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Boston Properties Inc (NYSE:BXP)
Q4 2019 Earnings Call
Jan 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Boston Properties' Fourth Quarter 2019 Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions after the formal remarks during the question-and-answer session.

At this time, I would 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 and welcome to Boston Properties' fourth Quarter 2019 earnings conference call. The press release and supplemental package were distributed last night and 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. If you did not receive a copy, these documents are available in the Investor Relations section of our website at investors.BXP.com.

A webcast of this call will be available for 12 months. At this time, we'd 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, Boston Properties believes 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 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 Q&A portion of the call. Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address the question.

Now, before I turn the call over to the team, I would like to mention that we'll be holding our investor conference in the fall in Boston. As many of you know, we hold this event, once every three years. This conference will be a great designed to provide significant insight into our strategy, our team and our themes in our business. The date for the conference is September 30th and we'll be holding it at our new Hub on Causeway entertainment and office complex in Boston. I'll send out some reminders. But we do look forward to seeing everybody at the conference.

Now, I'd like to turn the call over to Owen Thomas for his remarks.

Owen D. Thomas -- Chief Executive Officer and Director

Great. Thank you, Sara and good morning, everyone. We completed another strong quarter of performance which capped off a very successful year at Boston Properties. Specifically in the fourth quarter of 2019, we generated FFO per share of $1.87, which is a quarterly record for Boston Properties and $0.02 above our prior guidance and market consensus. We leased 1.7 million square feet including significant leases at the GM Building 399 Park, Reston Town Center and Colorado Center. We delivered and placed in service 866,000 square feet of new developments that were 98% pre-leased, with an initial cash yield of 7.5%. We increased in-service portfolio occupancy to 93% which is a 40 basis point increase over the last quarter and 160 basis point increase over where we were a year ago.

We increased our average net rental rates on our second-generation leases by 48% for the quarter and 28% for all of 2019. We increased our regular quarterly dividend 3% to $0.98 per share. Boston Properties has now increased its quarterly dividend by 42% over the past three years, and we increased our growth outlook for 2020 by raising the midpoint of our FFO per share guidance by a penny. We continue to forecast 8% growth in 2020 following a 11% growth in 2019 leading our office peers over the last two years.

In terms of full year 2019 operational highlights, we completed 7.6 million square feet of in-service asset and development leasing exceeding 2018 leasing numbers and our second highest level of annual leasing ever. We commenced 8,000 square feet of new developments, including 325 Main Street in Cambridge and 2100 Pennsylvania Avenue in Washington.

We completed new acquisitions for a total of $336 million, including 880 and 890 Winter Street in Waltham, the remaining 5% interest in our salesforce tower development in San Francisco and land parcels at Carnegie Center in Princeton. We completed approximately $406 million of asset sales versus our goal of $200 million, including the sale of 540 Madison Avenue in New York. Tower Center in East Brunswick, New Jersey and land parcels in Suburban Maryland and Massachusetts. We also formed a joint venture with CPPIB which now holds a 45% interest in our Platform 16 development site in San Jose.

We raised $2.2 billion in debt financing, including $850 million in green bonds at very attractive interest rate and once again we are recognized throughout the year for sustainability performance and leadership, earning in eighth consecutive Greenstar recognition ranking among the top 4% of almost 1,000 worldwide participants in the GRESB assessment and earning Energy Star Partner of the Year from the EPA.

Overall, 2019 was an excellent year from a management, development, leasing and capital markets perspective. A differentiator for Boston Properties is the depth and strength of our regional and corporate management teams. I'm very proud of our entire team at Boston Properties and what we accomplished in 2019 through experience, relationships teamwork and commitment to success.

Now, turning to the economic environment. Conditions remain very favorable for our business and leasing activity is robust in our core markets with few exceptions. Economic growth in the US at around 2.1% projected for 2020 remains high enough to power job creation, space demand and rent growth, but not high enough to spark inflation and higher interest rate. The 10-year US Treasury remains around 1.6%, 1.7% and the Fed appears to be on indefinite hold for further rate action. Job creation and inexpensive capital is very constructive for what we do. And in addition concerns over the geopolitical risks of 2019 particularly trade disputes are currently more tempered creating confidence for business leaders to make investments like new space requirements, and for investors to move financial markets positively as we have recently witnessed.

The private capital market for real estate and office assets in our core markets remained healthy. US real estate assets remain an attractive destination for domestic and foreign institutional capital with stable -- with stable and growing economy relatively higher yields and decreasing hedging costs significant office transaction volume in the US ended the fourth quarter, up 24.3% from the prior quarter and up 3% for all of 2019. Yet again, there were numerous significant asset transactions this past quarter and I'll cover the largest of which, which were One Marina Park in the Seaport District of Boston sold for a little over $480 million or $918 a square foot and about a 4.6% stabilized cap rate/ This a little over 0.5 million square foot building is 100% leased and was sold to a domestic real estate investment manager. And secondly in New York 330 Madison Avenue in Midtown East is under agreement to sell for $900 million or $1,060 a square foot, and a 4.8% cap rate. This 850,000 square foot property is 95% leased and will be sold to a non-US insurance company.

Now, moving to Boston Properties' capital activities. Development continues to be our primary strategy for creating value for shareholders and we remain active in our pursuit of new projects and value-added redevelopment. In the fourth quarter of 2019, we delivered two successful and accretive projects into service. We completed 145 Broadway, the new 485,000 square foot headquarters for Akamai in Cambridge.

The building is 98% leased to Akamai and was delivered on-time and budget at an attractive yield.

We also completed the podium phase of our Hub on Causeway development in Boston. This 381,000 square feet project is 97% leased and was also delivered at an attractive yield. The Hub on Causeway podium is the new entrants to the TD Garden and North Station and includes multi-level retail amenities restaurants, theaters and other exciting entertainment venues, further phases of this development, all of which will be built on top of the podium include Hub50House, a 440 unit residential tower to be delivered this quarter. 100 Causeway a 632,000 square foot office tower that is 87% leased and expected to open in 2021. And land under long-term lease to citizenM, a luxury hotel, which was delivered last year.

With these deliveries removed, our current development pipeline stands at 12 office and residential developments and redevelopments, comprising 5.5 million square feet and $3.1 billion of total investment for our share. The commercial component of this portfolio is currently 76% pre-leased and aggregate projected cash yields on cost are just shy of 7%. Most of the development pipeline is well under way and we have $1.4 billion of equity capital remaining to fund.

In 2020, we anticipate our development pipeline will continue to be dynamic. We plan to deliver six projects representing 2 million square feet and $1.1 billion of investment including 1750 President Street, 159 East 53rd Street, Dock 72, 20 CityPoint, Hub50House and Skyline. We are already recognizing a portion of the income expected from most of these projects.

As replacement for these deliveries, we expect to begin the first phases of 4th and Harrison in San Francisco and Platform 16 in San Jose. 4th and Harrison received 505,000 square feet of Prop M allocation in the fourth quarter of 2019 that will allow us to begin construction in 2020. And site enablement work is under way at Platform 16. The first phases of these future developments total 935,000 approximately $1 billion in new investments.

With our current pipeline of deliveries in these new potential starts our development pipeline at year-end 2020 could be approximately eight projects, comprising 4.4 million square feet and $3 billion of investment. And for beyond 2020, we have a 13 million square foot land bank under control, which should lead to additional development opportunities. Near-term prospects in this portfolio include 3 Hudson Boulevard in New York, 25% owned by us. 171 Dartmouth Street adjacent to the Back Bay station in Boston and City Point in Waltham, for all of which we are pursuing anchor tenants before commencing vertical development.

In addition, we have another phase of significant residential development at Reston Town Center. Moving to acquisitions and dispositions, we are under contract, subject to due diligence for the sale of New Dominion Technology Park for in excess of $250 million that we will, that we believe will close this quarter. The property comprises 493,000 square feet leased to the federal government in two buildings located in Northern Virginia. We recently extended the current government tenancy for 15 years of flat rents making the property a strong disposition candidate. We anticipate completing a lifetime exchange for this asset and retaining all proceeds for other investment.

We also just completed a joint venture with Alexandria Real Estate Equities for our Gateway Commons portfolio in South San Francisco. This joint venture where both parties will have approximately a 50% ownership when fully funded will be formed with Boston Properties contributing three existing office buildings totaling 768,000 square feet and Alexandria contributing three adjacent buildings, including a newly constructed amenity center totaling 313,000 square feet.

The critical value creation for Boston Properties and Alexandria with the joint venture is that both parties will contribute land including a parcel owned by us and encumbered with surface parking by Alexandria and excess structured parking associated with the existing buildings. Creating three sites totaling a minimum of 640,000 square feet of potential development for lab and office use. Upon completion of the development plan, the joint venture will comprise a significant critical mass of 1.7 million square feet of office and life science space in a premier location in one of the strongest life science market in the US. So in summary, 2019 was a very successful year for Boston Properties. We executed well on our growth plan, driven by the lease up of in-service properties and external growth driven by development.

Given our leading property market positioning constructive market condition, growing new investment pipeline and a team eager to produce. We are very excited for 2020 and beyond.

Let me turn it over to Doug.

Douglas T. Linde -- President and Director

Thanks, Owen. Good morning, everybody. Happy New Year, We're not going to sit [Phonetic] anymore. It should be pretty clear from Owen's macro commentary that we are feeling really good, very positive about the state of the business economy and the overall daily transaction leasing activity that we are experiencing across our portfolio really is in lock step and as you heard during the last 12 months, we increased our in-service occupancy by more than 160 basis points. So strong leasing volumes everywhere.

You shouldn't interpret this note, I mean that every market is strong. We have our strong markets, which are characterized by tight supply and very modest short-term new deliveries Boston, Cambridge, Waltham, Lexington, San Francisco, CBD in West LA, and there we have rental economics that continue to grow and grow significantly strongly. We operate in the second group of markets, which have higher availability consistent new construction deliveries, I.e. less than supply constraints. But they are coupled with very significant technology demand. So, the Silicon Valley, the Reston Town Center area, the new construction on the far west side of Manhattan. These markets are improving. So, it's more of a function of the premium of new products being added to the market as opposed to simple market conditions.

The third segment is the Plaza District in Manhattan, it behaves differently since it lacks the technology demand growth. We continue to have strong activity from non-tech users. Obviously, they have more modest growth, although we had two deals this quarter, which were expansions from non-tech users and we will talk about those in a few minutes. But there does remain significant supply and there really hasn't been much in the way of changes in the economics over the last year or two. And then the fourth category really is limited in our portfolio to DC, CBD, which both has supply and demand headwinds, the best buildings, continue to have leasing activity, but the market concessions are at an elevated level.

Our primary customers, large real estate users be a private or public, start-up or established continue to make decisions to upgrade and consolidate their space and in many cases expand as they use their space in the competition for talent, which is the key to our business. Even in our most expensive markets we see very few tenants taking actions that reflect looming concerns about their business prospects. A case in point. We're in discussions with the service firm in San Francisco that is currently located in the base of one of our EC buildings. The tenant is negotiating to move to the top of the building with a rent will be 25% higher that's on a renewal in one place versus the other and they will have to come out of pocket, over $100 a square foot to build their new improvements and their square footage isn't changing a bit.

Let's talk about the markets now our expectations and what's going on in our portfolio. Let me begin with New York City. The significant technology tenant leasing in Manhattan that was completed over the last few months was very much in line with market rumors and expectations. There really weren't any surprises. It's great. Since it represents a lots of growth in absorption and practically speaking we think it may accelerate the timing of 3 Hudson Boulevard, since there are fewer new construction options with large space block opportunities.

The two law firm leases in the new developments that were announced will lead to availability and existing product, so we are optimistic -- while we are optimistic about the shrinking availability of the newly constructed space. We will continue to have a cautious view of transaction economics over the next few years. That being said, leasing volumes very strong. Last quarter, we completed a 20-year lease renewal at 599 Lexington Avenue with Sherman Sterling our anchor tenant, starting in 2022 for a minimum of 338,000 square feet. We've now extended every major lease expiration in our portfolio above 140,000 square feet that was due to expire through 2024 and the reason I use 140,000 square feet is we have a tenant that looks to be moving into one of the new developments in our 601 Lexington Avenue development in 2022.

We have signed leases on three of the four available floors at 399 Park Avenue and are negotiating a lease on the remaining floor. As a barometer of market conditions, these leases on these four floors have an average starting rents of about $100 a square foot and market level rent bumps TIs and free the expiring on the floors is about $107 a square foot. We would have done a similar deal in 2018 or 2019. In addition, we signed a renewal and expansion at the base for 80,000 square feet and we are negotiating an expansion from one of the tower floors that we're going to get back in 2021. So again, very strong leasing activity.

At the General Motors building, since the completion of the plaza work and the opening of the Apple Cube in September. We've completed 140,000 square of office leasing, including a new tenant on a vacant floor, full floor in the upper portion of the building. A long-term expansion and two short-term renewal. CBRE reports that the city saw more than 2.1 million square feet of relocation deals with starting rents over $120 a square foot and $1.2 million a relocation deals with starting rents between $100 and $119 so that's 3.3 million square feet and that versus 2.5 million square feet in 2018. So, we are encouraged by the level of activity at the high-end in the market and at our building. We also completed a lease on the available 6600 square feet a 5th Avenue retail space for a retailer that is playing to remodel an existing Madison Avenue store and we did a 7,500 square feet renewal with our for our 2021 exploration on Madison Avenue retail.

Switching to Washington DC, the CBD where the rent will be 25% higher, that's on a renewal in one place versus the other and they will have to come out of pocket, over $100 a square foot to build their new improvements and their square footage isn't changing a bit. Let's talk about the markets now.

Our expectations and what's going on in our portfolio. Let me begin with New York City. The significant technology tenant leasing in Manhattan that was completed over the last few months was very much in line with market rumors and expectations. There really weren't any surprises. It's great since it represents lots of growth in absorption and practically speaking, we think it may accelerate the timing of 3 Hudson Boulevard, since there are fewer new construction options with large space block opportunities. The two law firm leases in the new developments that were announced will lead to availability in existing product. So we are optimistic.

While we're optimistic about the shrinking availability of the newly constructed space, we will continue to have a cautious view of transaction economics over the next few years. That being said, leasing volume is very strong. Last quarter, we completed a 20-year lease renewal at 599 Lexington Avenue with Shearman & Sterling, our anchor tenant, starting in 2022 for a minimum of 338,000 square feet. We've now extended every major lease expiration in our portfolio above 140,000 square feet that was due to expire through 2024. And the reason I use 140,000 square feet is we have a tenant that looks to be moving into one of the new developments in our 601 Lexington Avenue development in 2022.

We have signed leases on three of the four available floors at 399 Park Avenue and are negotiating a lease on the remaining floor. As a barometer of market conditions, these leases on these four floors have average starting rents of about $100 a square foot and market level rent bumps TIs and free rent. The expiring rent on the floors is about $107 a square foot. We would have done a similar deal in 2018 or 2019. In addition, we signed a renewal and expansion at the base for 80,000 square feet and we are negotiating an expansion from one of the tower floors that we're going to get back in 2021. So again, very strong leasing activity. At the General Motors building since the completion of the plaza work and the opening of the Apple Cube in September, we've completed 140,000 square foot of office leasing, including a new tenant on a vacant floor, full floor in the upper portion of the building, a long-term expansion and two short-term renewal. CBRE reports say the city saw some more than 2.1 million square feet of relocations deals with starting rents over $120 a square foot, and 1.2 million square feet of relocation deals with starting rents between $100 and $119. So that's 3.3 million square feet and that's versus 2.5 million square feet in 2018. So we are encouraged by the level of activity at the high-end in the market and at our building. We also completed a lease on the available 6600 square feet of Fifth Avenue retail space for a retailer that is planning to remodel an existing Madison Avenue store and we did a 75,00 square foot renewal with expiry [Indecipherable] 2021 expiration on Madison Avenue retail. Switching to Washington DC, the CBD continues to have, as I said, the most challenging market conditions among our regions. So it would only represent 6% of our NOI. This quarter, we completed a 76,000 square foot 10-year renewal at 2200 Penn for a lease that was expected to expire in '21.

The current rent, which has been escalating for 2.5% for a decade is going to roll down about 18%, to give you a sense of the conditions in DC. In Northern Virginia where 90% of our company NOI originates and where we are developing, continues to have significant tenant demand growth. The same technology companies that are growing in San Francisco and in Boston and in New York City, are also expanding in Northern Virginia as they both service the U.S. government and search for the highest quality labor market. We believe that the $10 billion JEDI Cloud Computing contract will create significant office demand in Northern Virginia. There is still significant vacancy in the market, but the urban core in Reston continues to outperform with starting rents in the high 40s to low 50s.

This quarter, we completed 438,000 square feet of leasing in Reston Town Center, including 75,000 square feet for Facebook and 312,000 square feet renewal with Bechtel in 11 smaller deals. We are in lease renewal and relocation negotiations with another 135,000 square feet tenant. The 270,000 square feet of Leidos relocation and expansion, the 1750 is expected to occur by the end of April. So they're going to vacate one into Freedom Square, so we'll still have some work to do, building our 500,000 square feet of availability in Reston, but we are in active discussions with tenants that could fill significant portions of that space. And most recently we entered into a dialog, aka, a lease negotiation with a tenant with a 2023 to 2024 occupancy requirement that is interested in a significant portion of the availability at RTC Next. That's the building that's under construction for Fanny Mae. So really strong activity in Reston.Switching to the West Coast.

The story in San Francisco CBD is a lack of availability in 2020 through 2022 and the meaningful increase in asking and taking rents that has occurred. The vacancy rate is at its all-time lowest level since the last cycle began after the great financial crisis. There is about 3.5 million square feet of either under construction or announced and permitted projects with delivery beginning no earlier than late 2022 and more than 1.6 million square feet is either in lease negotiation or leased. With our Prop M allocation in hand, we are moving toward the purchase of the land to develop 4th in Harrison and we could start construction in late 2020 for in early 2023 delivery, tenant conversations have begun. There are additional permitted potential development in 2024 for and beyond. New construction rents are approaching over $100 a square foot triple net on all this new development.

New to the market are about 700,000 of sublet opportunities stemming from Uber's anticipated move to Mission Bay, so perhaps, there will be a little bit early for tenant. Our San Francisco CBD portfolio ended the quarter at 97.2% occupied and 98% committed. With little availability, we had one of the quietest quarters I can remember with only 24,000 square feet of CBD leasing. In 2020, we have very limited availability. So, our focus today is 21 and 22 expirations. Based on current market fundamentals. We continue to believe that we will realize double-digit rental increases as we relet space.

As an example, we just recaptured a floor at 680 Folsom Street that was leased in 2015. The terminated lease, which had 3% annual bumps had a mark-to-market in 2020 even after five years of escalations of almost 20% so the market rent continue to grow. In the Silicon Valley, we have our Mountain View assets and a portfolio of great development opportunities. This market continue to experience strong growth led by Google which leased another 475,000 square feet during the quarter, and the market had a record-setting absorption in 2019. In our existing Mountain View portfolio, we continue to release and renew space at rents in excess of $55 triple-net. This quarter, we completed two leases totaling 50,000 square feet with an average rental increase of 65%/. In 2020 our most significant opportunity in the Bay Area is in the Mountain View portfolio, where we'll have about 150,000 square feet of availability.

Owen mentioned Platform 16 and our opportunity in San Jose. It's been quite clear that is a technology companies continue to grow their employees can be to work is becoming a critical factor in their recruitment and retention. We've seen companies like Facebook and Google expanded San Francisco as they provide an alternative location for employees that may spend three plus hours a day on a private bus and likewise Uber and Splunk and Twitter and Airbnb have all expanded down into the Silicon Valley for similar. We have seen a distinct premium for those Valley and Peninsula office assets that are in close proximity to the Caltrain stops and particularly the bullet locations. Platform 16 and the plaza development and our other development are less than one mile from the Diridon Caltrain bullet stops, as well as future Bart connection I think the last owner occupied new construction in downtown San Jose was in 2009, a 11 years ago, and it was based on a set of plans that was drawn in 1987, we believe downtown San Jose has seen some significant growth, and as you read in the Wall Street Journal it's clearly coming. But last but not least, we're going to get the Boston. The CBD Cambridge and Waltham Lexington, continue to be the beneficiaries of ongoing growth in the technology and life science sectors and significant migration from the outer suburban market and corporate relocation.

As the Boston region, comprises more than one-third of our NOI, we are benefiting from this growth in a big way. Similar to San Francisco. There is very little available space in large blocks in the Boston CBD. There are multiple buildings under construction in Boston, which will deliver in late '22 and '23 with some current availability and there are active plans for new construction, including as Owen suggested are permitted project at 171 Dartmouth, that's the Back Bay station site, which will create additional supply in 2023 and beyond to meet demand and an interesting twist, many of the new buildings are being designed for life science users as we availability in Cambridge has all but disappeared.

Our CBD, portfolio is 99% leased today and we continue to complete forward leasing transaction. During the quarter we did about 200,000 square feet including 72,000 square at the Hub on Causeway as Owen talked about. In addition, at 200 Clarendon, we continue to get early renewals and expansion. We completed over 114,000 square feet of leases with an average increase of rents of 30%.

In Cambridge, 145 Broadway, 485,000 square feet building leased to Akamai is open and to put the strength of the Cambridge office marketing perspective if the Akamai lease which was negotiated in 2016 were to roll to market today, the mark-to-market would be over 50%, four years, four years. There continues to be significant demand in the Waltham Lexington suburban market, which is where we have our largest availability in the region in 2020, our 200 West Street project, which is actively being converted to lab use we'll be ready for tenant build-out in the third quarter we will continue to expand our potential tenant universe in Waltham to include lab requirements. New construction office rents in this market are in the mid-40s triple-net and lab rents are pushing through $60 triple-net.

Our 180 City Point project is permitted and in a position to start with, either a lab or an office installation. I'll conclude with a comment about the Prudential Center Observatory. Later this year we expect to commence on major repositioning of the 50 to 52nd floors of the Prudential Power. We anticipate spending in excess of $125 million creating an extraordinary experience for local area residents and visitors to Boston, expect an initial return on this capital investment including foregone income from this space, which is part of our 2020 guidance, in line with our recent development projects and we hope to open this public facility in mid 2022. With that, Mike has some comments about the fourth quarter results and 2020 outlook.

Michael E. LaBelle -- Executive Vice President, Chief Financial Officer and Treasurer

Great, thank you, Doug. Good morning. As Owen described, we had a really strong year in 2019. In addition to our 11% FFO growth, we demonstrated substantial revenue growth of 9% and the growth came organically from higher occupancy and higher rents in the same property portfolio, as well as externally from the delivery of developments. Our share of 2019 same-property NOI growth ended the year higher by 5.4% over full-year 2018 and it was even higher on a cash basis at 6.7% growth. We also had an incremental $78 million in NOI from our developments, contributing 6.5% to our growth and we still have an active pipeline of $3.1 billion in developments under construction that are projected to provide incremental earnings growth every year for the next several years.

Turning to our fourth quarter 2019 results. We reported funds from operation of a $1.87 per share and that was $0.02 per share above the midpoint of our guidance. The increase was primarily from improved portfolio revenues due to a combination of leases commencing earlier than projected as well as better-than-projected service income from our tenants in the quarter. Our results would have been $0.01 stronger had we not incurred a $1.5 million charge from extinguishment of debt. We elected to prepay a $26.5 million mortgage encumbering our New Dominion property. The loan carried a high interest rate of 7.69% and the repayment is reflected in our lower interest expense assumptions for 2020.

Looking ahead to 2020, we have updated our FFO guidance with changes primarily coming from a pending asset sale and changes in our interest expense assumptions. Our portfolio NOI assumptions remain in line with last quarter's guidance. Doug detailed the solid leasing activity we're seeing in the majority of our markets, which gives us confidence in our ability to deliver ongoing same property growth. Our assumptions for 2020 includes same-property NOI growth of between 3% and 4.75% and incremental growth from our non-same properties, primarily our development deliveries of $60 million to $70 million.

As Owen described we have New Dominion under contract for sale and we expect diligence to be completed in the sale to close in the first quarter. The sale results in a significant gain. We plan to complete a like kind of exchange with 880, 890 Winter Street that we acquired in 2019. And the acquisition of the land under our 4th in Harrison development in San Francisco that is currently under option. These exchanges allow us to retain the sale proceeds for reinvestment in higher growth developments.

The projected earnings impact of the sale, net of interest earned on the proceeds is $0.04 per share of FFO dilution compared to our prior guidance. The other change in our assumptions relates to reduced interest expense. We now anticipate that we will commence construction this year on the first phases of both our Platform 16 development in San Jose and our 4th in Harrison development in San Francisco. The associated capitalized interest for these developments reduces our interest expense assumptions. Also contributing to the reduced interest expense are the repayment of the New Dominion mortgage and lower interest rates overall. The combination of these items lowers our assumption for net interest expense by approximately $15 million at the midpoint and our new range is $395 million to $415 million for 2020. So, we are increasing our guidance for 2020 funds from operation by a penny per share at the midpoint, despite the projected dilution of $0.04 per share from asset sales.

Our revised guidance range is $7.47 to $7.65 per share. So, excluding the asset sale, we would have increased our guidance by $0.05 per share. All of this points to continuing our strong earnings growth rate with 11% FFO growth in 2019 followed up by projected 8% FFO growth in 2020 at the midpoint. Our 2020 growth will be driven by strong top-line revenue growth from increasing rental rates in our existing portfolio and the delivery of profitable developments from our pipeline. We have a robust $3.1 billion development pipeline under construction with the commercial space currently 76% pre-leased. This plus the expected additions of Platform 16 and 4th in Harrison later this year, position us well to deliver continued multi-year growth.

That's all we have for our formal remarks, I think the operator will now open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Nick Yulico with Scotiabank.

Nick Yulico -- Scotiabank -- Analyst

Okay. Good morning, everyone. I guess starting out with the new joint venture in South San Francisco. Clearly very strong market, can you just give us a feel for how this is going to work in terms of redeveloping existing buildings versus doing new development? And if there is any -- I know you're going through the plans still, but is there any early indications of how we should think about cost per square foot incrementally to build this out, along with rents, you think you can get in the market today?

Owen D. Thomas -- Chief Executive Officer and Director

Nick, let me -- let me start off, I'm sure, Doug will have a few comments as well. So just to back up for a second and talk a little bit about our rationale for doing this joint venture. Gateway is a very well-located office park near transit in South San Francisco, which is a very strong lab market and, frankly a less strong office market. The keys that drove the joint venture is there is a land parcel that is located between our assets and Alexandria's assets that are part of this joint venture. And that land is owned by us, but it's encumbered by a surface parking easement by one of the Alexandria buildings. So by doing this joint venture, both we and Alexandria are contributing our rights to that site. And we can develop on it. So, this JV opens up that parcel to new development and we and Alexandria also contributed additional sites. And also on the Boston Property site, we have some excess parking that we can contribute to as well. So the way we look at this is from our standpoint and I do think Alexandria's -- this is one plus one equal three. It's -- we're creating value just by putting the two sides together. Also from our standpoint, we get to reorient our investment in Gateway, which is primarily an office project today to the lab market locally, which is much stronger. We free up three new development opportunities. We have no loss of income. So again, I think this is a win-win for both Boston Properties and Alexandria. As it relates to some of your questions about the development, the total development rights, as I mentioned and as mentioned in the release, and in my remarks, is over 600,000 feet. It's on three separate sites. We and Alexandria are -- will -- have been and will be working on development plans for those sites. So we're not prepared at this point to answer some of your questions as it relates to cost. There is a possibility that we could launch one of these buildings this year, so not all of them, but one of them.

Douglas T. Linde -- President and Director

Yeah, I would just add a couple of more, just clarifying comment. So, the current portfolio is our three office buildings, a office building that Alexandria owns a lab building the Alexandria owned and amenity building. So, I think if this way. Right now, we're 100% office and as of the formation of transaction where have about 13% lab, so we've reduced our office exposure and assuming we build all the lab buildings and we do some conversion of some of our -- of the existing assets, we're probably going to be somewhere closer to 50% or 60% lab in this marketplace at the end of the day. Right now, I think we contemplate that the buildings that will be developed will be lab buildings. They're all sort of in a couple of hundred thousand square feet range and we are actually, there is there is a plan that we've agreed to for the first building and we're hopeful that we're going to be in a position to have gotten our permits pulled and start construction on that building by the latter parts of 2020 and as with regards to market rents, I think our view of market rents and is that the lab rents are in the mid-50s plus or minus. And so, we try to achieve a 7% return on cost and I think Alexandria has the same perspective. And so, I can sort of give you a sense of where we think new construction will be.

Nick Yulico -- Scotiabank -- Analyst

Okay, that's helpful. And then, and then just in terms of the 50-50 nature of the venture, are we to assume that the contributions are roughly equal. So, any future spend would be split 50-50?

Owen D. Thomas -- Chief Executive Officer and Director

We are -- the value of what we are contributing is slightly more than the value of what Alexander is contributing. So, the venture starting off with us owning a little bit more than 50% and as we proceed with new development Alexandria, we'll be funding all of it until its trued up to 50-50.

Nick Yulico -- Scotiabank -- Analyst

Okay, that's helpful, thanks. Just one last question on the GM Building. I was just hoping to get an update, I know you've got some leasing done in the quarter. But in terms of the leasing prospects for the remaining vacancy there as well as the upcoming lease expirations and as well, there was -- there has been some reports about Perella Weinberg, which has a lease for. I think 130,000 square feet in the building expiring in early '22. There have been some reports about them being quoted for some other redevelopments in the city. How the renewal prospects looking for that along with the rest of the leasing, you're trying to do right now? Thanks.

Owen D. Thomas -- Chief Executive Officer and Director

John Powers, do you want to take that one.

John F. Powers -- Executive Vice President, New York Region

Yes, we think Perrella will leave. We tried to keep them. We worked on that very, very hard, but for a number of reasons in restocking in place is always difficult. And I think that they will leave the building. We are talking right now to a couple of tenants for that space. I don't know if we'll make that deals, those deals and we have space rolling up, but as Doug said, we had a pretty good quarter at the end of the year. And I'm pretty optimistic. I think we will be moving forward with some amenity space in the building, which will also be a plus.

Nick Yulico -- Scotiabank -- Analyst

Thanks everyone.

Operator

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

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, guys. The $12 million increase in NOI loss from dispositions. Is that all Dominion or is there -- there is no leakage from the JV contribution?

Michael E. LaBelle -- Executive Vice President, Chief Financial Officer and Treasurer

No. not at all. It's a 100% New Dominion. Obviously that's not a net number, right? That's just a gross number.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

So what -- depending on, I don't know what timing you guys have in there. What was the cap rate on New Dominion?

Michael E. LaBelle -- Executive Vice President, Chief Financial Officer and Treasurer

We're not going to talk about that. It's not a closed deal.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then just, you guys had talked about 3 Hudson maybe kicking off sooner than expected. I mean what kind of interest are you guys getting now that a lot of the other resupply is being absorbed and what timing do you think realistically could it be accelerated to?

Owen D. Thomas -- Chief Executive Officer and Director

John, you want to answer that one? John?

John F. Powers -- Executive Vice President, New York Region

Can you hear me?

Owen D. Thomas -- Chief Executive Officer and Director

Yeah.

John F. Powers -- Executive Vice President, New York Region

Yeah. Thanks, Owen. Yeah, we are -- we are pretty optimistic based on the tenant response, first of all, to the building that we've received very positive response. The building, of course, it's on a full-acre and it has avenues on three sides. So it's a great site and we've -- we've designed a building that's -- that's pretty design, we're in a 100% CDs now. So we're -- we've shown it to a lot of brokers, but we've made probably a dozen tenant presentations and it's been very, very well received. So based on that, we are -- we're still rolling with the foundation. The foundation is not quite complete yet. Obviously, we will not go forward without an anchor tenant. We have a stream of tenants that are interested, some have -- we could make a '24 lease expiration date, that would be the earliest that we could make, some of the deals that have been done, that have been announced, those tenants met with us. I think every one of them liked the building, but we could not make the earlier dates that they -- that they really wanted. So we have also some tenants with later dates. We're talking to some '25, '26, even '27s. So I think what we've decided now is we have the building that we want to build. We have the foundations and so this is going to be a win, not if, and we have to just see how it goes over the next quarter or two quarters to see whether we just continue on go forward or we slowed down the construction process.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great. And then just one last one, I know we've talked previously about a land site in Dallas. Is that still kicking around where are you guys on that.

Douglas T. Linde -- President and Director

We are looking at different sites, all the time. And so, we continue to, to think about Northern Virginia as a really important focus for our growth. And so, we don't have anything that we can comment on specifically, but we continue to look at different asset.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Manny Korchman with Citi.

Michael Bilerman -- Citigroup -- Analyst

It's Michael Bilerman here with Manny, Doug, in your opening comments you talked about the three other pre-development project 3 Hudson Yards, which John just talked about Waltham and Back Bay. I guess if you had to think about the probability of one or more of those projects, starting this year. I guess how would you rank them and how much of it is tenant demand driven versus the rents and the returns that you require in getting those projects off the ground, right, because I assume that it's part of both, right. You need it tends to show up, and then you need them to pay the rents that you want for your shareholders to earn the returns that they thought?

Douglas T. Linde -- President and Director

Yes. So I would answer the question in the following way. Michael. The, so we are actively engaged in conversations with tenants, as John said, at 3 Hudson Boulevard and we are also actively engaged with tenants on conversations on both 171 Dartmouth Street and on 180 City Point. We don't have a signed letter of intent with anyone yet. So, I don't, I don't think we're in a position where we're close to announcing something. The rents that we are asking our, I would say commensurate with where the market is today and they are more than satisfactory to provide us with an acceptable return to start those buildings. So, if you force me to push from a timing perspective, I think that the 171 Dartmouth Street building is probably the one where we have the most significant conversation with tenants who we know are going to want to make a move from where they currently are we're expand in the city, and so, I'd say that's probably the one of the three that's most likely this cohort.

Bryan J. Koop -- Executive Vice President, Boston Region

This is Bryan Koop. Some additional color would be as we ended last year with the completion of leasing, let's say for the Hub which was our major exposure on the urban side. It's, we're thrilled with our position on our development pipeline from the standpoint of our basis as well. Because when you look at the recent sales of land at record numbers we couldn't be more thrilled with our position in this late cycle with both the Back Bay station and also Waltham with some of the new sites that have been delivered up for sale exceeding $500 a buildable foot and then you compound that with 6% increases in construction costs over the last five years, we couldn't be happier about our position with these development sites that Doug mentioned.

Michael Bilerman -- Citigroup -- Analyst

Okay. Well, thank you for that Koop. And then the second question, I mean, Owen or Doug, can you take us a little bit behind the curtain on the joint venture with Alexandria, sort of when your discussions started? And also you have a lot of overlap in some of your other core markets, you think about holdings in Cambridge, or in San Francisco. Did you have your conversations expanded to see other ways that you can have a one plus one equal greater than two between your two organizations that do have very similar philosophies to capital allocation, to development, to management through all those sorts of things?

Owen D. Thomas -- Chief Executive Officer and Director

Yeah. So, Michael, it's Owen. We initiated these conversations with Alexandria last year and the reason we initiated it was for the rationale that I went through earlier, the one plus one equals three, reorienting our investment in Gateway from office to lab, no loss of income and also I think not only win for us, but also win for Alexandria. So we initiated it, we just got to close, as you know. We have and we hope to continue to have a strong relationship with Alexandria, but there is no additional dialog with them at this time about other joint ventures or other cooperation.

Michael Bilerman -- Citigroup -- Analyst

Did you discuss at all just selling outright your holdings to them or them selling their holdings to you?

Owen D. Thomas -- Chief Executive Officer and Director

Our preference was to do the deal that we've currently constructed. We think that's a better outcome for Boston Properties' shareholders and selling the park. Because it's all, as I mentioned earlier, it's all office. It's in a strong the lab market. We think we'll create more value for our shareholders by doing the joint venture as currently constructed than we would if we sold it for cash.

Michael Bilerman -- Citigroup -- Analyst

Okay, thanks.

Operator

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

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

Great, thank you. Just a quick follow-up on the JV. Can you talk about who is going to be managing construction and then managing the assets?

Owen D. Thomas -- Chief Executive Officer and Director

So the joint venture will be jointly controlled from a governance standpoint. Alexandria will be the property manager, although we will receive a portion of the fees. We and Alexandria will be co-developers, though Alexandria will be in the lead. And we will also receive a portion of those fees. And we think this structure makes sense given the larger presence that Alexandria has in South San Francisco market.

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

Okay. And it sounds like there's an amenity building that's now going to be included in your joint portfolio in the gateway. I mean what kind of value, do you think that adds to your holdings in that submarket?

Douglas T. Linde -- President and Director

So, this is Doug. We think it hold a lot value, which is why we did the transaction. So, we have three buildings of almost 700,000 square feet that are currently office buildings and are pretty de minimis amount of amenities and we saw that Alexander is building was building at 17,000 square foot high-quality first class amenities building with a significant advantage from a leasing perspective with regards to both office and the lab tenants that are in that marketplace. So, we really, this was, this was truly an opportunity where the two organizations, looked at their assets in this particular submarket and said, we are much better off operating this as one collective as opposed to us sort of doing our own separate things and not being able to untie this piece of land where we owned it and they had in easement on it, and where we had extra parking and other assets and where they had an amendment building. So, you throw all this stuff together and it's a win-win for all of the customers in both locations today and in the future.

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

All right, thanks. And then, Owen, I want to go back to some of your comments at the beginning of the call. I guess starting out maybe just your thoughts on capital flows. You talked about hedging costs and maybe it maybe a potential increase in foreign capital. Just as you look at the office business or office assets that have been kind of slow to trade in the last few years. Do you see a meaningful pickup and if so, kind of what markets and what types of assets, whether it's core value add opportunistic just anything you think may change here.

Owen D. Thomas -- Chief Executive Officer and Director

Yeah. So, I -- if you just look at the numbers, the transaction volume for our space those being larger office buildings, was a little bit up in '19 versus '18, but I think the market is very solid. There is good liquidity. I look at things like interest rate to coating down in cap rates are at least so far have not so that spread between where the cap rates are and the risk free rate is very healthy. From a liquidity standpoint I think there is a lot of liquidity in the world is looking for real estate. I think the US is a very strong destination given that even though our -- we look at our rates as being low. They are lower in most of the other developed countries and cap rates are even lower. So, there is yield available here there is stability available here and I'm optimistic for capital flows going into 2020.

In terms of the markets, I do think there is a higher level of liquidity for the tech and life science sectors of the private capital markets. So, I think competitions for buildings that are in Boston or in San Francisco or in West LA are stronger. I think in general, than they are in New York, for example.

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

Okay. We've heard about the push back just people getting their heads around capex costs when it comes to office. Do you think that's that tone has changed at all or that's going to, that's going to be persistent?

Owen D. Thomas -- Chief Executive Officer and Director

I don't know if it's changed, it's certainly a focus on the private market as well, but again every quarter and I did a couple more this quarter, the cap rates haven't changed much. I mean I've been giving on these calls a pretty robust report on the private capital market for Class A office buildings in our core markets in the cap rates have been sticking more or less in the 4th. So, I think capex is always something that's discussed for office and frankly for all types of real estate. But I don't think it's had a material impact on the cap rate.

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

Okay, and then just finally, you would also commented that business conditions and business confidence in better today than heading into 2019, given some of the global risks at the time. We saw a lot of tech leasing, last year, do you think this is going to spread to other sectors where you could see major large expansions from other sectors into some of these markets or do you think it will still be mostly tech that's taking down most of the space?

Owen D. Thomas -- Chief Executive Officer and Director

Yeah, I think that tech in life science and other creative industries will continue to be the drivers of net absorption. I think the more traditional industries financial customers, legal customers their businesses are fine. They're doing well. I don't see as much growth in those areas. So, I think you'll see them there'll be lease expiration driven leasing. I think many of these employers will also be seeking to upgrade their space, but I'm not sure they're going to necessarily grow substantially.

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

Okay, thank you.

Owen D. Thomas -- Chief Executive Officer and Director

Thank you.

Operator

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

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everyone. Doug, do you believe the technology company demand you mentioned in New York City actually have some runway and could it potentially continue at this pace or potentially even accelerate?

Douglas T. Linde -- President and Director

So, Derrick, I would answer the question in the following way. I believe that New York City as a physical location for the kind of worker that the technology companies are looking forward will continue to be very attractive. It has relatively speaking, the best transportation system in all of the major metropolitan markets. And it has got affordable and reasonable housing prices within great easy proximity to where companies are locating and those two things, in my opinion, are very important determinants for where the technology companies are looking to expand their workforce, plus they obviously have a lot of college-educated workers. So I do believe that New York City, has a lot of legs under it. And on a long term basis will be a market where the technology companies will continue to grow and prosper.

Derek Johnston -- Deutsche Bank -- Analyst

Okay, great, guys. That's it for me.

Operator

Your next question comes from the line of Jason Green with Evercore ISI.

Jason Green -- Evercore ISI -- Analyst

Good morning. A split roll in California has been a topic that's getting a lot of traction to start the year. Just curious if you're able to share your thoughts on the probability of passage and also the impact it would have on your portfolio.

Owen D. Thomas -- Chief Executive Officer and Director

So I'll talk about what the impact on the portfolio will be. And I'm going to let Bob Pester talk about the "probability" of passage. So the way -- the way we look at this is that we have triple net leases and we have gross leases. In a strong market, you can very easily make the argument that well, that the triple net lease escalation of taxes will get pushed along through the tenants, and with the gross leases, the escalation to the tenants if it's not rolling will get passed along, but to the extent that you're resetting [Indecipherable] on gross leases, the question will be how will that impact your net. And if it's a really strong market, you probably could chose to move those gross leases to net leases and sort of continue that "path" along with your other portfolio. The thing about this -- this split tax is that it's very unclear is how the reassessments will occur, how long it will take, how they're going to do it, how much "annual escalation" there will be, and the assessments will be every three years that they get to you, will they be on an annual basis, how long, how many years will take for them to actually start the reassessment process. So all of that stuff is very, very much in flux. If you said to us, OK, well, assuming everything had to get reassessed and assuming you were able to continue to pass along all of your triple net escalations to the tenants, but on your gross leases you had to demonstrate what the impact was, we would tell you it's probably somewhere between $0.02 and $0.03 a share on our portfolio and it would take our average lease length as a year. So we take eight years for that to roll through. Rob, you want to talk about the probability of the split roll packaging?

Robert E. Pester -- Executive Vice President, San Francisco Region

Sure. I think the jury is still out on how this is going to turn out. Although I believe current polling is showing that it doesn't pass and then there is the issue is that's just the first step of them trying to raise property taxes, not just on commercial properties. But then having a second phase that hits residential, which I think is a non-starter for anyone that owns a house in California. This'll play out over the next six to nine months and we'll have a better feel during that time. But at present time, I don't think it's going to pass.

Jason Green -- Evercore ISI -- Analyst

Got it. And then I guess just to follow-up, just given the votes getting closer. Have you seen any change in asset pricing transaction activity in California just relative to this being on the ballot?

Owen D. Thomas -- Chief Executive Officer and Director

I have not.

Douglas T. Linde -- President and Director

And remember that when a new building is sold it get access to market. So, unless there were some odd structure about the way the sale is going to occur every one would assume that the assessment would change and I don't think people are viewing the building escalations after the assessment to have a material impact on the value on a going forward basis.

Owen D. Thomas -- Chief Executive Officer and Director

And that's not a change, Doug. They always been that they always get reassessed on purchase. So, that's always been kind of baked into the in those assets.

Jason Green -- Evercore ISI -- Analyst

Got it. Thank you very much.

Operator

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning, up there. So, two questions from us. So, first one just on the Shearman & Sterling renewal. Can you just talk about what played into that. I don't, maybe every partner there commutes in and out of Grand Central. But can you talk about the things that you were able to do to keep them in that building versus some of the other major law firms that shows and other major tenant that chose to go to new construction. So, I don't know if they're restocking in place. But maybe I don't know if there particular things or if it was just general they just, they like where they office, they weren't interested in relocating to a different submarkets, just curious?

Douglas T. Linde -- President and Director

So, I'll just make one quick comment and then I'll let John describe the negotiation. We're really good at what we do, Alex, and so, tenant like to be in our buildings. I just make that as sort of visceral reaction that. John, do you want to talk about.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you. Thank you, Doug. I appreciate. I would expect nothing less from you.

John F. Powers -- Executive Vice President, New York Region

Maybe I'll be a little more specific. Yeah. They were, I think they were intending to leave. I think they were going to leave. And I have lunch. We've kept in touch with them, but I had lunch with the Chief Operating Officer there and he gave me a list of all the things that we're forcing them to leave, and then we took that list one by one and we responded to it and we found swing space for them in the building, we made a deal with Citibank across the street can move to get there. The conference center. So that would be available. It's very hard to rebuild the conference center pay for that and then move back into a conference center so Citibank as downsized as everyone knows here on the corner and they were, they were ready to do something different with that conference center. So, we made a deal with a firm in London to sublease it from Citibank and then we made a deal with the firm that subleased it to allow Shearman to use it for a year. They go across the street to rebuild their conference center. So, the swing space. The conference center. They had some operational issues in the building, because it was a -- these weren't really build base building problems, but they were problems that stemmed from the way they did their build out, way, way back in the late 1980s and we were able to, on the -- get them to understand how that will happen. From an MET standpoint and they were very comfortable that we're going to fix it all. So, giving you a high point of a number of things on a much longer list, but when we had all that done, they decided when they looked at their alternatives that they could live here happily for another 20 years, which will, by the way, make it 50 years at the end of that 20 that there'll be in this asset.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay, thank you. And then second question is, I was talking to a broker recently in one of the life science markets and the point came up about the political rhetoric that it was on the campaign trail and healthcare and all the fun stuff and the question is if it's having any impact on life science leasing. So, were you -- are you seeing any life science tenants maybe starting to dial back their thoughts on taking space. Based on what may happen in the election or in healthcare legislation or is all that rhetoric not having any impact in life science continues to go full bore?

Douglas T. Linde -- President and Director

So, our venue on life science is primarily in the Greater Boston Market because that's where our life science assets are, and I would tell you that our view is that. Interestingly enough, there are more life science tenants looking for space today than there ever have been and many of those same life science tenants are actually, if you will, warehousing space because they're concerned about finding space as they grow. So, we have not seen any of the rhetoric translate into a of visceral reaction that we should slow down or stop. What we're doing because our business models are going to somehow be stressed by what goes on from a political perspective.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you, Doug.

Douglas T. Linde -- President and Director

We haven't also seen any slowdown in the investment portion of the life sciences. We had a record number of VC investment last year. I think it was one out of every $4 in VC came to the Boston market. We continue to see that and then we also continue to see several of our clients have a pipeline of call it new drugs that are up for approval, which have a tremendous amount of opportunity. So, we haven't seen any of the rhetoric translate into demand.

Alexander Goldfarb -- Piper Sandler -- Analyst

Thank you.

Operator

Your next question comes from the line of Vikram Malhotra with Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the question. So, just two quick ones. One, two quick ones. One, can you pull a sort of WeWork and maybe just a bit of a slowing down in base here in New York and maybe some other markets? Just give us some updated thoughts on how you see BXP Flex evolving and just maybe broader thoughts or specific thoughts on plans for the make-ready suites that you referenced in the past?

Owen D. Thomas -- Chief Executive Officer and Director

Yeah, OK. So maybe I'll make a general comment on the whole shared workspace business. I'll turn it over to Bryan to talk about Flex by BXP. Yeah, clearly, there has been a slowdown in new leasing from the co-working operators, given all of the tumult with WeWork last year. And I think that's not only been true of WeWork, but also some of the smaller operators. And I think the market -- the markets continue to be [Indecipherable] that demand driver has gone away at least for the beginning of 2020.

Bryan J. Koop -- Executive Vice President, Boston Region

Yeah, this is Bryan Koop. If you look at our strategy with Flex in Boston, it's really been almost complementary to our existing products. So as an example, with the Hub on Causeway, we have one full floor that we had always planned on putting in the podium and that's 100% pre-leased and opened last week and we're just thrilled with the product and how it came out. By year-end, we hope to have four locations, but it's really complementary to our existing assets and has nothing to do with what's taking place in the greater market. And then in the greater market on co-working, I think our Flex products has been immune from, call it, a lot of the noise because the Flex product is really for the small-to-medium enterprise and it's not a co-working product per se, it's a space-as-a-service for small-to-medium enterprises

Owen D. Thomas -- Chief Executive Officer and Director

Yeah, so we look at it as we're not trying to grow Flex for the sake of growth, but if we have, we do think the product is interesting to a segment of our customer base. And if we have the right space in the right place, we'll consider future stores. And we're the only other places that we're currently in processes [Technical Issues] we actually got back in November, and it's under way to be a floor of a similar ilk in San Francisco.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. And then just the JV with Alexandria, definitely interesting, thanks for all the color. Is this -- is this a very -- this seems like a very specific deal and a specific opportunity, but just curious as you step back and look at sort of your holdings on the East Coast as well, do you think there are opportunities, kind of to partner with, whether it's private capital or other firms sort of more in a joint venture basis given sort of maybe where we are in the cycle?

Douglas T. Linde -- President and Director

So to answer your -- let me -- I think you asked kind of two questions there. The -- absolutely, this joint venture at Gateway, we're very excited about it. We think it's going to create a lot of value for shareholders versus what we own right now, but it's very specific, it was very specific to the fact that Alexandria on the assets next door and had these sites where the development potential was unlocked. So, that's why we did it. As it relates to joint ventures overall, we are increasingly using joint ventures in our portfolio for different reasons then the Gateway project. We recently brought in CPP to own a 45% interest in the Platform 16 project. They are our partner on the Santa Monica Business Park acquisition that we -- I guess increasingly less recently made. So, we are continuing and will continue to inject private equity into our investment portfolio to extend our capital. But the rationale for that is very different from the rationale of the Gateway joint venture.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. And then just one last quick one. So, the street retail deals are you referenced earlier in the two deals I think you recently did. Maybe just give us a, there is obviously been a lot of churn in 5th Avenue Madison sort of sub markets and I'm just curious, your thoughts on what you don't have a, there's not a massive exposure there, but just your thoughts on where we are in the sort of evolution in terms of rent resets. And do you have a sense of where rents that might be there in the two specific sub-markets where you have exposure?

Douglas T. Linde -- President and Director

So, the answer is, obviously we know the rents are of the deals that we just did, but we're not going to disclose the specifics of what those tenants are paying. I just make two comments and then John Powers if you want to make some more. You're welcome. The first is that, we have now had our second what I would refer to as success successful tenant look at the 5th Avenue store that we have as a great place to conduct their business while they are on doing an ongoing remodel and they've paid what we would believe our fair market rents for that space and -- but they have not invested in -- on the long-term basis. And then on Madison Avenue, we recognize that the rents are not where they were five years ago and so, there is a reset and where that's just the reality. John, do you have any other comments.

John F. Powers -- Executive Vice President, New York Region

We don't have any retail exposures in that area. Obviously, the overall rents have dropped in the retail market, but for a specific store for a specific need, there were still people in the market. Looking at different alternatives. What we've done in some of our other retail is concentrated on food and beverage because that's an amenity to the office towers, which is very important.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. Okay, thank you.

Operator

Your next question comes from the line of John Guinee with Stifel.

John Guinee -- Stifel, Nicolaus & Company -- Analyst

Great, thank you. Wonderful quarter, wonderful guidance, life is good. One question, Mike. You're bouncing up around 6.3, 6.4 net debt to EBITDA. And I think you are on a path to deliver about $800 million to $1 billion of development every year maybe sell $200 million to $400 million of assets. When do you -- what is your self-imposed maximum on your net debt to EBITDA? And when do you anticipate needing to go to the equity markets if at all?

Michael E. LaBelle -- Executive Vice President, Chief Financial Officer and Treasurer

So our, -- we've been pretty consistent over the last many years of targeting net debt to EBITDA between 6.5 and 7.5 times. So we've been able to do a lot of development and deliver a lot of properties without raising equity. We have a number of opportunities in front of us, including two we talked about today and things that are in the future pipeline. And as we determine if those and when those will come in, we will look at all of the sources of capital that are available to us. So we mentioned private equity and bringing that in, and we did that with CVP, we can bring in additional debt, which is very attractive and very inexpensive and we would also consider public equity in the future to make sure that we maintain our leverage in a place where we think we should be.

John Guinee -- Stifel, Nicolaus & Company -- Analyst

Great. And then just a couple of cleanup questions. I don't think 3 Hudson is in your development paid on the sub. Any reason for that or maybe I just missed it. And then second, is everything going smoothly on Dock 72 and WeWork taking it on time, taking space on time?

Owen D. Thomas -- Chief Executive Officer and Director

I'll respond just to the 3 Hudson. So, right now, that's in our land position, and the work that we're doing there is improving the land and since we have not made a commitment or decision to move forward with that full development, we are not putting it on our development page until such time as we would do that. And that's very similar to the way that we handle these other projects. I mean for example, Platform 16 that we talked about, we're doing enabling work, we're doing prep work. So we're improving the land that we have, but until we decide that we're going forward, we aren't going to put those projects on the development pipeline.

John Guinee -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you.

Owen D. Thomas -- Chief Executive Officer and Director

John, do you want to make a comment about Dock 72?

John F. Powers -- Executive Vice President, New York Region

Yes, everything is fine on the WeWork side, they're -- they've built out about two-thirds of this space and they're paying rent on all those space. They have a good number of members signed up. We are slow unfortunately on the amenities and we need to get that done. That will be done in the first quarter and after that's complete we should we expect that more we work members will move in. The amenities 35,000 feet and they are a key part of what we're creating there on the leasing side, it's been very slow. As you know, we do have a proposal and we are trading paper on a 50,000 foot full floor which we are optimistic about but we'll have to see how it comes out.

John Guinee -- Stifel, Nicolaus & Company -- Analyst

Great, thank you.

Operator

[Operator Instructions] Your next question comes from the line of Daniel Ismail with Green Street Advisor.

Daniel Ismail -- Green Street Advisor -- Analyst

Thank you and good morning. So, the observation deck at Prudential Tower, this is something you're going to see to manage internally you look for an operator and then are there any opportunities to add this in other developments like 3 Hudson?

Douglas T. Linde -- President and Director

So, Daniel, we haven't made any decisions, firm decisions yet about how the observation deck, on the pre-tower will get operated. Interestingly, that it's it exists and therefore doing a major renovation of it obviously made a lot of sense. We thought about having an observation deck when we were developing Salesforce Tower. But we just couldn't make the vertical transportation work in that building given where the design, had already been and I would say that at the moment, none of our other assets are candidates for those types of uses.

Daniel Ismail -- Green Street Advisor -- Analyst

Thank you. And then on proposition is on the ballot in San Francisco in March, assuming it passes, does this cause you guys change your thinking on development timing or acquisitions outside of the city, and are you hearing anything from tenants regarding this ballot initiative?

Douglas T. Linde -- President and Director

Bob, do you want to explain what ballot initiative is so everyone understands it.

Robert E. Pester -- Executive Vice President, San Francisco Region

Yeah. Proposition is a ballot measure put forth by John ever link and basically it would tie affordable housing deliveries to the amount of office space that could be delivered in San Francisco, thereby reducing the amount of Prop M allocation if the affordable housing goals aren't met. It's pulling fairly well right now. In our case, the Central SoMa projects all would get their existing allocation that's still outstanding. So, in our case would get another 250,000 feet because they want to get the fees from the developers upfront. We're not hearing anything from any tenants as far as it's impacting their desire to be in San Francisco or they're looking elsewhere, and San Francisco has always been a difficult market developing. So, I don't think it really changes anything.

Daniel Ismail -- Green Street Advisor -- Analyst

Do you think this would impact the an accelerated phasing of projects in San Francisco or elsewhere?

Robert E. Pester -- Executive Vice President, San Francisco Region

Only on the Central SoMa projects that have already been approved. Where it would accelerate the second phase of their Prop M alignment. So what the impact will be is existing product, the rent should continue to rise substantially, because it's going to restrict supply.

Douglas T. Linde -- President and Director

So, Danny, the way the way this works is that the projects that are currently in the pipeline in south -- in Central SoMa will get there additional allocation. The reason why there would be theory an acceleration is because if you don't use your Prop M allocation within a certain period of time. Bob I think it's two years, then it really, it goes back into the bank and so, to the extent that you get the allocation you'd want to figure out a way to use it.

Daniel Ismail -- Green Street Advisor -- Analyst

Makes sense. Thanks, everyone.

Operator

There are no further questions at this time. I would now like to turn it back over to the speakers for closing remarks.

Owen D. Thomas -- Chief Executive Officer and Director

Okay. Well, I think that concludes all the questions, that concludes all of management remarks. Thank you all for your the attention and interest in Boston Properties. Thank you.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Sara Buda -- Vice President, Investor Relations

Owen D. Thomas -- Chief Executive Officer and Director

Douglas T. Linde -- President and Director

Michael E. LaBelle -- Executive Vice President, Chief Financial Officer and Treasurer

John F. Powers -- Executive Vice President, New York Region

Bryan J. Koop -- Executive Vice President, Boston Region

Robert E. Pester -- Executive Vice President, San Francisco Region

Nick Yulico -- Scotiabank -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Michael Bilerman -- Citigroup -- Analyst

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

Derek Johnston -- Deutsche Bank -- Analyst

Jason Green -- Evercore ISI -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

John Guinee -- Stifel, Nicolaus & Company -- Analyst

Daniel Ismail -- Green Street Advisor -- Analyst

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