are or nearly vacant. Each sale is for under $65 million and pricing ranges from $120 to $320 a square foot. These deals reflect many of the characteristics prevalent in today's non-premier office sales market. Entrepreneurial, in many cases, family office buyers attracted by the low per square foot values relative to historical levels, small transaction sizes requiring less capital and likely not involving debt financing, and renovation plans designed to take advantage of future leasing market recovery.
Moving to BXP's capital market activity for the third quarter, we completed a restructuring of our investment in Metropolitan Square, a recently renovated 657,000 square foot office building located in Washington, D.C. BXP owned a 20% interest in and provided leasing and management services for the asset, which was encumbered by senior loan of $305 million and a mezzanine loan of $115 million. The existing mezzanine lender now owns 100% interest in the property, with BXP continuing to provide management and leasing services.
Further, a new undrawn $100 million mezzanine loan has been structured to fund future leasing, operating and other expenses of the property on an as-needed basis. BXP has a 20% interest in the new mezzanine loan, which is subordinate only to the $305 million senior loan and will receive interest at a 12% annual return. BXP will continue to earn leasing and property management fees as well as an attractive return with potential incentive fees for providing additional capital to stabilize the asset. We also experienced a $36 million gain as a result of the transaction.
In the coming quarters, given the negative sentiment toward the office industry, which spills over into the much better performing premier workplace segment, we believe BXP will be presented with unique opportunities to expand its portfolio on attractive basis. Our balance sheet remains strong, and we have maintained access to capital primarily through the unsecured debt markets available to a few public and private competitors. Our portfolio is outperforming peers due to its attractiveness in the market, when competing for clients, the hallmark of a premier workplace portfolio.
In anticipation of the current market distress in our sectors, we have been positioning BXP to play offense for the past year by raising $4.1 billion in gross funding and currently holding $2.7 billion in liquidity. In search of opportunities, we're maintaining continuous dialogue with lenders that are foreclosing on or restructuring assets, as well as owners seeking to reduce their office exposure. Our focus will remain in our core markets on premier workplace assets, life science and residential development.
During the last major downturn caused by the global financial crisis, BXP was able to acquire the General Motors Building, 200 Clarendon Street, 100 Federal Street and 510 Madison, all at attractive prices at the time. On this conditions, we continue to pursue additional capital raising through joint ventures with select pre-leased developments and to consider incremental asset sales. Our development portfolio continues to create FFO growth for BXP.
This quarter, we placed fully into service 104,000 square foot renovated and fully leased building at 140 Kendrick Street in Needham, Mass. This redevelopment completed for a client with stringent sustainability objectives was delivered with net zero carbon performance and generating an 18% first year yield on incremental capital invested. We also delivered into service 751 Gateway as part of our Gateway Life Science Park, which is a 231,000 square foot lab building that is fully leased. BXP owns a 49% interest in the asset, which was delivered at a 6.7% first year return on cost.
BXP continues to execute a significant development pipeline with 11 office lab, retail and residential projects underway. These projects aggregate approximately 2.8 million square feet and $2.4 billion of BXP investment, with $1.4 billion remaining to be funded, and are projected to generate attractive yields in the aggregate upon delivery.
So in summary, despite strong negative market sentiment, BXP had another productive quarter with financial performance and leasing above expectations and a stable dividend. BXP is well positioned to weather the current economic slowdown given our leadership position in the premier workplace market segment, our strong and liquid balance sheet with access to multiple capital sources, our significant development pipeline providing growth, and our potential to gain market share in both assets and clients due to the current market dislocation. Over to Doug.

Douglas T. Linde

Thanks, Owen. Good morning, everybody.
Client demand across our portfolio has remained pretty stable over the last quarter. But final leasing decisions are taking longer, not -- pretty consistent with Owen's talking about -- relative to challenges with regards to the profitability of corporations. Our buildings continue to see the most activity from financial services, professional services, law firms, administrative services and asset management.
Traditional technology demand continues to be absent from our markets and more times than not, renewing technology clients are reducing their lease premises. This is most prevalent in our West Coast properties, Pretty much the same picture that I pointed -- painted last quarter.
Growth from the AI organizations in the city of San Francisco is real. More than 700,000 square feet of leasing has occurred in the past few weeks, and there have been billions of dollars of recent investment into this growing ecosystem. For now, that leasing is focused on large, well-built opportunities that are available at significant discounted terms relative to the rents being achieved in premier buildings. Reducing availability is a positive for the broader San Francisco market, but it's not going to impact leasing at Embarcadero Center in 2024.
The concentration of strongest user demand, often with growth for our assets, is still broadly speaking, alternative asset managers, private equity, venture hedge funds, specialized fund managers. These companies are growing their teams and capital under management. This pool of clients typically wants to occupy premier workplaces.
To illustrate the point, during the third quarter, we completed a 15,000 square foot expansion for a hedge fund in Manhattan. A 52,000 square foot multi-floor lease with a private equity firm growing in our portfolio in Manhattan, a 70,000 square foot asset manager growing in our portfolio in Manhattan, and an expansion for a 21,000 square foot private equity firm in D.C.
Our strongest activity remains in our Midtown Manhattan portfolio, 200 Clarendon and the Prudential Center in Boston, the Urban Core of Reston Town Center in Northern Virginia, and our Embarcadero Center assets in San Francisco. We don't have direct availability at Salesforce Tower, but we hear through the market that Salesforce has interest in their 150,000 square foot sublet opportunity.
Law firms are also an active portion of our portfolio and important clients for BXP. We are in active lease negotiations or LOI discussions with 7 distinct law firms in Manhattan, D.C. and San Francisco. Owen highlighted that just over 1 million square foot of signed leases during the third quarter. Last October, we provided the leasing expectations embedded in our '23 guidance, between 500 million to 1 million square feet per quarter, aka, 750,000 square feet on average or 3 million for 2023.
Through the first half of the year, we were at 1.56 million. So to date, we're at 2.7 million square feet. We currently have an additional 1.2 million square feet of transactions in active lease documentation. I would say we have a high confidence that we will be beating our leasing target embedded in our 2023 guidance of 3 million square feet.
This quarter, the executed leases included 52 transactions, 32 renewals, 20 new tenants. There were 5 contractions and 5 expansions among our existing clients, with a net reduction in that pool of about 33,000 square feet. There were no particular patterns relative to industry or size, given who was expanding and contracting. Breaking the volume down by market, we did about 439,000 in Boston. 240,000 square feet in New York, 100,000 square feet in D.C. and 278,000 square feet in the West Coast market.
The mark-to-market of the leases that commenced this quarter was down 3% as reported in our supplemental. The mark-to-market of the leases executed this quarter was positive 4%. The starting cash rents on leases we signed this quarter on second-generation space, were up 16% in Boston, about 1% in New York and then down 13% in D.C., 9% in San Francisco, 14% in L.A. and 6% in Seattle.
We ended the third quarter with an in-service occupancy of 88.8%, compared to 88.3% last quarter. As Owen said, during the third quarter, 140 Kendrick Street and 751 Gateway were added to the portfolio, and Net Square was taken out. If you remove Net Square from the second quarter, the comparative period occupancy went from 88.7% to 88.8%. So again, modest relevant increase.
I would also note that we terminated WeWork, on 44,000 square feet in the third quarter. We expect to have additional portfolio vacancy stemming from WeWork defaults as we move through the fourth quarter and into 2024. Just to remind everyone, WeWork leases 493,000 square feet as of 10/1/23. The BXP share of 2023 annualized revenue is $33 million. We don't expect we work to exit all the assets, nor do we expect them to remain in place in their current footprint. This will be a drag on '24 occupancy and same-store contribution.
The development portfolio now sits at 2.8 million square feet and it's 52% leased. We've recently signed a 70,000 square foot office lease with an asset manager at 360 Park Avenue South, bringing -- its 18% leased and another floor at 651 Gateway that is now 21% leased. Two 100% leased assets totaling 335,000 square feet were removed and put into service, which accounts for the change in our total leased in the supplemental.
At the end of the quarter, we had signed leases that have yet to commence on our in-service vacancy, totaling approximately 750,000 square feet, with about 425,000 square feet anticipated to commence in the fourth quarter of '23. For the remainder of 23, we have about 925,000 square feet of expirations. Much of this is uncovered, so we expect a drop of a few basis points of occupancy at year-end.
In '24, we have a very manageable 5.7% of our total portfolio expiration or 2.7 million square feet. We believe our occupancy will be stable in '24, defined as up or down 1% quarter-to-quarter, where we end the -- as relative to where we're going to end the year in 2023. We will provide a leasing volume outlook for '24 along with guidance next quarter. From a broad market perspective, the office supply picture didn't really improve much in the third quarter with almost every market continuing to experience net negative absorption, manhattan being the one place, where there was some positive.
The city-specific office brokerage reports are starting to characterize their markets in ways that acknowledge the bifurcation between the have and the have-nots, and the distinctive trends for premier assets, though they are not publishing their data broadly. The availability in the premier buildings that Owen described is depicting a more constructive picture and BXP relevant view of office supply.
What's clear is that new speculative construction, which presumably would be Premier is nonexistent in the marketplace today. Any new construction starts are going to require economic rents, rent and concessions that are vastly different from the current transactions. The major inputs to a new building are construction hard costs, capital costs and leasing velocity.
Construction costs saw dramatic increases over the past 5 years with annual increases in the high single digits. We've seen the rate of increases slowing down, but we have not seen any reduction of costs. Construction financing could be found at SOFR plus 200, when SOFR was 25 to 50 basis points. Today, construction financing for office space is simply not available from traditional lenders. SOFR is at 5.25%, and nontraditional lenders might, and I use the word might, lend at double-digit current interest rates with additional points upfront and lower loan-to-cost caps.
Speculative leasing assumptions also assume longer lease up. You put all this into a development pro forma and you need rents that are materially higher than what is supported by current market rents in every one of our cities. This quarter, we completed a 313,000 square foot 10-year renewal in the Back Bay of Boston, 4 years prior to expiration at a rent level that both parties found attractive. Our client is using all their space, believes that the critical component of their overall business strategy, and when they look down to the market did not believe that any new construction was likely to be built on a speculative basis.
This meant they would need to pay replacement cost rents and sign a lease now using all the inputs I just outlined, to be in new construction in the Back Bay in 4 years, and there are no 300,000 square foot block of high-rise space available in premier buildings in the Back Bay today.
New life science activity in the portfolio continues to be light. During the quarter, we completed our third lease at 651 Gateway for another floor. The property will open in '24, and to date, each lease requires our partnership to complete turnkey spaces. In Waltham, where we have our other life science new development availability, we are seeing some tour activity, but there is no urgency for these requirements. There are a few large requirements to the touring, but as I have discussed previously, the bulk of the immediate demand is from small private companies that are looking for fully built space.
BXP's regional teams continue to lease space and outperformed the market because our portfolio is fundamentally comprised of premier workplaces, the majority of the demand, new and existing clients in the market want to be in these types of properties, and we're investing capital in our building infrastructures, amenities and client spaces, which allow our teams to meet client needs.
We are all seeing the stress that many buildings are feeling due to their current capital structure, and the reality of the supply and demand fundamentals reflected in the leasing market activity. The transition or recapitalization or reequitization of these buildings is going to take an extended period of time. Many of these assets are not in a position to commit capital to existing or new tenants, which greatly impacts the leasing brokers interest in considering them for their clients and offers us for the opportunity to further increase our market share.
I'll stop here and turn things over to Mike.

Michael E. LaBelle

Great. Thank you, Doug. Good morning, everybody. I'm going to start my comments with some discussion on the debt markets and our activity. Then I will go over the third quarter performance and the changes to our 2023 earnings guidance.
We had another busy financing quarter this quarter. We extended or refinanced mortgage facilities totaling $570 million. The 2 largest of these related to our Hub on Causeway premier workplace and retail mixed-use project that's in Boston. First, we exercised the first of 2, 1-year extension options we have on the $337 million mortgage loan on the office tower. And second, we completed a 3-year refinancing of the $155 million mortgage loan secured by the low-rise, creative office and retail component.
We also expanded our corporate line of credit by $315 million to $1.8 billion. We honestly were surprised by the market's reaction, when we issued a press release on this earlier this quarter, as it increases our liquidity at a pretty modest cost. We had 3 new banks approach us, seeking to expand their relationship with us and up-tier the quality of their own client base. With so much uncertainty and illiquidity in the bank markets, our view is expanding our roster of banking relationships as a smart move.
Last week, we closed on a new 5-year, $600 million mortgage loans from a syndicate of banks on a portfolio of 3 premier workplaces in Cambridge. The credit spread at SOFR Plus 225 basis points, is attractive in today's market, and we expect to use the proceeds to repay our upcoming $700 million bond maturity in February next year.
Given the significant recent move in interest rates, we are happy with the timing of our last couple of bond deals, both of which have been below market coupons today. We have no more financing needs in 2023, and we've taken care of a large piece of our 2024 maturities, which is the $700 million bond I just mentioned. Our other 2024 maturities include our $1.2 billion term loan and $400 million at our share of floating rate mortgages. The term loan is also floating rate, though we have swapped SOFR to be fixed at 4.64% through May of 2024. We expect to exercise 1-year extension options that are available on both the term loan and the majority of the maturing mortgages.
As you think about our interest expense, moving into 2024, you need to account for higher borrowing cost. We are refinancing $1.2 billion of bonds that expired in August of 2023 and February of 2024, that had a weighted average interest rate of 3.5%, with new financing at an average rate of 7%. Additionally, we've been running with an average cash balance of approximately $1 billion in 2023. In 2024, we expect to fund our development pipeline with available cash, and run with an average balance closer to $400 million. At our current earnings rate, this projects to a decrease of approximately $30 million of interest income in 2024.
Now I want to turn to our third quarter earnings results. For the quarter, we reported funds from operations of $1.86 per share, that was $0.02 per share above the midpoint of our guidance range. The outperformance all came from better-than-projected portfolio net operating income. Revenues were higher than our assumptions from a mix of better rental revenues, client service income, parking and hotel performance. Our operating expenses were in line with our assumptions.
While not impacting our FFO, we did record noncash impairment charges totaling $273 million this quarter, related to 4 of our unconsolidated joint ventures. The GAAP rules for unconsolidated joint ventures dictate that if we believe a loss in asset value below our basis is not temporary, the asset is [market] to fair value. The definition of temporary is somewhat subjective, but as the length of the current market dislocation extends, it's harder to justify a temporary loss in value. The charges relate to Platform 16, which we discussed last quarter, as well as 360 Park Avenue South, 200 Fifth Avenue and Safeco Plaza.
Given the cyclical nature of the real estate business, the value of assets like these will recover in the future, when interest rates normalize and corporate economic conditions improve, and we expect to hold these assets through their recovery. Our past experience reflects this recovery. After the GFC, we took a similar impairment charge and ultimately, we sold the assets a few years later at a significant gain, not only to the impaired value, but to the original book values of the buildings as well.
Now I want to turn to our guidance for the rest of 2023. We have narrowed our 2023 guidance range to $7.25 to $7.27 per share, with the midpoint relatively unchanged from last quarter at $7.26 per share. There are 2 key changes to our guidance from last quarter. First, we're projecting $0.03 per share of higher termination income in the fourth quarter from lease terminations with WeWork at Madison Center, and Dock 72, as they have stopped paying rent in both locations. We have security deposits to cover a portion of the lost rent, which we will recognize as termination income. The revenue loss is approximately $6.5 million per year until those spaces are re-leased to other clients. They comprise approximately 200,000 square feet that equates to about 40 basis points of our occupancy.
Second, we anticipate our net interest expense will be higher by approximately $0.03 per share due to lower projected capitalized interest and closing the new $600 million mortgage financing earlier than we had previously expected. We expect to invest the funds and cash equivalents until we repay our bond expiration at the beginning of February, and the negative arbitrage on the funds is about $3 million in 2023.
The remainder of our assumptions for the portfolio performance has not changed. As Doug described, we continue to execute leases in line with our expectations, and net of the lease terminations, our outlook for occupancy remains stable. As we look ahead into 2024, we have several developments that delivered during 2023 or will deliver in 2024, that will add incremental FFO next year. These include 2100 Pennsylvania Avenue, 651 and 751 Gateway, 140 Kendrick Street, 180 CityPoint and View Boston.
However, as I described earlier, we expect our overall earnings trajectory will be negatively impacted by the persistent high interest rate environment that will result in higher net interest expense in 2024. We will provide detailed earnings guidance for 2024 on next quarter's call in January. That completes our formal remarks.
Operator, can you please open the lines up for questions?

Question and Answer Session

Operator

(Operator Instructions) And I show our first question, comes from the line of Blaine Heck from Wells Fargo.

Blaine Matthew Heck

Great. Can you guys just talk about the acquisition or investment environment a little bit more? It still seems like we haven't seen the ways of opportunities that some well-capitalized potential investors, including yourselves, have been hoping for.
I guess, are there any signs that opportunities are emerging? And if not, do you have any sense what needs to happen to shake things loose and when that might happen? And then lastly, in general, how much further does pricing need to adjust to make those investment opportunities more attractive from a risk/reward standpoint.

Owen David Thomas

Yes. It's Owen, I'll take a crack at that. I think that, as I mentioned in my remarks, I think buyers are concerned about 2 things.
One, how do they underwrite lease-up and lease growth given some of the economic uncertainty that our clients face, as I discussed. And then second, what's their cost of capital, particularly their financing and can they get financing?
So a lot of the deals that are happening right now, as I described, are small, private investors, probably not using much, if any, debt financing, things like that. So I think, first of all, I think there's a tremendous amount of restructuring activity that's going on in the market generally. It may not all be reported, but it's definitely happening, because there are over leveraged loans that are coming due all the time, and borrowers are in discussions with their lenders on what to do. So there are lots of those things going on right now.
And then I think second, for buyers to get more active, there has to be more visibility on the 2 uncertainties that I mentioned. I do think some of the interest rate behavior this morning might actually be somewhat helpful to that, because I do think a stabilization of interest rates would be very helpful for buyers to get more comfortable to do transactions. In terms of how much the price has to drop, I think for the space that we're interested in, which are obviously a higher quality building, it's hard to say, because there's not a lot of transactions that you can look at and say, "What is the pricing today?" But I just don't think, I think our general view at the moment is, all of the negative perspective out there on office is, in our view at least irrationally spilling over into premier workplaces, which will create opportunities for BXP.

Operator

And I show our next question, comes from the line of Nick Yulico from Scotiabank.

Nicholas Philip Yulico

I was hoping we can maybe get a feel for in terms of the impairments that were down for the JVs, if there's any sense on how much the unlevered asset values may have changed in that impairment analysis?

Michael E. LaBelle

Sure, Nick, this is Mike. The information in our supplement, I don't want to go through those details right now, but there is information in our supplemental that provides kind of what the change is in net equity values are on those assets so that you can determine that.
Overall, from our perspective, this is an accounting adjustment that we felt we needed to make based upon the accounting rules for our consolidated joint ventures. And I don't think it necessarily reflects a meaningful change in the prospects of these assets other than Platform 16, which we talked about last quarter, where we're stopping construction.
The other ones, we had to look at -- we looked at every one of our joint ventures, just like we do every quarter. And given the kind of higher for longer and the rates, our view is that these rates are going to be this high, and it's not necessarily going to be temporary to us is like, is it more than a year or not basically. And so we looked at everything and there were 3 other ones that just kind of got tripped. So we reflected those. And those 3 other ones were smaller.
Platform 16 was clearly the biggest one by far, because if you start looking at the kind of discounting the cash flows for a land development deal until you're actually going to build it, the discount rate that you would use on a development rate, which is pretty high, has a significant impact on the value.

Operator

And I show our next question, comes from the line of John Kim from BMO Capital Markets.

John P. Kim

Doug, in your prepared remarks, you talked about occupancy basically remaining stable next year despite another year of a very favorable backdrop, 2.7 million square feet expiring, your pipeline is 1.2 million square feet. That happens to be your quarterly average.
So I was wondering what known move-outs are there that you see next year? And anything else, any other tenants besides WeWork, that will be a headwind to breaking out of that 88% to 89% occupancy range?

Douglas T. Linde

Yes. So there's a difference between no move-outs and tenants being a headwind. So because tenants that are moving out or are not moving out because they're, potentially, "in financial difficulty", right?
So the only tenet of significance that we have in our portfolio, which is obviously having financial challenges is WeWork. There are some smaller tenants, 25,000 or 30,000 square feet that we're -- that we have every year in our portfolio, who don't seem to have a business plan that's going to be long term in nature and ultimately, they give up their space. But those are de minimis.
The portfolio of expirations next year actually are not -- there aren't any enormous ones. There are a couple on the West Coast, and a couple in the greater Manhattan or our New York City region, about 250,000 square feet in Princeton and just over 200,000 square feet at the building that we have on Folsom, in San Francisco, and then we're going to lose about 75,000 square feet of space from expiration with Trulia, Zillow at 535. And those are really the only large ones other than our joint venture property at 250 -- sorry, Times Square Tower, where O'Melveny & Myers is moving out, about 250,000 square feet, but we've covered already 75,000 to 100,000 square feet of that expiration.
So it's not any sort of large particular roll out that's driving our stability sort of comment. It's -- there are 3 different kinds of leasing we do. We do leasing, where we have available space that we lease, and that leasing typically involve a build-out. And in our marketplaces today, those build-out periods tend to be extended, meaning, we're looking at not knowing whether or not the tenant will be in occupancy in 6 months or 9 months or 12 months, and we can't typically book revenue on those particular assets and, therefore, increase our occupancy until those occur. And that's why we started providing this, leased, but not yet in service statistic, which is going to grow over time, and you'll see a lot of that, I believe, in 2024. And so it's not going to impact our occupancy, but the leases are signed.
The second kind of leasing we do are tenants that are renewing and they're renewing in a relatively short period of time, meaning, the next 12 months. And those immediately hit. The third type of leasing that we're doing is for leases that may be expiring in years post the 2024 expirations. And so as an example, I described the 300,000 square foot deal that we did this quarter, which was for 2028. So our leasing volumes, I believe, will continue to be at a relatively strong level for the economic period that we're in, but it's going to be -- it's suffering to sort of get that occupancy up in the short term.
I've said this in the one-on-one calls and in our presentations that we've made at NAREIT and other analyst meetings, which is that our West Coast portfolio is really, where the opportunity is to drive enhanced occupancy. So the space that we have available at Embarcadero Center and what I just described at Folsom Street in our 535 market, as well as some of the availability that we now have because of lease terminations in Seattle and Madison Center and at Colorado Center in West L.A.
Those are really the sort of bigger blocks of space that we have in terms of overall volumes that will drive an outsized opportunity for growth, as opposed to where we are now, which is we're sort of treading water at this sort of 88% to 89% level. And we're going to make some marginal improvements and then 1 quarter, we may have a little bit of degradation because we have a particular tenant moving out, but we're making it up. So that's sort of the state of our views as we look at 2024.

Operator

And I show our next question, comes from the line of Alexander Goldfarb.

Alexander David Goldfarb

So question on development. In the release, you guys talked about an extension until February '24 for your 25% stake in the 3 Hudson, in the land loan that's under 3 Hudson. And at the same time, articulated your optionality on the MTA site.
Just looking at the 2 projects, the MTA site would seem to be like the winner just given the focus on Grand Central, Park Avenue, whereas 3 Hudson just seems like a more challenged deal given the economics of trying to lease up that building at the necessary rent given the size of that building.
So as you guys think about the upcoming land loan on 3 Hudson, is that something that you would consider just sort of exiting instead of pursuing, and mentioning the MTA optionality, should we take that as considering that maybe you guys would not proceed forward with the MTA site?

Douglas T. Linde

Yes. So Alex, this is Doug. I'm going to let Hilary give you the most detail on this. I would just make the following comment, which is, we don't think one is a winner versus the other. I think it's clear that the timing opportunities associated with one are probably shorter than the other in terms of when we might actually get something going.
But I'll let Hilary describe the demand for space in new buildings and also the challenges associated with getting those deals going. Hilary?

Hilary J. Spann

Thanks, Doug. Alex. So as Doug noted, the 2 buildings are very, very different opportunities. 3 Hudson Boulevard is a 1.8 million square foot building, whereas 343 Madison is currently still in the design process, but let's just call it, 850,000 to 900,000 square foot building.
So some of the demand that is currently in the market actually could not be satisfied by 343 Madison. So there are a few tenants in the market that are 1 million square feet, that are actively looking for space and they would need a larger building than what can be constructed at 343 Madison. To Doug's point, in order to build such a building, those clients would have to be willing to pay a rent that generated an acceptable return on cost to us at 343 Madison. And those decisions in this capital market environment takes time for clients or prospective clients like those to make.
The prospective client base at 343 Madison, by definition, is somewhat smaller. There's plenty of demand among clientele in that square footage range as well. And again, the question really comes down to who's willing to commit to the project at the rents needed to launch the development. But I view them as distinctly different opportunities and opportunities that serve different segments of the market. So hopefully, that answers your question. But I agree with Doug. I wouldn't characterize one as better than the other. They're just very, very different opportunities.

Operator

And I show our next question, comes from the line of Michael Griffin from Citi.

Michael Anderson Griffin

I think in your prepared remarks, you mentioned some assets you're considering for sale. I'm just curious, if you can quantify, what kind of IRRs buyers are looking at and kind of where pricing would need to be in order for you to effectuate on any of these potential sales?

Owen David Thomas

Well, I think it varies, Michael, widely, depending on the quality and location of the asset, the leasing status of the asset, the walls of the asset.
I think borrowing cost today with the 10-year, I guess it's dropped a little bit today, but pushing 7%, I think for the highest quality assets, you're definitely above that and for an asset that has a lot of leasing and other risks associated with it. I think you're looking at double-digit return.

Operator

And I show our next question, comes from the line of Michael Goldsmith from UBS.

Michael Goldsmith

Owen, you mentioned in the prepared remarks about how BXP's tenants are more cautious in the space commitments on many of the traditional macro indicators may not accurately what's going on in your business. So recognizing that different cycles have different drivers. What metrics do you think might more accurately reflect the business now, and are the ones that you're monitoring so that we can follow along at home?

Owen David Thomas

Well, so I think this is part of something that's been confusing in the marketplace because generally, when you have a recession, company's earnings are down and they lease less space, and that's what -- it's how cycles have traditionally operated for office companies, because leasing slows down, when you have a recession.
Here, it's confusing because it's very different. All the economic indicators look favorable, GDP growth, employment statistics. But if you dig into those statistics, it's -- a lot of it's consumption related and a lot of the job creation isn't in office-using jobs.
And then if you look at earnings, which is what our clients are looking at, is their own earnings trajectory, it's negative. It's been negative for the last year, assuming the third quarter is negative. So that is the driver of client behavior. If you're the CEO of a company, and your lease is coming up or you're thinking about your space requirement, your decisions about that are going to be very contingent upon what you think the future prospects of your business are, and many businesses are negatively impacted by rising rates and some of the uncertainty in the economic environment.
So that's the backdrop. And so I think coming back to your question, I think certainly lower rates will help. And I think as earnings generally rise, I would expect that our leasing activity will rise with it.

Douglas T. Linde

And Michael, this is Doug. I would just say that the best measure of corporate activity as it relates to the business that we are in is job growth. And job growth typically is a little bit murkier.
You can look at the employment numbers, but you really have to get into the specific industry categories, right? So government and hospitality are not going to be favorable to office, but financial services or technology or life sciences are going to be. And as you start to see the job listings start to perk up a bit, and you start to see hiring announcements by many of the larger technology companies and some of the financial institutions, which do, in fact, broadly talk about those things, you will clearly see a more, I would say, conducive environment for office leasing on a going forward basis.

Operator

And I show our next question comes from the line of Jason Wayne from Barclays.

Jason Adam Wayne

You said in your prepared remarks, you don't expect WeWork to exit all of their assets. So just wondering, where you expect them to stay. And then you previously said that WeWork security deposits average 8 months of rent. Is that a good number to think about, when looking at termination income moving forward?

Douglas T. Linde

So I'm not going to get into conjecture on where WeWork is going to decide their -- they have their productive units and where they do it or where they don't.
As Mike said, at the moment, they have stopped paying rent on 2 of our locations, which are at Madison Center in Seattle, and Dock 72 in Brooklyn. And we have 3 other locations with them, which are in San Francisco. So that's the universe, and the decision as to what they are going to do, I think, is going to take some time, and they're going to have to figure it out and then we're going to have the decisions to make as to whether or not we're comfortable with whatever they propose to us, and/or taking the space back.
So I think that it's impossible for me to tell you, where they're going to exit and where they're not going to exit. Mike, you can talk about the security.

Michael E. LaBelle

Yes. I think on, I mean you're correct on the security deposit because we said that before, that we have about 8 months of security. And if the tenant defaults, we try to -- we sent out a lease termination. We execute that lease termination with the client, and if there's a security deposit, we get that, and we booked that all on the day that we get it. If the client is going to stay in the space for another 90 days or 6 months. We might have to amortize that over that period of time.
The one thing I would add is that in the fourth quarter termination income guidance, there's 2 pieces to the termination income. One is, determination income we're going to be collecting that I described. But also at Madison Center in Seattle, their lease is way below market. So there's what is called a fair value adjustment to the rent. And in order to take that off our balance sheet, we book that as income.
So about half of that termination income is this fair value that's kind of a noncash concept. And the concept is that once we get that space back either at termination or at natural maturity, we will be able to re-lease that space at a higher market rent. So hopefully, we will be able to do that.

Operator

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

Stephen Thomas Sakwa

I just wanted to circle back, Owen, on the distressed opportunities. I guess I'm just trying to get a sense from you as to kind of, where you would need to peg stabilized yields in order to deploy new BXP capital given your trading 10x cash flow and north of an 8% implied cap rate.
And then just from a market perspective, could any of those opportunities take you to any new markets like, say, a San Diego or Austin to be, in addition to the existing markets.

Owen David Thomas

I'll answer the second first and come back to your first question, Steve. So we don't think we need to go to any new markets. We have a very significant footprint in our 6 core cities, and, in fact, one of the things that's going on now, which we have been talking about for several years is that the vacancy rates in certain areas of the Southeast and Southwest are actually higher than many of our core markets because of all the new development that's going on. So we don't see a need or a reason to expand outside of our footprint.
Going back to your question about returns, we're going to focus on the premier segment of the market and, so I think it's likely that the types of assets that we'll get involved in are unstabilized. So I'm not sure that the way to look at it is cap rate, but the way to look at it is total return. And I think that the total return requirement on a particular acquisition that we would look at would be, pushing double-digit returns.

Operator

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

Caitlin Burrows

Earlier, you guys talked about how you're opting to repay the $700 million of unsecured debt with mortgages collaterized by Cambridge properties at SOFR plus 225.
So what did you consider when opting for secured floating rate debt beyond just price? Was it price mixed with kind of BXP mix of debt or anything else? And I guess, in that decision, you were considering 10-year bonds. So what pricing do you think you could issue a 10-year bonds at today?

Michael E. LaBelle

So this is Mike. Look, we evaluated all the different markets, when we decide how we're going to do a refinancing, and the credit spreads in the secured markets for very high-quality assets with long lease terms, we found is better than what the credit spread we can get from the bond market. So our bond spreads right now for 10 years is about 285 for 5 years, it's probably 270-kind of area. So we're saving a lot in credit spread.
The other opportunity, I think, we have is we're doing a floating rate deal. We haven't fixed it. We do have the opportunity to fix it via swap and we're going to evaluate, when and if we do that. As we kind of look at what's going on with interest rates over the next period of months. And if it becomes evident that SOFR is going to be dropping significantly by the Fed in 2024 and 2025, we may keep the floating. If we see an opportunity to fix it because there's some sort of dislocation between the swap markets, we may fix that for a period of time. So I think it provides some flexibility that way.
And also a floating rate mortgage is prepayable. So if the market gets better for long-term debt 2 years from now, we can prepay this into a long-term fixed rate deal at that time. So it does have some advantages that we looked at when we decided to do this bank financing.

Operator

And I show our next question, comes from the line of Upal Rana from KeyBanc.

Upal Dhananjay Rana

Doug, you went through some of the supply and sublease space availability in your prepared remarks. Given the elevated levels of supply and some of these spacing your markets, potential tenants have a lot more to look at today. Do you have a sense of how much of the available space is in direct competition with your buildings? And even though someone may not be premier buildings, your potential tenants may be looking at them.
I'm trying to get a sense of why tenants maybe, deciding to choose between your building versus others in today's environment and if they're being more price sensitive today versus, or it could be something else.

Douglas T. Linde

Yes. So this is what I refer to as one of the sort of layup questions that I'm going to allow our regional teams to answer, because I think that they will be more -- they will be passionate about their responses.
But in general, what I would tell you is not all space is the same. And there are many, many buildings that have either direct availability or sublet availability that are literally not part of the conversation.
And so as you think about micro submarkets, getting down to a market like Park Avenue between 43rd Street and 59th Street, or you're talking about an asset in the CBD of Washington, D.C. that has views and is in a premier building, you would be surprised at how small the universe of opportunities may be. So why don't I let Rod talk about the issues associated with the availability of (inaudible) what we're really dealing with. And now I'll let Brian talk about Boston. Rod?

Rodney C. Diehl

Yes. There's definitely sublease space is a lot of it as everybody knows, in San Francisco. And some of it is higher end space. In fact, that's where a lot of the bigger deals over these last 2 years have actually happened. Some of them have been in our own buildings. 680 Folsom, for example, macys.com had roughly 240,000 feet available, and they leased all of it during the pandemic subleases. So the good space that has been out there has attracted some attention.
But by and large, there's so much more of it that is not high quality and has either got no term left on it or it's got poor sponsorship with weak sublessors. So those spaces are very difficult, and they're not going to compete with. We're not going to compete with them for sure. If tenant that's interested in those types of spaces is not going to go to any premier building.

Bryan J. Koop

Yes. I would echo the same thing. I just had a brokerage dinner last night and with tenant rep people and each of them expressed the same issue, which was, for their top-end clients, premier clients, they're having trouble with fewer locations to review. And it's not only just the amount of locations that they think are appropriate and little lack of desire to do a sublease. And most of our sublease space tends to be in lower floors in this market right now.
There's also the question of, for the first time I'm seeing tenant rep people really underwriting the landlord's capability to fund TIs. And that hasn't happened in a long time.

Operator

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

Dylan Robert Burzinski

I guess just going back to your comments on acquisition opportunities. Are there certain markets that you guys are looking at that you're getting more excited about deploying capital in today's environment?

Owen David Thomas

The way we think about this is we set, top down a perimeter, which we have, which is our 6 markets. And in terms of specific investments, that is a bottoms-up process and a more opportunistic process. So we're open for business everywhere, and it just depends on the opportunity, and we want to allocate capital to the best opportunities.
That all being said, as you've heard from our remarks and you see in our results, it's easier to underwrite leasing activity in our East Coast markets, particularly in New York and Boston, than it is in our West Coast market. So the assumptions that we would use in underwriting deals would obviously be more challenging on the West Coast given the market behavior.

Douglas T. Linde

Yes. I just want to add one thing and then maybe I'll let Hilary comment on this, for New York, which is, there is no question that the overall amount of demand in the market in the -- what I would refer to as sort of the Park Avenue District of New York, which is this area between, call it, 43rd Street and 59th Street, Park Madison, Lexington, a little bit of Fifth Avenue is by far the strongest market from a demand perspective, we're seeing in the country.
There are still really, really challenged opportunities in that market that are going to have to get resolved relative to the capital structures that these buildings are currently operating under. And you are not going to be able to, in my opinion, replace the mortgages that were put on many of these buildings, including Bs and mezzanine capital and preferred equity to the same level, which means there's going to be an equitization requirement, and that's going to potentially create opportunities, which, by the way, as both Owen and Mike said, that's why we were able to acquire the General Motors Building in 2008. That's why we were able to acquire 510 Madison Avenue.
And Hilary, you may want to just sort of talk about what's going on in Manhattan.

Hilary J. Spann

Sure. Thanks, Doug. So as Doug mentioned, there are a number of high-quality assets in really desirable submarkets, the Park Avenue Corridor, really all the way up to where the General Motors Building is that, or underwater on their financing and are having difficulty rationalizing, putting capital into the buildings to support leasing opportunities. And so we're really getting a lot of inbounds from the perspective of -- clients know that we have a strong balance sheet. They know that we're not over levered. They know that we can commit capital to leasing. So that's enuring to our benefit. And we're watching those situations, where capital stacks are upside down, which may potentially present an opportunity for us.
But again, to the point that Owen and Doug have raised, we would only really be interested in the highest quality assets that are premier workplace, is consistent with what we already own. I would tell you, there's at least a handful of those situations in Midtown that we're tracking.

Operator

And I show our next question, comes from the line of Peter Abramowitz from Jefferies.

Peter Dylan Abramowitz

Yes. Wanted to hear, your peers have mentioned just potentially some pressure on operating margins going forward, as return-to-office mandates have more of an effect and more people are in the office. Just wondering if you could talk about that, potentially, how we should think about that for your portfolio moving forward?

Douglas T. Linde

I'm going to be sort of tongue in cheek. We don't have any peers. We are who we are. And we operate our buildings in a very different way. And we've been operating our buildings with an expectation that our buildings are fully occupied for the last couple of years.
So return to work and increase occupancy, in my opinion, is going to have no impact on our margins. What will have an impact on our margins are, what I would refer to as the sort of atmospherics out there, which are, how will the labor rates associated with union contracts for janitorial work their way out? Will the insurance markets continue to be challenging relative to the number of weather-related events and how that's impacting desirability of the insurers to provide insurance? What will the municipalities do relative to their tax burden and valuations because valuations are clearly coming down, right? And so how will that be reflected in their desires to increase their rates.
All of those things, I think, are going to have some degree of pressure on margins. They're not going to have pressure on margins on an incremental basis. It's going to be over a period of time because either our leases are triple net or there are growths with our operating base and that operating base is step based upon the existing lease. So until you get the rollover, you don't really have that impact on your overall flow.
And in general, if you look back historically, over the past decade, my guess is that the margins for BXP are somewhere in the mid- to high-60s, and they haven't really fluctuated very much. So I don't think that is an issue.

Operator

And I show our next question, comes from the line of Camille Bonnel from Bank of America.

Jing Xian Tan Bonnel

So despite your FAD Payout Ratio picking up this quarter, I know this FAD is on track this year to deliver one of its best years. As we head into year-end using third quarter as a base, are there any factors we should be considering that could impact it after considering the FFO changes you highlighted? And can you help us understand how your FAD growth has generally kept pace or outpaced FFO given how office is such a capital-intensive business?

Michael E. LaBelle

Thanks, Camille. I'll take that one. So you're right. I mean, our AFFO has held up really well. In fact, I anticipate that it's going to be somewhere between 5% and 10% higher than it was last year. And the primary reason for that is 2 things.
One, we had a lot of free rent that burned off last year with some large leasing that we had done, and that became cash rent this year. So that really helped our AFFO. And then our leasing expirations in 2023 were lower. So we actually had to do less leasing to maintain the occupancy that we had. So our lease transaction costs are also a little bit lower. I think in the fourth quarter, we will see some incremental CapEx, if you look at the first 3 quarters of CapEx, it's not really where we would have a typical run rate for CapEx. So I think our teams out there are trying to get everything done. So I do think that our CapEx will be a little bit higher in the fourth quarter.
But overall, I mean, if you -- the guidance for AFFO would be something like $5 and $5.20 is what we're looking at, which I think is pretty solid. So the run rate is a little bit lower in the fourth quarter than it has been, basically due to kind of catching up on the CapEx items that we've planned, but haven't quite been completed yet.

Operator

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

Ronald Kamdem

Just wanted to zoom in on the life sciences segment. If you could talk about what activity or the pipeline is looking like? And if you can comment on large tenants versus middle and smaller users would be helpful.

Douglas T. Linde

Sure. So again, the breadth of our life science activity is our property at 651 Gateway, which we're in partnership with Aireon. And there, the only significant demand that we've been seeing is from small tenants, meaning single-floor type tenants that are looking for turnkey buildouts.
And then our other life science opportunity is the 2 buildings that we have in the Greater Boston marketplace. 180 CityPoint, which is just completed. And when anybody goes there, they are blown away by sort of what it provides, not just from a life science infrastructure, but actually from a human infrastructure in terms of the amenity base that, that building provides to any client and why they would want to be in a building like that. And that our other building at 1034th Avenue.
I would say we're seeing consistent tour activity, a couple of tours every week or so. These are, I would refer to as shoppers, not buyers, right? They all have a potential use for space, some of them are lease expiration-driven. Some of them are related to potential opportunities for successful drug discovery from a commercialization perspective and therefore, added capital and therefore, the ability to hire more people, but they are being very, very cautious and it's an elongated process.
And for the most part, those tenants are privately funded organizations. There are a few public out there. There's 1 or 2 sort of large organizations that are I would say, traveling around in the Greater Boston market as well as in San Francisco that are, I think they are the same names you would have -- you probably would have heard 18 months ago. Looking for space, and they haven't yet to make a decision. And they could, at any time, make a decision or they could continue to postpone.
So again, it's a relatively slow process and the demand is like the demand was, call it, back in 2014 or '15 relative to the demand that we were all experiencing in 2019, '20 and early '21 where it was just explosive.

Bryan J. Koop

Yes, for Boston, Doug's description is spot on in terms of the underwriting of what we're seeing. I would add, over the last 2 weeks, we have seen some encouraging amount of tour uptick and in size as well, not huge but midsized 30,000 to 60,000 feet, a couple. And then also, we've been encouraged by the quality, as Doug mentioned, of these clients.

Operator

And I show our last question, comes from the line of Omotayo Okusanya from Deutsche Bank.

Omotayo Okusanya

Just if you could make any quick comments just about your outlook on life sciences. Is this an area you think you might [make] lean into more as we go into 2024, fundamentals still somewhat uncertain, and it's an area where you may not do as much in. Any commentary would be appreciated.

Douglas T. Linde

Okay. So I'll just, I'll assume that you'll -- the comments that I just made are not meant to be repeated. So let me take a different tack, which is we are not planning on starting any new life science activities in any of our marketplaces given current conditions.
That being said, we have opportunities to build some fabulous life science buildings on land, which has virtually no basis in it. Therefore, we have a "cost advantage" at some point, if there is demand. When there is that demand, we will sequentially start to think about how we might be attractive to tenants that are looking for buildings where the economics would justify the new construction of the life science relative to where the market economics are.
But in the short term, meaning, 2023, 2024, there's going to be absolutely no expectation for us to be starting a new life science building. pause. There are a couple of places in our portfolio where we have existing office installations, where there's actually some interested life science demand, were a tenant to show up and say, "Hey, we want 40,000 square feet in this particular location, would you consider putting the infrastructure in to the building to allow us to do light or heavy lab research?" We would consider doing that depending upon the credit of that company. Those organizations could be anywhere in our portfolio. But absent that, what you see is what you get relative to our existing life science platform.

Operator

And I show, we have a question from the line of Jamie Feldman from Wells Fargo.

James Colin Feldman

Great. I guess, since I'm last, maybe if I (inaudible), if you humor me, I can ask two.
First is, you mentioned San Francisco back to 45% of its turnstile activity. I mean, how do you think that plays out over time? That's a meaningful difference from what you said New York, is at 95%?
And then secondly, What are partners saying, like capital -- potential capital partners saying in terms of wanting to put money to work in office? Is it more conversion activity? Are there certain markets? Just, are they starting to think about writing checks here more aggressively?

Owen David Thomas

Yes. So Jamie, I'll take a crack at it. Definitely, the Bay Area, and actually, I'd just say the West Coast, Seattle, it's true in L.A. as well, the turnstile activity is slower, I think that is primarily driven by the behavior and policies of the technology client base. They have been less forceful and less prescriptive about having workers come back to the office.
That all being said, the activity is increasing, and I think it's going to continue to increase just more slowly. So what was the second part of your question -- was private equity. So look, there is, I would say, certainly much more limited interest in the private equity industry today generally for office. That's why you're not seeing much transaction activity.
As I mentioned in my remarks, the -- most of it is being driven by smaller investors, family offices groups that are seeing the deep discounts that are being offered in the market and are not needing debt financing. That all being said, I do think that sophisticated private equity investors understand the difference between premier workplace and a typical office asset. And I do think for the right asset at the right price, there will be institutional interest in those kinds of assets.

Douglas T. Linde

Yes, Jamie, this is Doug. What my sort of add-on would be the capital that's currently aggressively thinking about office, is thinking about trading, right? They're looking at, there's an opportunity for us to get in and then get out at a much higher basis and these are trading sardines, not eating sardines. We are in the eating sardines business in general in our portfolio.
So we're looking at these things on a long-term basis, finding a capital partner that is, today, saying, "Okay, now I want to jump in and I want to invest money for a duration of 10 or 15 or 20 or infinite years." Is certainly more problematic in terms of just desirability because of the nervousness associated with the overall fundamental.
However, there are some, right? And Owen and James Magaldi went to the various parts of the globe this summer and had constructive conversations. We are having constructive conversations with other capital from other parts of the world that are coming into the United States, it's a slow, slow process. And I can't tell you that there's a transaction that will get consummated with BXP with one of those capital partners in the next couple of months. But there are opportunities.
And as Owen said earlier in his original comments, we are talking to some JV partners about putting capital into some of our assets right now that would, I think, be the kind of capital that we would look at as long-term quality institutional capital that is not looking to trade for a profit. And so that is what we're focusing our time and attention on.

Operator

And so our next question, comes from the line of Richard Anderson from Wedbush Securities.

Richard Anderson

In Jamie's logic, maybe I could sneak in 3 questions, since I'm last.

Douglas T. Linde

4 if you want.

Richard Anderson

So Owen, getting back to being prepared to take advantage of the marketplace, it sounds like mostly individual assets you're focused on. But could there be smaller portfolios or dare I say, companies, either private or public. Or is that just, does that just get too complicated? And I wonder if you could share some sort of dollar value of the pipeline of opportunities that you're looking at today?

Owen David Thomas

Yes. I'm not going to rule anything out, but I do think the reason that BXP has 94% of its portfolio in premier workplaces as the portfolio has been curated one asset at a time, either through acquisition development also through our disposition activity. So I think single asset activity is more likely. And I think it's difficult to put a dollar value on what we're looking at. I mean, we are -- our job is to be in dialogue with owners of assets that we're interested in, and the lenders to assets that we're interested in and these dialogues are fluid. And I think it's really hard to put a number on.

Operator

Thank you. I show no further questions in the queue. At this time, I would like to turn the call back to Owen Thomas, Chairman and CEO, for closing remarks.

Owen David Thomas

Thank you. We have no more formal remarks. I want to thank everybody for their time, attention and interest in BXP.

Operator

Thank you. This concludes today's conference call. Thank you for attending. You may all disconnect.