Boston Properties (BXP) Q4 2018 Earnings Conference Call Transcript

Boston Properties (NYSE:BXP)
Q4 2018 Earnings Conference Call
Jan. 30, 2019 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, and welcome to Boston Properties fourth-quarter 2018 earnings xall. This call is being recorded. [Operator instructions] At this time, I'd like to turn the conference over to Ms. Sara Buda, VP, Investor Relations for Boston Properties.

Please go ahead.

Sara Buda -- Vice President, Investor Relations

Thank you. Good morning, everybody, and welcome to Boston Properties fourth-quarter 2018 conference call. The press release and supplemental package were distributed last night, as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements.

If you did not receive a copy, these documents are available in the Investor Relations section of our website at bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website. 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 of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these 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 the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statement. I'd like to welcome Owen Thomas, chief executive officer; Doug Linde, president; and Mike LaBelle, chief financial officer. During the question-and-answer portion of our call, Ray Ritchey, senior executive vice president, and our regional management teams will be available to address questions.

And now I'd like to turn the call over to Owen Thomas for his formal remarks.

Owen Thomas -- Chief Executive Officer

Thank you, Sara, and good morning, everyone. We just completed another strong quarter, capping off one of the most productive and successful years in Boston Properties' history. Specifically, in 2018, we completed 7.2 million square feet of leasing, our second highest level of annual leasing ever. We delivered and placed in-service 2.3 million square feet of new developments, the commercial component of which is 100% leased.

We commenced two million square feet of new developments, which are 80% pre-leased in the aggregate with strong customers such as Verizon, Fannie Mae and Leidos as anchor tenants. We completed important new acquisition joint ventures, including Santa Monica Business Park, doubling our Los Angeles presence, and a site at 3 Hudson Boulevard in New York that can accommodate two million square feet of new development. We completed approximately $720 million of non-core asset sales. We increased in-service portfolio occupancy 70 basis points over the year to 91.4%.

And lastly, we increased our regular quarterly dividend 19%. In fact, Boston Properties has increased its regular quarterly dividend by more than 46% over the past three years. And more recently, in the fourth quarter of 2018, we generated FFO per share in line with prior guidance and up 7% year over year. We leased 1.8 million square feet, including a 300,000 square-foot lease with Millennium Management at 399 Park, bringing this focus asset to 93% leased.

We raised $1 billion as a green bond in the unsecured debt market on favorable terms. And we increased the midpoint of our FFO per share guidance for 2019 by $0.11, raising our projected 2019 growth to over 10% at the midpoint. Our performance in 2018 highlights the key characteristics that make Boston Properties unique in its ability to generate growth and shareholder return in the office sector. Our high-quality Class A assets allow us to attract premium rents from long-term credit-worthy tenants.

Our scale and diverse yet concentrated market selection allows us to benefit from growth within the strongest markets in the U.S. while minimizing risk of single-market, sector or customer weakness. Our development expertise and portfolio of sites gives us the opportunity to win important mandates with customers and ensure our growth is driven by our strong pipeline of pre-leased development driving higher return. And our modest leverage in growing portfolio NOI provides capacity for new investment without issuing public equity, also driving FFO growth.

I'm very proud of our team at Boston Properties and what we were able to accomplish in 2018 through our experience, relationships, teamwork and commitment to success. Now let's turn to the market environment, which has become increasingly dynamic, and trends impacting our business. Economic growth in the U.S. and worldwide hit an inflection point in the fourth quarter.

Global and U.S. GDP growth is slowing, and elevated trade tensions as well as government dysfunction, given the recent U.S. shutdown and Brexit, will have a further negative impact. So-called slowbalization is taking hold and possibly accelerating.

As a result, central banks, including the Fed, in December and January shifted to a much more dovish tone on interest rates and quantitative tightening. As a result, the 10-year U.S. Treasury is now at around 2.7%, which is about 50 basis points below its high in early November. So what does all this mean for Boston Properties? First, we're not overly concerned about a near-term recession and expect slowing U.S.

economic growth to plateau and stabilize above 2%, at least for now. Second, our long-stated view that interest rate risks are overblown has proven true, and given recent Fed rhetoric, we certainly expect rates to stay low for the foreseeable future, a significant positive for real estate value. Lastly, we see no current signs of abatement in the mostly robust leasing markets we have enjoyed, though we recognize leasing activity lags economic growth and financial market movements, and therefore, risks of slowing leasing activity are higher. We remain constructive on further investing activity given economic growth and low interest rate.

That said, we have adjusted our risk thresholds and will be increasingly discerning on new acquisitions and launching new developments. We continue to believe investment in new developments is more accretive to shareholder than repurchasing our shares, and we will continue to use private equity capital to help fund new investments in order to avoid either issuing public equity at our current share price or materially increasing our leverage. In the private real estate market, significant office building transaction volumes increased 24% in the fourth quarter and 4% for all of '18. Though investors are increasingly selective, there were multiple significant office transactions completed, again, at sub-5% cap rate in the fourth quarter of last year.

Examples include here in Boston in the Financial District 53 State Street sold for $685 a foot and a 4.6% cap rate to a domestic operator with U.S. and non-U.S. capital. This was 1.2 million square-foot building that was 94% -- or is 94% leased.

In Beverly Hills, UTA Plaza and Ice House sold for $954 a foot and a 4.6% cap rate. This is a 240,000 square-foot property and fully leased and sold to a domestic opportunity fund. In New York, 425 Lexington Avenue, located near Grand Central, sold for $940 a foot and a 4.5% cap rate to a domestic real estate firm. This is a 750,000 square-foot building and is 95% leased.

In Mountain View, California, Shoreline Technology Center sold for $1 billion or $1,250 a square foot and a 3.5% cap rate to a user that occupies 92% of the building. This is a 12-building, 52-acre site. it's 800,000-square-feet and is fully leased. In San Francisco, the 110,000-square-foot, 100% leased 345 Brannan building sold for $1,326 a foot and a high fours cap rate to a domestic REIT.

And finally, in Washington, D.C., 1111 Pennsylvania Avenue sold for $1,032 a foot and a 5% cap rate to a domestic investment manager. This building is about 340,000 feet and is fully leased. Now moving to our capital activities, as mentioned, development continues to be our primary strategy for creating value, and we remain active pursuing both new pre-leased projects and sites for future projects. Since our last earnings call, we progressed further our development pipeline activities.

With the recent delivery into service of the Salesforce Tower and 191 Spring Street, our current development and redevelopment pipeline stands at 11 office and residential projects comprising 5.3 million square feet and $2.7 billion of investment for our share. Most of the projects are well under way, and we have $1.6 billion remaining to fund. The commercial component of this portfolio is 78% pre-leased, and the aggregate projected cash yields are estimated to be approximately 7% upon stabilization. Also, in 2019, we expect to commence the development of 2100 Pennsylvania Avenue in Washington, D.C.

and 325 Main Street in Cambridge. These projects aggregate 870,000 square feet, $760 million in new investment and are 75% pre-leased. We also completed three new acquisitions. In San Jose, we ground leased with the right to purchase next year Platform 16, a site with the potential for 1.1 million square feet of new office development.

The purchase right is for approximately $125 a square foot for the site, which is located within walking distance of Diridon Station, San Jose's primary transportation hub, with access to Caltrain, BART and future high-speed rail, and adjacent to Google's planned eight million square-foot transit village. Large-scale, transit-oriented sites in the Silicon Valley are in high demand and rare. We are also in discussions with capital partners to make a significant investment in the site and the eventual vertical development. More recently in January, we exercised an expiring purchase option for all the remaining development land at Carnegie Center, which can support up to 1.7 million square feet of future development, for $42.9 million.

The growth in the Princeton market is modest. We have uses for a portion of the property and believe our Carnegie Center asset is more valuable with the existing buildings and development opportunities unified. Also this month, we committed to purchase Hines 5% interest, net of our advances, in Salesforce Tower and settle their carried interest arrangement. Lastly on capital activities, we had an extremely successful year for disposition, selling $720 million of non-core assets and exceeding our $300 million goal for the year.

In the fourth quarter, we completed the sale of 1333 New Hampshire Avenue in Washington, D.C. for $142 million. Recall this asset will be vacated by Akin Gump in 2019, and as is releasing of the building does not fit our current operating strategy. We presold the TSA development project in Springfield, Virginia for $98 million, which is a reimbursement of cost to date, including our land.

If you include the future funding assumed by the buyer, the total sale price is $324 million, including development fees to Boston Properties, and the forward cap rate is approximately 6%. Given this as a GSA-leased asset with flat revs in a suburban location, we would have sold the asset at completion and elected to do it early to free up capital for our growing development investments. We completed the transfer of our 50% interest in Annapolis Junction 1, a 118,000 square-foot property located in suburban Maryland, to our JV partner in the property. It is our intention to exit the remaining assets we hold in Annapolis Junction over time.

And we fully exited our investment in Tower Oaks Preserve Business Park in Rockville, Maryland by completing in December the sale of a 41-acre parcel of land for $46 million; and in January the sale of 2600 Tower Oaks, a 179,000 square-foot building for $22.7 million or $127 a square foot. In summary, 2018 was a very successful year for Boston Properties. Given our robust development pipeline and lease-up activity for in-service assets, and like our hometown favorite, New England Patriots, we are well-positioned to put more wins on the board in 2019 and beyond. Let me turn the call over to Doug.

Doug Linde -- President

Thanks, Owen. Good morning, everybody. Go Pats. We had great leasing success in 2018, including the four leases for major new developments that Owen described, and our development delivery continues to accelerate.

And it is certainly true that it's a barometer of real-time economic activity, looking at our revenue from the office leasing business, it's really a lagging indicator given the lead times inherent in our transaction cycle. It is also true that the decisions made by our customers a year ago or two years ago or even five years ago are just starting to be seen in our top-line revenue, and they are contractual and growing for years to come. So let's have a case in point at Salesforce Tower. We signed our first lease in April of 2014, and the building won't achieve its full occupied revenue run rate until October of this year.

Starting at that point, the contractual cash rev increases on average two-plus percent per year. The first lease expiration in the building, and it's only about 70,000 square feet, is 2027. And based on the last few deals done in inferior buildings in the market in '18, the rent on that particular lease is somewhere between 35% and 40% below market today. As Owen suggested, despite macroeconomic volatility, leasing activity feels a lot like 2018.

Our primary customer, large real estate users, either public or private, start-up or established, continue to make decisions to upgrade and consolidate their space and in some cases expand. While we continue to see the bulk of office demand growth from the technology and the life science businesses and flexible space operators, there's also robust demand for new space, though not necessarily growth space, from traditional industries as evidenced by the incredible activity in Manhattan in 2018. So let's talk about the markets, our expectations and what's going on in our portfolio. I'm going to begin with New York City.

In October 2017 at our investor conference, I stated that our biggest opportunity for high-contribution occupancy improvement in 2019 and 2020 would emanate from 159 East 53rd Street and 399 Park Avenue, and I put John Powers, Andy Levin and Heather Kahn on the spot. We announced the 30-year lease for all the space at 159 earlier this year, with cash rent and hopefully revenue recognition at the end of '19. And then during the fourth quarter and the first week of '19, we signed leases totaling 554,000 square feet at 399 Park Avenue. These transactions included leasing the entirety of the low-rise vacancy, the block of space on seven, eight, nine and 10, 252,000 square feet; and as part of the same transaction, we agreed to recapture 57,000 square feet on the sixth floor, which was expiring in 2020, and leased it to the same tenant.

On Floors 33 to 35, we agreed to recapture 73,000 square feet, which was expiring in 2021, and we relet that entire space to a new tenant that's going to stay through 2035 or longer. And finally, we recaptured 97,000 square feet, expiring in 2026, on the fourth floor, and we released 75,000 square feet along with a renewal of the 97,000 square feet on the fifth floor through 2037. So we've leased two, three, four, five, six, seven, eight, nine and 10, the entire low-rise of the building. We've surpassed our revenue expectations for 2019 and 2020 from the vacant space, and we still have 97,000 square feet of block of space from 18 to 21 available and ready to lease immediately.

The expiring gross rent on the 554,000 square feet that I just described was $82 a square foot, and the first year rent is about $90 a square foot. There've been a number of recent market calls and reports on New York City, and it was quite clear that 2018 was a banner year from an activity perspective. The points I would make are as follows. On the margin, there's been a lot of new construction delivered or soon to deliver, and the overall availability rate has actually helped it steady, and it's actually gone down slightly in Midtown.

The additional new construction under way at 425 Park and 1 Vanderbilt, 50 Hudson, 6600 Boulevard and the repositioning of buildings like 550 Madison all have asking rents above $100 a square foot, and $100-plus asking rents are prevalent all over Midtown South. So the inventory of high-end space has increased significantly. There was over four million square feet of leasing over $100 of square-foot last year, including renewals, in Manhattan in a total market activity of about 38 million square feet. 85% of the deals above $100 a square foot were under 50,000 square feet and average around 15,000 square feet.

The leasing activity drops dramatically above $120 a square foot. Overall, we continue to see concessions -- the free rent build-out time and Tis remain very constant and slight upticks in rent in those buildings or submarkets that have gotten tighter. Moving to Washington, D.C., it continues to be the most challenging market conditions among our regions. As you read in our press release and heard from Owen, we have reduced our portfolio exposure in both the CBD and suburban D.C.

market through asset sales. Our new activities are focused on the long-term leases we have signed that will commence with the delivery of our new developments between 2020 and 2023. In the CBD, there are a lot of new partially leased deliveries and relatively little new demand outside the flexible office providers that actually absorbed over 800,000 square feet in 2018. Based on our experience at Met Square, where we have one of these providers, their customers are small entities and operators that are truly aggregating demand that we could never accommodate.

This has been a really good thing. With face rents on leases that are stable, it's all about concessions and rent commencement dates. We have and will continue to use our operating skills and relationships to gain occupancy at market terms, and we will do as many 4,000, 20,000, 50,000 square feet deals if necessary to fill our availability in the CBD. The Washington, D.C.

region makes up about 17.8% of our total company NOI, down from 21% in 2015, with the CBD at just over 7% of our total NOI, so relatively speaking, a small portion of the company's assets. The Northern Virginia portfolio comprises over 53% of the regional contribution, is growing and has much better leasing activity due to the more diverse demand base, which contains a significant number of government contractors, technology companies and other corporate users. We have a number of renewal discussions under way, including our 492,000 square feet at the New Dominion, which is leased to the GSA, as well as the 275,000 square-foot tenant in Reston Town Center. In 2019 and 2020, we will have exposure on our Reston portfolio as Leidos relocates from their 170,000 square-foot accommodation into the new 270,000 square-foot premises at 1750, and tenants whose growth we were not able to accommodate in 2017 and 2018 -- we just didn't have the space -- start to leave.

We are in active discussions with two existing tenants. They are looking to expand their 50,000 square-foot installation to a new tenant looking for a minimum of 75,000 square feet a piece and a whole host of 7,000 to 10,000 square-foot users that are focused on our amenity-rich environment. We will be rolling out a number of place-making enhancements during 2019 to our Town Center assets as we get ready for the addition of Metro and our Reston phase three development, which will open in 2022. Moving west, in L.A., we brought Colorado Center to 100% leased, and with our limited availability at the Santa Monica Business Park, we are focused on early renewals at both properties.

With the expected relocation of HBO in December of '20, we have the ability to accommodate the growth of other tenants at Colorado Center. And at the Santa Monica Business Park, we are working on getting ahead of our 2020 expirations. The West L.A. market had an active 2018 beginning of '19 as a number of large technology companies expanded their footprint in the area.

These included Google and Facebook and Apple and Amazon, the same names that you hear about in the Silicon Valley, as well as a number of flexible office operators including WeWork and Spaces and Industrious. Rental rates continue to rise and there are limited big block availabilities in the West L.A. market. The story in San Francisco CBD is lack of availability.

The vacancy rate is at its lowest level since the last cycle began after the great financial crisis. There are virtually no direct or sublet spaces in the market over 100,000 square feet other than 50 Beale. The only new construction, the 1st and Mission development, won't deliver until 2023 at the earliest. We understand there's a lease in negotiation for all of the 265,000 square feet at 633 Folsom, the only large addition/major renovation under way in the city right now.

A technology company just leased 150,000 square feet at One Maritime, adjacent to Embarcadero Center, and the majority of the Salesforce sublet when they move into our building at Salesforce Tower has been leased. The Central SoMa plan is under a CEQA litigation and will likely delay the ability to commence construction even if the planning commission grants a particular site entitlement and allot a Prop M allocation. There continues to be significant demand in the market. Since 2011, more than 50% of the annual leasing has come from the technology companies, and the total occupied base of the market has moved from 22% tech in 2013, about 15 million square feet, to more than 37% in '18 or 30 million square feet.

So it's doubled, almost more than we could possibly have imagined. In our portfolio, Salesforce Tower, 535 Mission, 680 and 690 Folsom, 50 Hawthorne are all 100% leased. At Embarcadero Center, we ended the quarter at 91.4% and completed 258,000 square feet of leasing, with an existing rent in place of $61 a square foot gross and new starting rents of $85 a square foot, up 40%. The lease commencements run from February '19 through July of 2020, when a new tenant takes possession of the 125 square feet at EC 3 when the existing tenant then vacates.

If you include all the space that is either leased but not yet occupied of our office occupancy, it would jump to 95%. And we currently have another 250,000 square feet under negotiation that could be completed during the first quarter of 2019. If you want a floor space at Embarcadero Center, you will probably have to wait until the next delivery of available space in November 30, 2019, when our next full floor not under negotiation expires, a long time. Last but not least, all three of our Boston markets, the CBD, Cambridge and Waltham/Lexington, continue to be the beneficiaries of ongoing growth in the technology and the life science sectors, along with very manageable new construction.

The new buildings that have been started have been sized to the markets, with very little aggregate speculative space. Our 100 Causeway project, which is expected to open in '21, is a great example. We announced the start of the 640,000 square-foot tower with a 437,000 square foot commitment. An existing tenant at the Podium Building at 100 Causeway picked up 66,000 square feet for expansion, and we are negotiating a lease for the final 125,000 square feet.

In Waltham, we started a 211,000 square foot of building at CityPoint with a 110,000 square feet leased and have since leased another 21,000 square feet and have 75,000 square feet remaining. In the last few months, there were additional growth announcements in all of our Boston markets. In Cambridge, a life science company committed to a 900,000 square foot new series of buildings, and we signed our 365,000 square-foot lease for 325 Main, which we hope to start construction during the second quarter of this year. In Waltham, the only significant speculative office development during this cycle has activity that will bring its occupancy to 75%.

And in Boston's Financial District, last week State Street Bank committed to be the lead tenant in a 500,000 square-foot piece of space at One Congress, and the remaining half a million square feet in that project and the backfill of their existing location at One Lincoln should be satisfied by other demand. The challenges we have in our Boston portfolio is similar to Embarcadero Center in San Francisco, lack of space. So we are focused on future expirations. In late '17, our tenant at 33 Hayden Avenue in Lexington, 81,000 square foot, with a 2019 December expiration made the decision to relocate into Boston.

During the first week in January, we terminated their lease and signed a lease for all of the space with a life science company that will take occupancy at the end of this year, with a 94% increase in the rent. At 111 Huntington Avenue, we leased two floors, one expiring in December 2020 and the other expiring in December of 2021, with an increase of 37% to a growing tenant in that building. And to give you a sense of the changes in market rent, at 200 Clarendon Street, we leased a 30,000-square-foot full floor for a short term of about a year and a half in the middle of 2017. That space became vacant in August of 2018.

Late last year, we negotiated a similar term lease at a 12% increase in rent at this space. Rents in Boston, Cambridge and Waltham/Lexington had strong increases in 2018 along with the decline in concessions, and we expect the same in '19. So as I stated at the outset, at this moment, the conditions across our entire portfolio feel very much the way they did in 2018. And I'll stop there and let the call go to Mike.

Mike LaBelle -- Chief Financial Officer

Great. Thank you, Doug. Good morning. As Owen said, we had another strong quarter in the fourth quarter.

Once again, our portfolio of revenues increased sequentially this quarter, up 4% over last quarter and 7% year over year. We also grew our share of same property NOI by 3.4% on a GAAP basis and 7.9% on a cash basis over the same quarter last year. And net rents on our second-generation leases that commenced this quarter were up over 11% over the expiring lease. All of these are positive trends.

Our occupancy climbed to 92.1%, which is 100 basis points higher than last quarter if you exclude the delivery of Salesforce Tower. We brought Salesforce Tower into the in-service portfolio this quarter at 70% occupancy, which dampened our overall occupancy to 91.4%. Salesforce Tower is 100% leased, and we expect all of the office tenants will be in occupancy by the end of the third quarter of 2019. We issued $1 billion of green bond with a 4.5% coupon in the quarter and used a portion of the proceeds to redeem $700 million of high coupon, five and seven-eight percent bonds that were due to expire in late 2019.

We booked a loss on debt extinguishment of $16.5 million or $0.10 per share, which was primarily the yield maintenance penalty for paying off the bonds early. This charge was included in our adjusted guidance issued in December. We have now taken care of all of our material debt maturities through late 2020. We reported fourth-quarter funds from operations of $1.59 per share and full-year funds from operations of $6.30 per share, which was in line with our guidance.

Portfolio revenues and management services fee income were both slightly ahead of our plan, but they were offset by higher-than-projected G&A expense of approximately $0.01 per share. As Owen and Doug described, we had a fantastic year of leasing and the fourth quarter was no exception. We signed over 1.8 million square feet in the quarter, including 750,000 square feet in Midtown Manhattan. The vast majority of these leases had no impact on the fourth-quarter earnings results but they will have a positive impact on 2019 and beyond.

In addition to the significant leasing activity in New York City, we also have strong activity in San Francisco and Boston both for new leases on vacant space, as well as the large number of early renewals for leases expiring between 2019 and 2021, where we expect to get increases in rent. Based on the continued leasing velocity, we are increasing our assumption for year-over-year growth in our share of 2019 GAAP same property NOI by 75 basis points at the midpoint to 4.5% to 6% over 2018. We are keeping our cash and property growth assumption at 4.5% to 6.5% as many of the deals we are tracking are early renewals or new leases that will not commence cash rent until late in 2019 or 2020. As a result, we have also increased our assumption for 2019 straight-line rents by $10 million to $85 million to $110 million.

In our non-same-property portfolio, we are moderating our assumption for the incremental NOI growth in 2019 slightly by $5 million at the midpoint of our range due to minor changes in occupancy timing in our development portfolio. This is comprised of pushing back occupancy by a month or two for some of our office users, as well as the retail space at The Hub on Causeway based upon adjusted build-out schedules. Generally, our clients are in control of their build-out and pay rent on a fixed date. However, we cannot recognize revenue until they complete their work, which is not in our control.

We are often able to pick up the difference by continuing to capitalize interest, which you will see in our interest expense assumptions. We have increased our assumptions for development and management services income to $40 million to $45 million for the full year, an increase of $3 million at the midpoint from last quarter's guidance. The most significant change to this quarter came from our sale of the TSA headquarters development. We have entered into a development agreement with the buyer, and we will earn fees for our development services over the next two years.

And lastly, we are reducing our interest expense assumption by approximately $8 million in 2019. We now expect net interest expense to total between $410 million and $425 million for the full year. The reduced expense assumption is from a combination of the new bond deal and bond redemption transaction in December and a reduction in our projected line of credit usage primarily due to the sale of our TSA development. Our capitalized interest projections have remained steady, with the loss capitalized interest for the TSA development offset by higher capitalized interest for our other developments.

So overall, we are increasing our guidance for 2019 funds from operation by $0.11 per share at the midpoint to a new range of $6.88 to $7 per share. The increase is comprised of $0.07 per share from higher same property portfolio NOI, $0.05 per share of lower interest expense, $0.02 per share of higher fee income, offset by a reduction of $0.03 per share of NOI from our developments. Our guidance does not include any additional acquisitions or dispositions other than what we included in our press release. We are continuing to see positive trends in our markets resulting in leasing successes that are driving up our organic growth.

Additionally, our development pipeline is well leased and provides assured external growth over the next several years. This combination of both internal and external growth points to very strong FFO growth at our midpoint for 2019 of over 10% from 2018. Operator, that completes our formal remarks. If you can turn it over to Q&A, that would be great. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from Manny Korchman with Citi.

Manny Korchman -- Citigroup -- Analyst

Good morning, everyone. Just focusing on New York for a second, when you think about Brookfield announcement that they're going to go spec at 2 Hudson Yards, just wondering if that foretells anything about your 3 Hudson development, whether it be your desire to go spec or a way for tenants to come in or if there's any shift in timing for that development.

Doug Linde -- President

So I'll make a brief comment, and John Powers, obviously, you're on. You can add on. So at the moment, with the two developments at the Hudson Yard, there is in one building there's just over one and a half million square feet. In the other building, there's just over 1.2 million square feet of available space.

And if the announcement that you saw yesterday was actually true that Brookfield plans start up spec the other two million square feet, so that's four million square feet right there. And then obviously, you have other buildings in Midtown Manhattan that are under construction. I think that we would certainly be looking to have a significant amount of pre-leasing before we start it. John?

John Powers -- Executive Vice President, New York Region

Well, Doug has given you the facts there. On our situation, we've been working hard since we closed the deal with Joe to redesign the building. And we've done that. We're in 100% DDES now.

The construction is ongoing in the foundations, and we're talking to some tenants in the market. But clearly, we'd need a significant interest from tenants to move forward with the project. We're very excited with the redesign, by the way, and it's been very well received by the tenants that we showed it to.

Manny Korchman -- Citigroup -- Analyst

Great, well said. The other question was just looking at sort of new markets or new submarkets you're looking at. Is there anything out there that you're actively tracking and you could share with us right now?

Owen Thomas -- Chief Executive Officer

Manny, it's Owen. Nothing outside of the perimeter that we've described.

Operator

Your next question comes from the line of John Kim with BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thank you. I wanted to ask on some of the components of your guidance change this quarter from last quarter, which includes the higher occupancy assumption. What was that primarily due to? And also, if you could talk about the termination fee, where it's coming from and how likely it is you're going to release the space?

Owen Thomas -- Chief Executive Officer

So the guidance changes, obviously, we increased our guidance last quarter, and we also announced, I guess, earlier this month that we signed a bunch of leases that Doug spoke of in New York City, which is over 550,000 square feet. And we were working on some of those leases last quarter but they clearly weren't complete. So we were certainly handicapping the likelihood of those things. And I would say the execution of those leases, some of which are starting revenue, although not cash revenue, in the first and second quarter, brought us to drive up the bottom line of our guidance because we got those things.

I would say that the continued velocity of activity that we are seeing in our markets is driving up behind in the overall guidance range. So those are really the two pieces that are hitting the occupancy, the increase in the occupancy and the increase in the guidance range. Obviously, a little bit of it came from interest expense, as I mentioned.

Doug Linde -- President

Termination.

Owen Thomas -- Chief Executive Officer

On the terminations, Doug really spoke about the recaptures, both in Boston, suburban Boston, he mentioned one; and in New York. So we're recapturing space that is expiring a year from now or even five years from now, and we are getting termination payments that will -- that are driving our termination income guidance in 2019, which is higher than 2018. But we're doing that, because we have leases that are signed. So there may be some interruption in cash rent while that tenant builds out their space.

But ultimately, what we're doing is we're signing leases now in very strong markets at strong rental rates that are much higher than the expiring rental rate, because we think that we want to take advantage of the market condition we're in.

John Kim -- BMO Capital Markets -- Analyst

And then if I can ask on the sale of the TSA development and the impairment that you took as part of that sale. Is your view that the market value of this asset will not exceed the costs? And if that's the case, what's really changed since you underwrote the development?

Mike LaBelle -- Chief Financial Officer

So there's a -- I would say, a lot of financial accounting minutiae that's involved in how we recorded the sale of the TSA development. I would just point out two things. One is that we are guaranteeing completion, and we are also entitled to any savings under the contingency line item in the budget as well as we are getting significant development fees. When you include those things along with what the land cost was, this was a profitable development for us from a valuation-creation perspective and the accounting just led us to having to report it the way it was reported.

John Kim -- BMO Capital Markets -- Analyst

Thank you.

Operator

Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, guys. Owen, just going back to your commentary about being a little bit more cautious on how you guys are looking at development. Other than kind of higher preleasing targets potentially on some of these, are you guys changing at all your yield requirements or any other underwriting kind of items?

Owen Thomas -- Chief Executive Officer

Yes. I wouldn't say that we've changed our yield requirements. I'd point to, in fact, the reference rate 10-year U.S. Treasury dropped 50 basis points in the last few months.

So by keeping our yields flat, in essence we've increased profit. But I think the answer to your question is a couple of things. One, as you suggest, what kinds of preleasing are we going to require for new development, I know everyone wants us to give a precise number on that question. And that's not really feasible or possible, given that all circumstances are different depending on the scale of the building and the economics and the velocity in the market and all that type of thing.

But yes, I do think we will today seek to have even more preleasing before we launch new development. And I also think it's being disciplined in looking at new acquisitions of both buildings and sites. I mean, for example, recently we were chasing a site that we were interested in here in the Boston region, and we topped out at a particular value and at least based on the knowledge that we have today, we are not going to win that. So that would be an example of the increased discipline that I described.

Mike LaBelle -- Chief Financial Officer

Yes, Craig, I think big picture, our underwriting criteria have just gotten a little bit more stringent. So where you thought you might lease up space quickly by elongated where you think you're going to be able to have to provide tenant improvement allowances or get rental rate increases, you might temper those expectations. And so it just all adds into the formula. And so it just makes a little bit more difficult to go after something that we otherwise might have been more aggressive on a year ago.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

That's helpful. Then on Platform 16, just some clarifying points. On the purchase option, $125 a foot, is that on the buildable 1.1 million? Or is that kind of land as they are?

Owen Thomas -- Chief Executive Officer

Yes -- no, that's on the buildable.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

OK. So you guys are in for all of like $137 million potentially on that? And then are you guys -- the way the co-development is going with the partner, are they kind of doing the non-office and you guys are doing all these spend on the office? Or could you kind of just give us a little more color on how that works?

Doug Linde -- President

So this is a pure office development. The group that put it together is staying involved in the development component. And we are the principal capital partner, and we will ultimately own 100% of the assets. All being said, as Owen described, we are in serious discussions with a capital partner to participate in our interest on a long-term basis.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And have you guys had any discussions with tenants? Or kind of your discussions about kind of higher preleasing with this project, given the adjacency to Google and everything going on in San Jose kind of require less in your view to go forward? Or how are you guys thinking about it?

Owen Thomas -- Chief Executive Officer

So let me just answer the question in the following way, and then I'll let Bob talk about leasing conversation. So the property is an assemblage of sites. And we are literally, as we speak I believe, doing surveying work with an expectation that we're going to demolish all the existing structures, do all the relocation of utilities and what we refer to as the enabling work. That's all going to go on over the next six plus or minus months.

Then this is a structure of a series of buildings, and they all sit on top of a subterranean parking structure. And we'll then make a decision as to when we want to start that subterranean parking structure and how we would phase. And this is a phaseable project. And so no different than when we started our conversations about Salesforce Tower back in 2013.

We're moving forward. We are excited about the project, and we're hopeful that the leasing markets will provide us with a tenant or tenants well in anticipation of our commencing instruction, but you never know. So Bob, you want to just comment on the leasing activity?

Bob Pester -- Executive Vice President, San Francisco Region

Yes. We've had discussions with tenants, and we plan to talk to other tenants. I think the important thing to point out in the site is it's the only transit-oriented site between San Francisco and San Jose that will have both Caltrain and a BART access. BART has actually just started construction this past week, where you can provide up to a million square feet at a location.

Jordan Sadler -- KeyBanc Capital Markets, Inc. -- Analyst

Doug, it's Jordan Sadler. One other quick one for you if I could. Your cadence on New York City in the prepared remarks seemed pretty positive, particularly given the asking rents on new development. Do you expect New York to see an improvement in net effectives in '19?

Doug Linde -- President

We certainly think the net effective rents are not going down and that there will be modest increases in the rental rates and the concession packages we'll have, have plateaued.

Operator

Your next question comes from the line of Blaine Heck with Wells Fargo.

Blaine Heck -- Wells Fargo -- Analyst

Good morning. As you guys mentioned, these are some turbulent times with respect to what's going on in D.C. Given that the government is your second largest tenant, I was just hoping you guys could touch on any specific areas within your portfolio that you think could see some disruption because of the shutdown and also touch on any possible effect on Fannie Mae as you guys move ahead with their 850,000-square-foot built to suit in Reston.

Owen Thomas -- Chief Executive Officer

Ray or Peter, do you want to take that?

Ray Ritchey -- Senior Executive Vice President

Well, I'll start and Peter can jump on. First of all, as relates to GSA, one of the great things about the leases there, they are long and strong and not weighted to annual appropriations. So we have seen actually no change in the current GSA structure as it relates to our existing leases. We have a major lease expiring here in a few months, and we feel very, very confident about the renewal there.

As relates to Fannie Mae, it remains one of the most profitable entities in the United States government. So we are very much positive about the outcome of that development. They're still keeping all their space. They have the option to take more.

They're meeting in our conference room today just to talk about the status of the construction, and we're full steam ahead, feeling very good about Fannie Mae.

Owen Thomas -- Chief Executive Officer

Yes. I'd also jump in. The deal that was referenced earlier in the call at New Dominion is actually with the government agency that's already exercised their independent leasing authority, and it happens to also be a mission-critical location for the government and the buildings are at the highest level of security that's provided that it would be almost impossible to replicate in any kind of reasonable timeframe. So in that regard, we feel very good about the near-term exposure.

Ray Ritchey -- Senior Executive Vice President

And we've also mitigated our exposure of the sale of 580 and the presale of TSA. So our exposure to the government is much less than it was even three to four months ago.

Blaine Heck -- Wells Fargo -- Analyst

Great. OK. Sounds good. And then maybe, Mike, can you just touch on the Salesforce buyout? How was the $187 million calculated? Or maybe how is that allocated between the buyout of the 5% interest in the property and any promotes that were paid? And how does that buyout affect the yield on your total investment in the property?

Mike LaBelle -- Chief Financial Officer

So Blaine, this is going to be a really unsatisfying answer, but we're in discussions with the city assessor right now, and it's just not appropriate to discuss how the valuation was done, what it was, how all those sort of elements were figured out. We just can't talk about it.

Blaine Heck -- Wells Fargo -- Analyst

OK. Fair enough. Lastly, we noticed the estimated total investment on 159 East 53rd increased quite a bit from $106 million last quarter to $150 million this quarter. Can you just touch on what changed there? And is that going to have any effect on the pro forma yield that you guys are looking at?

Mike LaBelle -- Chief Financial Officer

So the reason that the costs were driven up were almost entirely due to the lease that we have with NYU, which is a 30-year lease versus what we originally underwrote, which would have been a shorter-term lease. Effectively 10 years to 15 years would have been what we would have under-wrote. So the leasing commission associated with that and the tenant improvements associated with that are the majority of that increase. And that lease officially came out of escrow within the last quarter.

So we determined to put that into our budget this quarter, because it was a certainty. The only other thing that really changed on this is we are making some enhancements to the retail aspects of the job and improving the design and what the retail environment and atmosphere is going to be to take the most significant advantage of the opportunity that we have to upgrade the place-making there. So that design is driving a little bit more cost into that part of the job as well. And we still expect the project to meet the return criteria that we typically spell out with this type of development.

Owen Thomas -- Chief Executive Officer

But just look, just to be perfectly honest about this, this is a place-making exercise. As we said, there is a great incremental investment on the work that we did at 159 relative to the 185,000 square feet that we leased to the tenant that's taking it for 30 years. The incremental return on the capital for the food hall and the other "place-making experiences" is de minimis, and it's really going to be reflected in the ability to rent space at 601 Lexington Avenue, 399 Park Avenue and 599 Lexington Avenue. So it's not really -- the yield was not without with all of that.

Blaine Heck -- Wells Fargo -- Analyst

Got it. Thanks a lot, everyone.

Operator

Your next question comes from the line of James Feldman with Bank of America.

James Feldman -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. Good morning. I'm hoping to get your latest thoughts on co-working and what you think that tenant base is going to mean for the office sector going forward.

I mean, we've seen WeWork has had a little bit of trouble raising its labs around the capital, and we've seen kind of a proliferation of different types of approaches to that business. So as we -- just kind of an update on what your latest thoughts are and what you think it's going to mean for you guys?

Owen Thomas -- Chief Executive Officer

Yes. So Jamie, it's Owen. Look, we continue to believe co-working, I'll call it the shared workspace business, to be an important sector of the office business. It's been growing.

It's been an important net absorber of space. I think in the markets where we operate, the total square footage that's leased by these operators today is somewhere between 2.5% and 5% depending on the city, and it has been growing. WeWork is clearly the leader by a scale, but there are other operators. And in fact, as discussed on our prior call, we've been doing some of it ourselves on a small scale basis in a couple of our buildings.

So I think the business has created important new options for customers, for individual and retail customers. It's a way to get into a community and a high-quality space and in many cases high-quality buildings. And for the landlords, it's aggregated demand that would be otherwise very difficult to lease to. So I think that's been very positive.

And I think for larger companies, it's given them flexibility. We don't see large companies taking all of their space requirements and putting it into shared workspace, but we certainly see some of them procuring single-digit percentages of their space on a flexible basis to try to manage the space procurement process, which can be difficult when human resource requirements are a lot more volatile than their ability to procure space. So there has been a lot of press lately about WeWork's ability to raise additional equity capital. That may have some impact on the business, we don't know yet.

But in general, I would say this sector is an important part of the office business, and we think it's been very positive. And many of the shared workspace companies like WeWork are important customers of Boston Properties.

Doug Linde -- President

And Jamie, just to add a couple of more thoughts. So if we think about our portfolio and how the flexible office operators have impacted our portfolio, on the margin, we think it's been a positive trend for the kinds of spaces that we have leased to them in the places where we have leased that space. At the same time, and I don't think it's coincidence, we have done more large long-term leasing with corporate customers in, call it, the last two and a half to three years than we have ever done in our history. And our average lease length has actually gone up slightly as opposed to down slightly.

So it has not impacted our business at all in terms of our portfolio other than, again, in those instances where we have done a transaction with one of these operators, we think it's incrementally helped us in some way, shape or form. In Washington, D.C., it's aggregated demand. At Embarcadero Center, it's changed the image of a particular space, which we use as a showcase to demonstrate to non-traditional tenants how they can use Embarcadero Center's infrastructure to change the image of their space. At 200 Clarendon Street, we were struggling with convincing people that this was not a tired state financial services building, and we did a transaction, and then we got a whole host of customers who actually use the flexible office provider space on a short-term basis while we were building out their space in the building.

So it was a great shock absorber. So there are lots of different reasons why this stuff works, and it is here to stay. There are clearly places where all kinds of companies are going to think about how this might be helpful to their portfolios. But as Owen said, it is not going to displace the business that we are in.

And we're very comfortable that we can work cooperatively with these type of users in a symbiotic way.

James Feldman -- Bank of America Merrill Lynch -- Analyst

That's helpful. Do you have any thoughts on how much larger the sector can become? I know you had mentioned that kind of less than 5% to most markets.

Doug Linde -- President

Well, so -- I mean, it's -- I think it's market-dependent, right? I mean, I used an example of San Francisco. And in San Francisco, they're just over, call it, three million square feet of space. There's no availability. There are no blocks of space.

If they wanted to double in size, they would have to take every single block of space that is coming available in the next year, two years, three years in order to get there, and that's just not going to happen. Similarly, in Boston, it's a very competitive market. And so it's just going to be really, really hard for them to grow in a meaningful way relative to the percentage of the market. So I think it's going to be a different market by market.

Bryan, do you have any thoughts on that?

Bryan Koop -- Executive Vice President, Boston Region

Yes. I think part of it is also identification of product bifurcation. So for example, the traditional co-working is different than enterprise leasing in the smaller spaces without the community aspects to it. So it's almost a totally different product.

And what's taking place out there is everybody is lumping everything together, and they create some illusions that probably are not necessary in terms of the size and scope. So a lot of this has to do by defining what the product is. So as an example, with our FLEX product, there we don't have community managers, we're not looking to provide additional services. It's just highly flexible space that's a shorter-term lease, and that's quite different than other products.

So a lot of it has to do with everybody just lumping everything together.

James Feldman -- Bank of America Merrill Lynch -- Analyst

OK, great color. And then we've seen a lot of large leases from tech and media companies in the last couple of years. So I mean, what gives you comfort that this is space that they'll use and we're not seeing kind of excessive expansion here?

Doug Linde -- President

So Jamie, in comparison to 2000 -- 1999 to 2001 in the dot-com era, we -- the companies that are taking down the space are what we refer to in our small circle as tech titans. And these are companies, which have multifaceted businesses, multifaceted growth aspirations and that are hiring people at enormous rates. And so they are filling their space as quickly as they can get it. And interestingly, what is going on is that they are looking to find those locations that are closest to where the talent is and where they can attract the talent.

And just again sort of to talk about downtown San Jose, the reason that, that site is so interesting to us today -- and remember that we do have another site in downtown San Jose that we've owned for 20 years and we haven't gotten going yet. So this was a double-down in downtown San Jose is that the idea that companies are going to put their employees that are living in the City of San Francisco, put them on coach buses and have them travel down to 280 or the 101 for up to three hours a day of the commute is just becoming really tired. And so having the ability to have a transit-oriented location where they can get on the Caltrain Bullet stop in San Francisco and be down in downtown San Jose in about an hour is a very, very attractive proposition. And Google has also made a commitment to build housing and retail and all sorts of other things.

So it's going to become a really interesting downtown. And our view is that the market has really changed down there. And so what was once going to be an 800,000-plus-square foot, either office or residential site at the Plaza at Almaden, we're now permitting for a minimum of 1.3 million square feet. It could be larger than that.

The parking ratios have changed. The use of transportation has changed. And we just think these are the types of locations where companies are going to go, and you've obviously seen Amazon and Google and Facebook make tremendous pieces of space acquisition across their marketplaces not just in Silicon Valley, but in Los Angeles, in Austin and in Boston and in Washington, D.C. And we just -- we're comfortable that these companies are long-term growth organizations that are going to be very aggressive about hiring talent to feed their businesses.

James Feldman -- Bank of America Merrill Lynch -- Analyst

OK. Thank you. That's helpful.

Operator

Your next question comes from the line of Derek Johnston with Deutsche Bank.

Derek Johnston -- Deutsche Bank -- Analyst

Thank you. Good morning. How is the entitlement process for new CBD development currently shaking out by market? And was wondering if you've experienced any deltas notable worth sharing?

Doug Linde -- President

So do you have a half hour, 45 minutes. That's how long it'll take to answer that question. Why don't I let Bob Pester talk about what's going on in San Francisco? Obviously, with our site at Fourth and Harrison, that's the CBD site. And then I'll let Bryan talk about what's going on at Back Bay Station in Boston, because those are sort of the two entitlement opportunities that are in front of us right now.

Bob Pester -- Executive Vice President, San Francisco Region

In San Francisco, the Central SoMa plan was approved, and immediately, there were four lawsuits filed in which all are CEQA-oriented suits, which pretty much will put everything on hold unless they are settled or someone could elect to go ahead and be subject to whatever happens in the lawsuit. San Francisco continues to be probably one of the most difficult markets in the United States to get entitled in. And other than the 6 Central SoMa sites, what are called supersites, the Giants' Mission Rock in Pier 70, there's not a lot on the horizon as far as future development in San Francisco of any significance.

Bryan Koop -- Executive Vice President, Boston Region

So in Boston, our project in the Back Bay is probably the most significant on the commercial side. We do have some residential components to it, and we see that to be at least a couple of more years of permitting. But not having to do with anything other than the process, and it is a complicated site over transportation hub. So the Back Bay has limited amount of foreseeable, let's say, product line coming on in the commercial side.

And that goes for Cambridge as well. We are seeing, as was noted earlier, a real discipline among the developers who have sites that are permitted and all seem to be conditioned on preleasing as well.

Derek Johnston -- Deutsche Bank -- Analyst

I appreciate that. And just last one from me. It was interesting to see the land acquisition at Carnegie Center in Princeton. And was wondering if you can just share some further thoughts on this suburban addition, and I'm assuming this would be a prelease type of development, perhaps life sciences.

Any more info there would be interesting.

Owen Thomas -- Chief Executive Officer

When Boston -- this is Owen. When Boston Properties bought Carnegie Center 20 years ago, we bought the buildings, and we got an option to purchase the site. And over the years, we have purchased a handful of the sites and done built to suit for customers. That option expired last year.

So we were faced with the decision on whether to let the option expire or to exercise it and purchase all the land. So we obviously elected the latter. So we do have all this land. We acknowledge Princeton is not our fastest growing market.

That all being said, we do have some uses for the land. So for example right now, we have a customer parking need that we are going to satisfy with the -- with one of the lots that we purchased. We anticipate our ability to sell some of these individual pads, which we will do. But perhaps most importantly, our perspective is our investment in Carnegie Center is more valuable with the buildings and the development opportunity unified rather than them being separated.

And that was a key driver of the decision.

Derek Johnston -- Deutsche Bank -- Analyst

Great. Understood. Thanks.

Operator

Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

Hey, good morning.

Owen Thomas -- Chief Executive Officer

Good morning.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

So two questions. First, just sort of continuing on the Princeton theme, you -- Mike, you spoke about getting exited -- fully exiting Annapolis Junction. Princeton, it sounds like you may exit as well or you may keep. But as you outline your guidance for this year, is there a certain amount of dispositions that's in there, meaning if you fully exited Annapolis Junction or anything else, does that impact your guys' ability to deliver on your growth this year? Or is there some potential that dispositions could disrupt what you guys have laid out?

Owen Thomas -- Chief Executive Officer

So why don't I lay -- why don't I mention -- why don't I -- Alex, why don't I answer the former, and I'll let Mike jump in on the latter. So we have no current plans to exit our Princeton investment. We do think purchasing this land for the reasons I just outlined on the last question -- we think our investment in the whole project is more valuable by owning the land, but we have no near-term plans to exit it. That all being said, we intend in 2019 to continue with our noncore asset disposition plan.

And again, we haven't finalized our exact list this year, but I would anticipate that it will revert back to levels of '16 and '17, which would be in the kind of $200 million, $250 million, maybe $300 million of sales in 2019.

Mike LaBelle -- Chief Financial Officer

And with respect to guidance, as I mentioned in my call notes, we haven't included anything additional other than what's in our release for asset sales within our guidance. So some of what we're selling, as Owen said, is noncore. Some of it is land parcels that we don't think we're going to develop. So really don't have a meaningful impact.

Then a lot of the other noncore stuff you're talking about is kind of suburban stuff that is not that big. So yes, some of it does have NOI that would come out, but we're going to get cash and we'll deploy that cash. So that would help, and it would reduce our line of credit usage. So there is kind of both sides of it.

And without knowing exactly which assets there are, we just didn't think it was an appropriate thing to do to kind of put x amount in the guidance. We'd rather just say there's nothing in the guidance, and this will give us time for kind of things we're thinking about. But I don't think it would have a meaningful -- it's not going to be huge. It's not going to have a meaningful impact.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. And then the second question is sort of continuing the co-working theme, Dock72 initially takes occupancy in the second quarter of this year, still only 33% leased. It's your one sort of outlier in your New York portfolio. Presumably, you want to lease it up before assessing what your options are with it.

But as you stand today, what are your thoughts on keeping that versus selling it? As I say, it stands out versus the rest of your portfolio in New York.

Owen Thomas -- Chief Executive Officer

So Alex, we have no plans to sell Dock72. Our current focus, as you suggest, is certainly leasing the asset. And that's what we're focused on now.

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. Thank you.

Operator

Your next question comes from Tom Catherwood with BTIG.

Tom Catherwood -- BTIG -- Analyst

Thank you. A quick question on New York and then Reston. In New York, Mike -- or I think, Doug, I appreciate your commentary as far as leases over $100 a square foot. You mentioned, though, obviously, the slower demand when it goes over $120 a square foot.

What are you seeing as far as kind of interest in and options for your vacant space at 767 Fifth?

Owen Thomas -- Chief Executive Officer

John, you want to take that?

John Powers -- Executive Vice President, New York Region

Yes. Well, we think the market last year was really hard, $32.4 million. We haven't had a year like that in New York since 2000. So this is really a lot of momentum.

And notwithstanding the equity market jitters at the end of December having talked now to a number of brokers looking at the market, things still seem to be rolling along. So we're optimistic about what's happening at GM, but we do have competition coming on place during the year. 425 Park is going to be a great building. And 550 Madison, the top floor is going to be good.

But we think the product is still outstanding, the best in the market. And we are starting to work on those blocks that are coming up in '19 and '20 now.

Tom Catherwood -- BTIG -- Analyst

Got it. And then, John, maybe one more in the GM Building. Any more clarity as far as the timing on the ins and the outs for the retail portion?

John Powers -- Executive Vice President, New York Region

Yes. We're working really hard with Apple on the Apple Store. And we don't have a date, but certainly that date will be sometime in the first half of this year. And we're working also with Under Armour, because Apple is in the temp store now and wants to stays there, and we work things out with Under Armour so that will work for them, although the Under Armour still will be delayed, resulting -- as the result of Apple staying in the temp store.

And we do have some Cartier left, of course, and we do have some interest in that space. And we think we'll do something there in the first half of this year.

Tom Catherwood -- BTIG -- Analyst

Got it. I appreciate that color, John. And then just a quick one on Reston. Doug, I think you mentioned a place-making project down at the Town Center, making some improvements there.

What were you referencing to? And do you have assumption of what that cost impact could be?

Owen Thomas -- Chief Executive Officer

Peter, do you want to take that?

Peter Johnston -- Executive Vice President, Washington, D.C. Region

Sure. So this has been going on for probably in terms of design and rebranding a little over a year. And in the next quarter or so, we're going to start the actual physical improvements. We've done a few minor ones to a lot of the public realm throughout the Town Center.

If you've been there, you know there's a number of larger public open venues, the pavilion area around the fountain, etc. And I would say, over the course of probably the next 24 months, we're looking at an investment that's probably plus or minus in the $3 million range. We're also in the Fountain Square buildings, which the original office buildings were already under way. We're redoing those lobbies, which are ready for a refresh.

That is 25-plus years old. So I hope that answers your question.

Tom Catherwood -- BTIG -- Analyst

It does. Thanks, guys.

Operator

Your next question comes from Daniel Ismail with Green Street Advisors.

Daniel Ismail -- Green Street Advisors -- Analyst

Hey, guys. Good morning. Just a bigger-picture question on the utilization of space by your tenants. One of your peers in some recent news articles have suggested that the densification trends over the last few years may have overshot the mark.

Curious what you're seeing in your own portfolio with respect to newer renewal leases and how you guys are planning for new developments in terms of space per employee?

Owen Thomas -- Chief Executive Officer

So why don't we start with Bryan? And then if any of the other guys want to chime in, they should do that.

Bryan Koop -- Executive Vice President, Boston Region

Yes. One of the things that ties with the question about how clients are using their space earlier was that the sophistication with these clients that we're working with, a great example is Verizon, is incredible versus, let's say, the year 2000 when you had growth from tech companies that were gobbling down space and really didn't have an idea of their utilization, their growth rates, etc. What we're finding across the board is the sophistication of the users is very knowledgeable of how they're going to use it, how much space they're going to use it, and it's far more accurate in terms of their needs. So because of that, we've said that also it's been a great discipline that's been added to the market.

And then you add that with the shock absorbers that Doug mentioned in terms of how they're using some of the shorter-term space, we think it's really healthy.

Owen Thomas -- Chief Executive Officer

So Bob, you might want to describe how everyone's been building out Salesforce Tower, right? Because it's the newest sort of CBD building that we have and how their programming has worked.

Bob Pester -- Executive Vice President, San Francisco Region

The build-out is very dependent on the type of tenant that I can say in the case of Salesforce, it's all been seating for the most part. And they're about 160 square feet per employee. I know that they've relaxed their requirement as far as trying to get tighter than that. Initially, I think they were targeting 120 when Ford Fish was there running their real estate department.

Daniel Ismail -- Green Street Advisors -- Analyst

OK, that's helpful. And maybe just staying in San Francisco, have you guys noticed what -- I know it's only been about a month in 2019. But any impacts on proposition fee either on the tenant side or in your ability to push through that increase on new leasing?

Bryan Koop -- Executive Vice President, Boston Region

Yes. I will respond to that. We haven't seen any pushback from tenants on that, and we haven't seen any tenants that leave the market based on prop fee.

Daniel Ismail -- Green Street Advisors -- Analyst

OK. Great. Thanks, guys.

Operator

We have time for one final question, and that question is a follow-up question from the line of Manny Korchman with Citi.

Manny Korchman -- Citigroup -- Analyst

Thanks for the info, guys. Doug or John, could you just run through your rent growth expectations throughout different submarkets of New York?

Doug Linde -- President

John, you want to start?

John Powers -- Executive Vice President, New York Region

Rent growth submarkets of New York. So first, let me say we don't have a lot of space to lease. So if you're talking about our buildings, there's only a few building -- a few pieces of space that we have to look at. I think we'll do well at GM.

We'll have some rent growth there. Clearly, the block we have left at 399, there will be rent growth there. That's probably spaced at over $100 a foot. 159 is all leased.

And I guess, when we look at the base of 510, I would say we'll definitely have rent growth there over the deal we had in place.

Doug Linde -- President

You all set, Manny?

Manny Korchman -- Citigroup -- Analyst

Thank you.

Owen Thomas -- Chief Executive Officer

OK. I think that completes all of our questions. Thank you, everyone, for your interest in Boston Properties.

Operator

[Operator signoff]

Duration: 80 minutes

Call Participants:

Sara Buda -- Vice President, Investor Relations

Owen Thomas -- Chief Executive Officer

Doug Linde -- President

Mike LaBelle -- Chief Financial Officer

Manny Korchman -- Citigroup -- Analyst

John Powers -- Executive Vice President, New York Region

John Kim -- BMO Capital Markets -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Bob Pester -- Executive Vice President, San Francisco Region

Jordan Sadler -- KeyBanc Capital Markets, Inc. -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

Ray Ritchey -- Senior Executive Vice President

James Feldman -- Bank of America Merrill Lynch -- Analyst

Bryan Koop -- Executive Vice President, Boston Region

Derek Johnston -- Deutsche Bank -- Analyst

Alexander Goldfarb -- Sandler O'Neill + Partners, L.P. -- Analyst

Tom Catherwood -- BTIG -- Analyst

Peter Johnston -- Executive Vice President, Washington, D.C. Region

Daniel Ismail -- Green Street Advisors -- Analyst

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