Boston Properties Inc (BXP) Q1 2021 Earnings Call Transcript

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Boston Properties Inc (BXP 1.89%)
Q1 2021 Earnings Call
Apr 28, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Boston Properties First Quarter 2021 Earnings Call. [Operator Instructions]

At this time, I'd like to turn the conference over to Ms. Sara Buda, VP of Investor Relations for Boston Properties. Please go ahead.

Sara Buda -- Vice President, Investor Relations and Communication

Thank you. Good morning, and welcome to Boston Properties First Quarter 2021 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 statements.

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

Owen D. Thomas -- Chief Executive Officer and Director

Thank you, Sara, and good morning, everyone. The BXP team is joining you today from our offices all over the country where we're beginning to see renewed signs of life as our cities reopen with increasing activity on the street, in shop and restaurants, on public transportation, and yes, even in office buildings, where building census is picking up and tour activity is accelerating. U.S. GDP is growing at 4.3%, over 1.6 million jobs were created in the first quarter. Weekly jobless claims are in decline and unemployment has dropped to 6%, only 2.5 percentage points above pre-pandemic levels of February last year. Professional service employment has remained healthy, which is important given our tenancy. U.S. retail sales surged 9.8% in March and air travel, as measured by TSA checkpoints, is up 10 times over a year ago, but still only 50% of pre-pandemic level.

The U.S. and global economic recoveries continue to follow the course of the virus and vaccination rollout. While new COVID-19 cases have remained sticky at around 60,000 per day since late February, all data, including three million daily vaccinations, 43% of Americans having received at least one shot and the J&J vaccine reinstatement suggest the trajectory for a highly vaccinated population and fewer new COVID infections remains positive.

The U.S. economy will likely continue to surge, given the financial health of most industry sectors, the significant federal fiscal stimulus provided to individuals and small business, accommodative monetary policy and pent-up consumption sparked by the pandemic reopening. This recovery is starting to bring positive momentum to the office markets and BXP's result. For the buildings we can track, our census last week was, depending on the city, at or above the post-pandemic peak established last October.

In the first quarter, we completed 592,000 square feet of leasing, 84% of the leasing volume we achieved in the first quarter of last year and 46% of our longer-term first quarter average. These leases had a weighted average term of 7.6 years. Our leases that commenced this quarter demonstrated a 15% roll-up of net rent for second-generation space. We exceeded our FFO per share forecast for the first quarter and the tenant charges we experienced in 2020 largely disappeared.

More broadly, tenant requirements in our target markets in March, based on data provided by VTS, were up 33% versus the prior month and 51% versus the prior year, though we're only down -- though are still down 40% from pre-pandemic levels. Office markets are lagging other asset classes because very few employers are currently mandating in-person work. That is now changing rapidly as many large employers, such as Google, Goldman Sachs, JPMorgan, Ernst & Young, Facebook, Amazon, Apple and others have announced return-to-work plans for this summer. We continue to see Labor Day as a key tipping point for employees returning to the office, with forecast low COVID infection rates, high vaccination levels, the end of summer and schools reopening. We hear repeatedly from our clients as well as in interviews we have completed with large occupiers that the key to future success and competitiveness is to successfully reintroduce in-person work. Unlike most recessions, most of our clients are thriving and have not reduced headcount. In our leasing activity and renewal conversations with clients, we have not seen material reduction in space requirements.

Now moving to private equity market conditions, there were $15 billion of significant office assets sold in the first quarter, though volumes were down 37% from the first quarter of last year. Assets with limited lease rollover and anything life science related currently receive the best pricing, often better than before the pandemic. There were again several deals of note completed in our markets, including in San Francisco The Exchange on 16th located in the Mission Bay district sold for $1.1 billion or $1,440 per square foot, a record price per square foot in San Francisco and it represented a 4.9% cap rate. This 750,000 square foot recently developed building is 100% leased to a tenant trying to sublease the entire building. The asset was sold to a fund manager, which may attempt a life science conversion.

In Seattle, 300 Pine, the Macy's building sold for $600 million or $779 per square foot and a 4.4% cap rate. The majority of this 770,000 square foot asset was recently converted to office space, which is 100% leased by Amazon, and the remainder is undergoing further renovation. The building was purchased by joint venture between a fund manager and a real estate operator. And in the Washington, D.C. CBD, a 49% interest in Midtown Center was sold to an offshore buyer. The building comprises 870,000 square feet and is substantially leased to Fannie Mae as its headquarters. The gross sale price was $980 million, $1,129 a square foot and a 4.7% cap rate.

Moving to BXP investment activities. Let's start with our growing life science business. BXP currently has over three million square feet leased to life science clients, approximately two million square feet of current and future office to lab conversion projects, and sites for approximately four million square feet of life science ground-up development, primarily located in among the strongest life science markets in the U.S., namely Cambridge, Waltham and South San Francisco. We recently received one million square feet of new entitlements at Kendall Center in Cambridge, and our joint venture at Gateway Commons is in discussions with local authorities in San Francisco to increase entitlements by 1.5 million square feet. We had a very active first quarter launching three new lab developments and redevelopment projects. 180 CityPoint, a 330,000 square foot ground-up development and part of our larger CityPoint campus in Waltham with strong visibility from I-95.

Second, 880 Winter Street is a 224,000 square foot Class A office asset we acquired in 2019 for $270 a square foot, and we'll redevelop into a lab building. And 751 Gateway, a 229,000 square foot ground-up lab development as part of our Gateway Commons joint venture in which we own a 49% interest. Though all three projects are being commenced speculatively, we are seeing many new life science requirements in both the Waltham and South San Francisco markets and have made multiple lease proposals to potential tenants. A large portion of our active development pipeline is now lab and currently comprises 920,000 square feet and $560 million of projected investment for our share with projected cash yield at stabilization approximately 8%.

BXP has a rich history of success serving the life science industry. We have the land and building inventory in the strongest life science clusters in the U.S. as well as the execution skill and client relationships to make life sciences an even more meaningful component of our overall business. Moving to the balance of our development pipeline. We delivered into service this quarter, 159 East 53rd Street with 195,000 square feet of office fully leased to NYU as well as the HU, which will open after Labor Day and serve as a unique culinary amenity for our three building, 53rd in Lexington Campus. We remain on track to deliver our 100 Causeway development in Boston later this year, which is pre-leased to Verizon, and we have four additional and significant projects slated to deliver in 2022. This pipeline is 86% pre-leased with aggregate projected cash yield stabilization projected to be approximately 7%.

To maintain our external growth, in addition to adding the three life science projects, we also are investing approximately $182 million into an observatory redevelopment project on the top of the Prudential Tower in Boston. When complete, the observatory will have three levels, comprise 59,000 square feet and will be a world-class attraction, featuring both indoor and outdoor, 360-degree viewing decks as well as exhibit an amenity spaces. The project will be the only observatory in Boston, and we expect it will generate strong return to BXP after delivery in the spring of 2023.

Net of all these movements, our active development pipeline currently stands at 10 development and redevelopment projects comprising 4.3 million aggregate square feet and $2.7 billion in total investment for our share. We expect these projects, along with the lease-up of two residential buildings delivered in 2020 as well as 159 East 53rd Street to contribute 3.5% of annual and external growth to our NOI over the next three years. We continue to actively pursue value-added acquisitions in our core markets in Seattle. Despite the impacts of the pandemic, office investment opportunities in our core markets remain highly competitive. To enhance our financial resources, execution speed and returns, we have reached an agreement with two large-scale sovereign investors to pursue select acquisitions together. The partners, including BXP, will commit up to $1 billion and we'll have the opportunity to invest 1/3 of the equity in each identified deal at their discretion. BXP will provide all real estate services and has agreed to commit its acquisition deal flow to the partnership, subject to specific carve-out.

We believe this venture with approximately $2 billion of investment capacity provides us the financial resources and return enhancements to be an even more nimble and competitive participant in the acquisitions market. We will announce the completion of the partnership, including the participants once documentation is complete, likely in the next month. Moving to dispositions. We recently completed the sale of our 50% interest in Annapolis Junction, Buildings six and 7, our last two remaining properties in the Fort Meade, Maryland market. The buildings totaled approximately 247,000 square feet and sold for a gross price of $66 million, which is $267 a square foot. We have under contract three buildings in our VA 95 Business Park in Springfield, Virginia for a gross sale price of $70 million. And we also have under letter of intent, the sale of several stabilized suburban buildings for another approximately $190 million. Additional asset sales are being evaluated, and we believe our gross disposition volume in 2021 will exceed $500 million.

To conclude, BXP is emerging from the COVID-19 pandemic with strength and momentum. Leasing volumes and requirements are rising, office collections exceed 99%. Our clients are healthy, if not thriving. Tenant credit charges have largely disappeared. Our $30 million per quarter of lost variable revenue is poised to return with offices reopening. We've launched new life science development. Our active development pipeline is expected to deliver strong external growth, and we've raised the war chest for new acquisitions to add even further growth. I remain confident in both our near-term and long-term growth prospects. I'll turn it over to Doug.

Douglas T. Linde -- President & Director

Thanks, Owen. Good morning, everybody. I'm going to try and give you my best shot at describing the operating environment that we are seeing in our portfolio as we sit here in late April. So as Owen said, the office tenants are deep into planning for their return to the physical in-person work environment as we approach the back half of 2021. And while there are lots of announcements, as Owen said, of relaunches, and our building census is up, we're still pretty low levels. And I think you can see that most clearly from a financial perspective, when you look at our monthly or daily parking, which was basically flat in the first quarter to where it was in the fourth quarter of 2020. Although just yesterday, as an example, we had our meeting for our California parking, and we had 67 requests for additional monthly spaces, 42 of them which are hard. And to give you a perspective, we actually lost more than half of our monthly parking over 800 monthly spaces in Embarcadero Center. So things are picking up.

When we spoke to you late in January, we said that the first half of '21 was going to have a low level of market leasing activity as defined by executed leases and that statement still holds. The reports that are published by the commercial brokerage organizations describing broad market conditions and all the calls that are sponsored by the analysts that follow our sector, really didn't have any surprises in them. Leasing volumes were off their historical pace. There was modestly more sublet space, which was added to the market, and that translated into some negative absorption and increased availability. No surprise, no shock.

Last quarter, I described the dynamics around sublet space, particularly opportunistic sublet space. Again, this is when tenants are listing their entire premises, obviously, at no cost with an expectation that they'll decide what to do if they actually get an offer that they can actionably respond to down the road. But the reality of transactioning when push comes to shove is that tenants may reoccupy, they may relocate and transact. And then they may find a way to sublet a portion of their space, but not the whole space. So giving you a couple of examples. In Boston, we had a 50,000 square foot tenant, two floors in our CBD portfolio list their entire space. This successfully relet -- sublet one floor and then they pulled the second floor off and they are reoccupying in July. We competed actually against the long-term fully furnished sublet space in Mountain View in the Silicon Valley, and the user began to negotiate on a sublease. But when the prime landlord refused to agree to recognize the lease, the user quickly walked away and took direct space. So I'm not going to downplay the fact that there is a lot of sublets based on the market, but a large portion of it is not actionable because of short-term unworkable existing conditions or, quite frankly, users' discomfort with the lessors profile. And when you ask what percentage is, I don't know, but it's meaningful. And yesterday, JLL came out with a report saying there was about 1.5 million square feet of New York City sublet space that was brought -- pulled from the market by those subtenants.

Now the headwind from the sublet space are going to exist, but they're going to dissipate as companies return to in-person work. Obviously, we are also confronting the caution that some organizations are facing as they work through how they move beyond having their employees working from their homes and only interacting on video calls that are typically scheduled days in advance. This may delay decisions to increase space needs, even though companies have hired more staff as Owen said, during this COVID shutdown and now as the economy is reopening. This backdrop is obviously going to add some more short-term pressure on lease economics in some markets. It's not going to affect all the markets in the same way, and it's certainly not going to impact all the buildings in the same -- in those markets in the same way either. The potential impact on pricing of sublet space and work from home makes a really dramatic commentary, but it's not going to be driving Boston Properties' results. I hope the following analysis will illustrate that point.

So the average gross rent on our expiring office space portfolio in 2021, 2022 and 2023, so the next almost three years, totals about 5.8 million square feet and the average expiring rent is about $65.50 per square foot. So if you believe that pre-pandemic market rents on that space were $70 a square foot, and I'm just using that as an example but it's close, and you wanted to measure the impact of some kind of a decline. And this is an example, not a statement of where I think -- what we think is going on with rent, so let's use 10% as an example, then you would get to about a 4% roll down in rent or $2.50 a square foot or approximately $4.8 million per year over three years. That's it. That's the impact of the decline in rents on our portfolio from weak conditions. And as a point of reference, the change in second-generation gross lease rents this quarter was positive 9.5%. Now that's sort of deals that started and were signed previous to this quarter.

As I go through my remarks, I'm going to talk about where rents are on spaces that we've physically signed leases on this quarter or that we're working on now and how those rents compare to existing in place rents. So as I pivot my remarks to the Boston Properties' portfolio, I'm going to describe our level of activity, and I think it's going to be counter to weak macro market conditions that you're hearing about in macro reports. So let's start with our occupancy. Our in-service portfolio occupancy includes a 100% of our JVs, ended the quarter 140 basis points down or 640,000 square feet. Now 50% of that space that was added to our vacancy this quarter provided no revenue over the last 12 months. That is, it was a space that we were trying to recapture from defaulted tenants. In other words, much of this drop in occupancy doesn't reflect in any future revenue decline. This includes the Lord & Taylor Box, that's Prudential Center, where we are in active discussions that we expect will result in a dramatic increase in the revenue from that piece of space. The office space that was given back by Ascena at Times Square Tower and their Ann Taylor retail outlets at the Prudential Center.

Next quarter, we're going to have another one of these as we take back the ArcLight cinema space since they've officially ceased to operate. That's a 66,000 square foot lease at the hub on Causeway joint venture. And again, they never paid rent. Also this quarter, we took back 62,000 square feet in a recapture, so we could expand a growing tenant that we are negotiating a lease extension on and expansion at Colorado Center. But that lease hasn't been executed yet to the spaces in vacancy. We did have one disappointment, which was the 200,000 square foot departure at the Santa Monica Business Park. We, however, today, as I sit here talking to you, have 640,000 square feet of signed leases that have yet to commence, and they are not included in our occupied in-service portfolio. Unless we're actually booking revenue, we don't consider it occupied.

On a relative basis, my view of the ranking and the activity in our portfolio. So this is active lease negotiations, tours, RFPs, is as follows, from top to bottom: Boston Waltham, we don't really have any space in Cambridge, so I don't include that; Midtown Manhattan is second; the San Francisco CBD is third; Northern Virginia is fourth, followed by the Silicon Valley Peninsula, West L.A., Princeton and the D.C. CBD. All of the transactions I am going to describe to you are post-COVID negotiations having begun in the latter half of 2020 or 2021. So let's start in Boston, which, by the way, represents over 1/3 of the company's total revenue. So during the first quarter in the Boston CBD, we did five leases totaling 37,000 square feet. And in every case, the starting rent represented a gross rent roll-up of between 12% and 25%. We continue to have additional activity in the CBD portfolio, albeit it's with a preponderance of smaller tenants since we don't have much in the way of blocks available, and we are working on eight leases totaling over 60,000 square feet. Of the 13 leases we have done this quarter or in the works, none of those customers are contracting and five are expanding and more than doubling their footprint.

In the suburban portfolio, we completed 124,000 square foot of new leasing. The cash rent on those leases was up by 50%. We continue to have additional activity in suburban Boston. In Waltham, we're negotiating six more transactions totaling over 60,000 square feet. In the suburban portfolio, we have had some existing tenants expand and some contract. But we will be gaining occupancy with new tenants coming into the BXP portfolio, like our new tenants at 20 CityPoint and 195 West Street in Waltham. Again, those leases haven't commenced yet. Life science demand in Waltham continues to accelerate. We announced our plans to reposition 880 Winter Street in early March and have had significant tour activity and have begun making proposals. This 220,000 square-foot building will be available for tenant build-out in the second quarter of '22.

In New York, since the beginning of the year, we've had more physical tours than we had in the comparable period in 2020 and in 2019. We completed three leases during the quarter totaling just 38,000 square feet, including a full floor expansion by a tenant at 399 Park. In total, the growth rents on this space was about 5% higher than the in-place rents. Now I said, New York City is our second most active region, and we're negotiating 14 office leases totaling over 170,000 square feet, including a full floor lease at Dock 72 in Brooklyn. We also have two other active proposals at Dock 72, each in excess of 100,000 square feet. The majority of these New York City leases will be termed in excess of five years, and more than half of those tenants are new to the portfolio. We've had one midtown tenant pull their space off the sublet market and another large tenant that is still has its entire space listed, has begun to repopulate. five of the 14 active deals represent tenants that are negotiating expansions. Activity at The Street plane of our buildings is also picking up. We're negotiating leases for food outlets at our 53rd Street, are eagerly anticipating the opening of the HU Culinary Collective at 601 Lex later this year, and we have a new lease negotiation for our vacancy on The Street at -- in Times Square Tower.

In Princeton, during the quarter, we completed four transactions and we executed a fifth at the beginning of April for a total of 28,000 square feet, and we're negotiating leases for another 29,000 square feet, all new tenants. Activity in the D.C. region was light during the quarter with only 50,000 square feet of office leasing. But as the calendar moved to April, we signed another 170,000 square feet. 210,000 square feet of this total leasing was completed on currently vacant space and included two large leases at Met Square in the district and an expanding tenant in Reston Town Center. We have another 68,000 square feet of leases in process in the D.C. region, including 25,000 square feet in Reston from another expanding tenant. In the Town Center, rents are basically flat to slightly down 1% to 2% since the relet rents have been adjusted by the fact that the current rents have been increasing contractually by 2.5% to 3% for the last five to 10 years. I would also note that retail activity in Reston has picked up. We have now opened four new restaurants since November of '20. We're negotiating leases with new food outlets totaling 27,000 square feet. They're going to open in '22. Pedestrian activity in Reston Town Center is active. California has finally begun to reopen and allowed for higher levels of office occupancy, although it's still way behind the rest of our markets.

During the quarter, at Embarcadero Center, we settled rent arbitration on two multi-floor 5-year extensions and completed another 10-year full-floor renewal. The markup on these three deals totaling 125,000 square feet was 46%. Tour activity for small tenants, a floor or under, has picked up and grown about 40% sequentially month-to-month from January to April. I would characterize half of our San Francisco CBD activity is with expanding tenants and half is with tenants that are contracting. The uncertain level and the lack of pedestrian activity at The Street plane, particularly in the CBD of San Francisco, has been more severe than anywhere else in our portfolio. This has affected tenants' appetite for making any decisions. But large tenants have started to begin to look for space. There have been a number of tours on the high-quality sublet offerings south the market. We see the activity and the proposals on the available sublet space we have at 680 Folsom.

In South San Francisco, we signed a lease of 61,000 square feet at 601 Gateway. That's going to absorb about 50% of the expiration that's going to occur in the second quarter. We are under way at 751 Gateway, our first lab facility development in South San Francisco and have begun responding to proposals for this early 2023 delivery. 651 Gateway will be taken out of service in the second quarter of '22 when the final tenant vacates, and we will commence a lab conversion of that 293,000 square foot building. In Mountain View, we continue to see a constant flow of medical device, alternative energy, battery storage, automotive and other R&D users looking for space. We're in renewal discussions with 24,000 square foot tenant and has commenced lease negotiation with a second tenant for 30,000 square feet on market-ready vacant space, and we have a tenant ready to go on a remaining floor of 18,000 square feet at 2440 El Camino. There are some large tech tenants in the market down in the valley today looking for expansion space, and we are certainly chasing those tenants if the timing were to match for our potential delivery at Platform 16.

In spite of the challenging COVID conditions in California and Santa Monica, we continue our renewal negotiations with a 260,000 square foot tenant at Colorado Center. And as I said at the outset, we've recaptured about 60,000 square feet that's going to roll into that tenant's expansion. We've also signed a lease for 72,000 square feet at Colorado Center with Roku, who's new to the portfolio. And as you may recall, earlier late last year, we did an expansion with staff at the Santa Monica Business Park.

So to summarize the takeaway from my comments. It's true that market fundamentals are weaker than they were a year ago. But what drives our same-store portfolio performance will be occupancy pickup as well as the return of our parking income and the recovery of our retail activity in revenue. There are tenants in our portfolio that are expanding in every one of our markets. Conditions are going to vary dramatically by some market. Rents may or may not decline depending upon the submarket, but we will still have embedded markups in our portfolio. There will be a flight to quality as better buildings see more tenant demand and tenant value paying less of a premium to being the best assets, and this will improve our occupancy. Let me turn it to Mike.

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

Great. Thanks, Doug. Great summary. Good morning, everybody. I'm going to start my comments this morning with a little piece on our activity in the debt capital markets. We had a very busy quarter, and it impacted our results. As we guided last quarter, we redeemed the $850 million of our expiring unsecured bonds that had a 4% and 8% coupon using available cash. But in addition to that and not part of our prior guidance, we issued another $850 million of new 11-year unsecured green bonds at an attractive coupon of 2.55%. The proceeds were used to repay our $500 million unsecured term loan that was due to expire next year and we redeemed at par an expensive $200 million, 5.25% preferred equity security. We incurred noncash charges during the quarter of approximately $7 million or $0.04 per share related to writing off unamortized financing costs. Our next bond expiration is not until early 2023, when we have $1 billion expiring at an above-market interest rate of 3.95%. In advance of that in early '22, we have a $626 million mortgage expiring on 601 Lexington Avenue in New York City. This loan also carries an above-market interest rate of 4.75%. So turning to our earnings results for the quarter.

For the first quarter, we reported FFO of $1.56 per share, that was $0.01 above the midpoint of our guidance range. The variances to our guidance were comprised of $0.04 per share of higher NOI from the portfolio and $0.01 per share of higher fee income, partially offset by the $0.04 per share noncash charge related to our refinancing activity. The portfolio NOI outperformance included $0.02 per share of lower operating expenses during the quarter, much of which will be incurred later in the year. And on the revenue side, we collected delinquent 2020 rent from several of our retail tenants, whose rents are being recognized on a cash basis. These collections drove a significant portion of our $0.02 revenue beat.

As we described last quarter, we believe the vast majority of our tenant credit charges are behind us. Our net write-offs this quarter were immaterial, and collections from our office clients continue to be consistent and very strong. We provided guidance for the second quarter 2021 FFO in our earnings release of $1.59 to $1.61 per share. At the midpoint, this is $0.04 per share better sequentially from the first quarter. The expected improvement emanates from lower seasonal G&A expense and the cessation of preferred dividends from our redemption. Also the first quarter financing charges are not expected to recur. Partially offsetting this, we project lower termination income in Q2. And as Doug explained, our occupancy declined by 140 basis points this quarter, which was expected, but results in a sequential drop in portfolio NOI from the half that was paying rent before.

We expect another drop in occupancy next quarter, followed by a modest improvement in the back half of the year. Doug described 640,000 square feet of signed leases that have yet to commence occupancy. 460,000 square feet of this will take occupancy later this year, representing over 100 basis points of occupancy pickup. While we are still not providing full year specific guidance, given the uncertainty and timing of our ancillary revenue streams, we did provide you with a framework for 2021 in our last call. As you revisit your models for the full year, there are three other changes to consider.

First, our financing activities during the first quarter have a net impact of increasing interest expense by $5 million for the year. Second, we have a loss of rental revenue from taking 880 Winter Street out of service for redevelopment into a life science facility. This has a negative impact of about $2 million. And lastly, the additional $260 million of dispositions that Owen described are expected to result in a loss of about $7 million of NOI. In aggregate, these items are expected to reduce FFO for the rest of 2021 by approximately $14 million or $0.08 per share. Looking further ahead to 2022, we've made substantial investments in pre-leased developments that will drive earnings growth. We anticipate delivering 100 Causeway Street in Boston and 200 West Street in Waltham late in 2021, representing $315 million of investment at our share that is collectively 95% leased.

The contribution from these two development deliveries will not be that significant to 2021, but they will be at a full run rate in 2022. The bulk of the remaining pipeline is projected to deliver in 2022. This includes our building for Google in Cambridge; Reston Next for Fannie Mae in Volkswagen; the Marriott Headquarters in 2100 Pennsylvania Avenue. This represents delivery of $1.7 billion of investment in 2022 at our share and 2.7 million square feet that is currently 85% pre-leased. This $2 billion of investment in conjunction with the recovery of our ancillary income sources and improved leasing activity post-pandemic sets us up for occupancy improvement in a period of solid future earnings growth. With that, I'd like to turn the call back over to Owen.

Owen D. Thomas -- Chief Executive Officer and Director

Thanks, Mike. Before we take questions, there are just the last couple of things here I'd like to mention. Last week, on Earth Day, we published our 2020 ESG report where we made several important commitments. And those include, we set a goal to achieve carbon neutral operations by 2025. In addition, BXP had previously set a carbon emissions reduction goal in line with the most ambitious designation available under the science-based targets initiatives program. In 2020, BXP was one of six North American real estate companies with this distinction and the only North American office company. We also established a new board level sustainability committee to among other things, increase the board oversight of an input for our sustainability issues. And lastly, we launched an internal diversity and inclusion committee last year with the mission of pursuing greater diversity among our workforce and vendors as well as new programs supporting diversity and fairness in our communities.

BXP is proud of its consistent recognition as an industry leader in sustainability and ESG, an area increasingly important to our clients, our communities, capital providers and employees. And then lastly, there's one important milestone that I want to mention. This will be Peter Johnston's last earnings call as he's retiring from Boston Properties next month after 33 years of service. Peter has been an outstanding leader in our Washington, D.C. business, and he will be greatly missed by all of us. Thank you very much, Peter. Operator, we're ready for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hi. Good morning. Mike, I guess just going to the guidance question. On the last quarter, you talked about sort of an unofficial $6.52 when you took sort of the run rate and then maybe changes for the G&A and the various items that you guys had planned, that would suggest that $0.20 pickup with the second half of this year. But you just outlined about $0.08 of negative that is incremental to that. So is that $6.52 sort of now $6.45-ish type number? Or are there some other things that may impact where we should be thinking about where this year will end up?

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

So Alex, the reason I described that $0.08 was because of that fact because these are new things that happened in this quarter that we didn't project in our prior guidance, which was not the payoff of the larger bond that we paid off of the new bond that we did and then the sale of some of these assets. So yes, I want to describe those FFO drops for later this year. Now, we've given some guidance for second quarter, and it does show that we will have pickup later in the year. And I think that if you look at Q2, you're going to -- we expect to have a further drop in occupancy in Q2. And if you look at our rollover schedule, about 60% of the remaining rollover for the year is hitting in just Q2. So Q3 and Q4 has very light rollover exposure. So we do expect to have some pickup in occupancy and revenue in the back half of the year from that leasing activity. And we would expect occupancy by the end of the year to be somewhere between 88% and 89%.

And then as I also said, we have 460,000 square feet signed that is going to occupy this year, so that's part of that number. So the improvement in the back half of the year is coming from a combination of some occupancy improvement in Q2 through Q4. And we also expect our parking to start to improve. Doug mentioned it, we're starting to see some green shoots with the parking that will be helpful. And then we have a couple of the development deliveries that I talked about at 100 Causeway and at 200 West Street, though that is later in the year. So those are really the things that are the pickup in the back half.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. So net, Mike, with the negative $0.08 that you mentioned right now, but you're hoping for positive recovery on the ancillary, the parking, et cetera. It sounds like still we're sort of probably in that upper $6.40s or maybe $6.50 is sort of mentally how The Street should be thinking about it.

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

Yes. I think The Street should be thinking about it as if we're -- we feel good about the ability to kind of improve in the second half of the year. But there are the sales that we're going to have. So it's going to be down from what I told you last quarter.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Second question is, Owen, you didn't mention the MTA site in your prepared remarks. Certainly, there seems to be a lot more interest around Grand Central, especially with the coming of the East side access and the ease of commuting. You got the Hyatt project, whatever [Veno] does with 350 Park. And then obviously, your sight, and I'm guessing there's probably one or two others that people try to pencil. Maybe you could just give an update on how in your tenant discussions, how anchor tenants that you guys would be after are thinking about taking potentially anchoring one of those projects.

Owen D. Thomas -- Chief Executive Officer and Director

John Powers, are you on the line?

John Francis Powers -- Executive Vice President of New York Region

I'm on the line, Owen. First, let me say, we're very excited about the UTA site, is a terrific site. It's a better site now than it was a couple of years ago, and it will be a better site in four or five years than it is now with JPMorgan finishing there. We're entering Europe, so we have to go through the process. We don't know how that will come out. We have to go through the whole community board, et cetera, to find out how big the building will be. We've drawn it in a certain way, and we're very excited to present it. This is going to be quite a few years out from now. So we're not talking to any tenants.

Owen D. Thomas -- Chief Executive Officer and Director

Yes. I didn't mention this because of the time frame, but we're very excited about the site, and it suggests the Grand Central area, we think, is improving.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. Great. Thank you.

Owen D. Thomas -- Chief Executive Officer and Director

Yes.

Operator

Your next question comes from the line of Nick Yulico with Scotiabank.

Nick Yulico -- Scotiabank -- Analyst

Thanks. Good morning, everyone. So I appreciate all the commentary, Doug, on the rents for the leases signed in the quarter. I just wanted to see if you could give us a feel for what the blended gross rent number was, the increase for the quarter, on the sign, not executed leases? And then also, maybe you could just give us a feel for how that number would be different on a net effective basis since we continue to hear this theme that face rents are down less than net effective rents?

Douglas T. Linde -- President & Director

So Nick, I don't have that information at my rental disposal here. The number is obviously up. There were some that I described that were up 5%, and there were some that I described that were up 50%. This quarter, there happened to be a lot more leases that we executed that were up 50% than 5%. So the number is going to skew up. With regards to net effective, none of the transactions that we have been working on have had much in the way of significant changes in either free rent or TIs. I would say we've been building more space, but we were building more space pre-COVID. So there hasn't been a pickup in the cost of space, particularly on the TI side that we've seen yet, which is obviously good. So I don't think that, that has really impacted where our results are showing on a relative basis from sort of nine months ago to where we are today.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thanks. So my second question is on the topic of unassigned seating plans. We have seen some examples on your portfolio, but in the New York City market of some tenants moving now increasingly to assigned seating plan. So space per desk may be going up, right? That's -- but space per employee is going down because you're not going to have employees for every -- that have desk for every employee. And so I guess I'm wondering -- and this is a trend we've seen not only for firm, a mature firm, kind of downsizing, but also for a smaller tech firm who's expanding, but not expanding at the rate as it would have been in the past because it's doing more on the side and seating. And so I guess I'm wondering, in your portfolio, if you're seeing any examples of this, what your thoughts are on that topic? Thank you.

Douglas T. Linde -- President & Director

So let me just give a quick comments on that. So first of all, I described a whole host of expanding tenants in our portfolio. And particularly on the smaller size, they're not making any changes to the way they're utilizing their space. Most of those smaller tenants are in the financial asset management, professional services sector. And they are building out perimeter offices and/or larger workstation areas and everyone is getting a workstation, and nobody is sharing anything, OK? So there's a significant component of the market in terms of the transaction volume that is in that sector. The rest of the larger tenants have -- I think there is a whole spectrum of results that you're going to see. We had a tenant that took 75,000 square feet of space in Waltham, named Imprivata that put a press release out with us a couple of weeks ago and they basically said, we're obviously not putting a workstation in for every single person in our organization who lives in the Boston area, and we're anticipating that there are going to be some people who are working from home.

I have a daughter who's working for a tech company in New York City. And their mandate was, if you're not prepared to Work X number of days per week, you're not getting a permanent workstation, and you're going to have to work on the hoteling side, right? Owen had conversations and he'll describe them with some of the larger technology companies across the country, and they have a very different perspective.

Owen D. Thomas -- Chief Executive Officer and Director

Yes. I would just add to what Doug said. A lot of this we're -- employers are trying to accommodate their workforce preferences. And certainly, that includes flexibility. But if you look at some of the surveys that were done, most notably by Gensler, 90% of those surveys said they wanted a fixed workstation. And I think around -- and I know, around 2/3 of those surveys said they would not trade a fixed workstation for a flexible work benefit. So -- and then you've got the COVID issues, which makes sharing a desk more uncomfortable. So -- look, I can't tell you, Nick, that we're not going to see some of that, but I'm not sure it's going to be a torrent of activity.

John Francis Powers -- Executive Vice President of New York Region

Could I just make -- Owen, could I just make a comment here? John Powers.

Owen D. Thomas -- Chief Executive Officer and Director

Yes.

John Francis Powers -- Executive Vice President of New York Region

I've heard a lot about this and a lot of discussions about this, but I can tell you, in our portfolio in New York, not a single tenant has pulled a building permit to make any changes to this space related to COVID, and we had almost one million square feet under construction during COVID and there was not one change order made by any of those tenants to adjust their plans pre-COVID while they run the construction. So I think this is a lot of wait and see. It takes a lot of capital to make the adjustments that I hear people talking about.

Nick Yulico -- Scotiabank -- Analyst

Thank you.

Operator

Your next question comes from the line of Steve Sakwa with Evercore ISI.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good morning. Mike, I just wanted to try and piece together a couple of things you talked about when you were going through guidance and sort of the bridge from 1Q to 2Q. You guys talked about occupancy being down, but not all of that was sort of cash-paying occupancy. So I just wanted to maybe trying to figure out what's the loss revenue moving into Q2? And then you talked about rents being collected kind of back rent being collected in Q1 for 2020 rent. It sounds like that might have been a onetime pickup. So just trying to think about those two as we kind of move into the next quarter.

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

I agree with you, Steve, that some of the retail rent that we got in the first quarter was more onetime. We had both tenants paying us for delinquency and also we had some termination income in the first quarter that we don't expect to repeat. And our termination income was about $4.5 million for the quarter, so that's more than what it normally would be. So I think that about half of the occupancy that we lost in the first quarter was nonrent paying last year, but half of it was. And then again, we expect to lose some more occupancy this quarter because we have some rollover coming. So I mean, I think that if you think about the amount of kind of lower portfolio NOI from that, it's probably $0.03 or $0.04 quarter-to-quarter. And then there's a couple of cents of lower termination income. And so that's the negative. And then you've got -- the positives for the quarter are, obviously, our G&A seasonal -- the preferred dividend is only about $0.01, and the financing charges were $0.04.

So overall, we're sequentially up. And then again, I think the second quarter should be the bottom and that's when our kind of exposure to roll over really, really slows for the last two quarters and we've got signed leases coming on, and we do have some renewals and some other activity we're working on. Though, honestly, a lot of the activity that Doug talked about that we're working on is for 2022 at this point.

Steve Sakwa -- Evercore ISI -- Analyst

Got it. Thanks. And then I know it's a little bit far out. And -- but when you think about the observatory, how did you guys think about sort of the underwriting for that as you thought about visitors and the expense load? Obviously, we have some exposure and understanding of observatories from one of your other public peers. But how did you guys think about kind of the revenue and the expense structure of that?

Douglas T. Linde -- President & Director

Sure. So...

Owen D. Thomas -- Chief Executive Officer and Director

Go ahead, Doug.

Douglas T. Linde -- President & Director

So Steve, the answer to your question is, at this point, it's an estimate, right? It's a projection. We obviously don't have an observatory experience in Boston that we can point to, but we do have three or four in New York. And we took what I would say is a very conservative view on the number of visitors that we would get relative to the kind of visitation that is going on in New York City. And we have a price point that's lower than the price points in New York City. And we have a long ramp up. And we looked at that relative to the visitors that were going to destinations like Duck Tours, the Freedom trail, the New England Aquarium, the Science Museum, the Museum of Fine arts and we kind of triangulated into a range of where we thought we would start and where we might get to. And obviously, there's an expense load that we will be able to ramp up or down depending upon volumes. And so we don't expect to be cash flow positive in the first six months of this thing.

But as time goes on, we think this is going to be a very productive opportunity, and it's going to be a unique offering in the city of Boston. And we have the capacity to put a lot of people up there and push a lot of people through, and we're creating a dedicated entry. And the thing that I think people will experience that they have not experienced in the Boston market is, you have a 360-degree outdoor experience at the top of the Prudential Tower, looking out to the harbor, to a friendly park, to the back bay in Cambridge, it's an amazing place. I mean you're going to be outside 365 days a year as long as you don't mind cold weather in certain months.

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

This is Bryan Koop. Some additional things that went into it were our service providers that are acting as consultants for us operate several observatories throughout the world. So we use their advice on that. We also had historic numbers from our old observatory plus we had historic numbers from the Hancock Tower, which at onetime many years ago, there was two observatories in the city of Boston. We had numbers from what those two observatories were doing at the same time.

And in addition, we threw in the mix of what we know our daily traffic counts at peak times at the Prudential Center were and what we may be able to capture there as well. But I may add that the city of Boston, we met with them just this last week and toured the mayor through and state officials, and we're really excited about the support they want to provide us on this.

Steve Sakwa -- Evercore ISI -- Analyst

I guess just as a quick follow-up. Do you guys expect this to be kind of a double-digit return on capital or maybe not quite that good?

Douglas T. Linde -- President & Director

I would hope that it starts out in the low single digits. And over a couple of years, gets into the double digits and just goes from there. And obviously, we're going to have to make some capital investment if we get the traffic that we hope we're going to get, but it could be a substantial opportunity for revenue and net income for the company.

Steve Sakwa -- Evercore ISI -- Analyst

Got it. Thanks. That's it for me.

Operator

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

Manny Korchman -- Citi -- Analyst

Just in the conversations with you and other landlords and the brokers, there's this commentary that tour activity is way up, yet leases haven't necessarily been signed and occupancies have dipped. Is that tour activity tenants that are potentially exploring just changing space within the market? And it's just that it's kind of like you going to an open house in your street, even if you're not thinking about moving your personal home and that's why tour activity is up? Or is there sort of a more fruitful result of that tour activity and it just hasn't come yet?

Douglas T. Linde -- President & Director

So I just want to -- I want to sort of ground you in the following, Manny, which is, when we were talking to you in January, I think it was January 30, we were pretty heavily into the last COVID wave, OK? So we are 60 days from that, and we are probably 40 days away out of sort of the worst of it relative to how much virus was around, it takes time for leases to get signed, right? There's a process. So that's why I said there should be no -- shouldn't have been any expectation that the activity in the first quarter was higher than what you saw relative to what was published by the brokerage houses because just -- there wasn't time to do things. We are seeing a lot of activity now that I tried to describe was significant amounts of expanding tenants, particularly on the smaller side, and then tenants that are looking to change their facilities and upgrade their premises.

Now, it is absolutely true that there's musical chairs associated with those kinds of demand generators, right? Somebody is in an older building in 50,000 square feet and they move into a new building, it might be 45,000 square feet, it might be 55,000 square feet. There is no question that there's not a lot of positive incremental growth overall in the market today, but you've got to start someplace, and we're starting with tours and we're starting with lease expirations and we're starting with incremental smaller growth from smaller tenants. And as I said, we're seeing a few signs, particularly in California and some of the other West Coast markets of large-scale demand from some of the large, what we refer to as, tech titans. I can't tell you if that's going to translate into additional absorption of growth from smaller technology companies.

I think my comments were there's going to be a lot of, as we own and I talk, experimentation and figuring this out and there's going to be a delay relative to picking up incremental space while that goes on and people understand how they're going to be utilizing their physical environment and their human capital and how they mesh those two things together. But yes, I think you're going to see a lot more activity. I don't necessarily think you're going to see a lot of positive absorption from growth, but you're going to see positive absorption from sublet space coming off of the market.

One anecdote from Boston, this just may be specific to Boston, but I can't think of one example of tours that we've had over the last, let's say, six months that are descriptive of what you talked about, where it's just you're looking at open houses. When you think of the significance of what it takes to get a tour going, let's say, five or six months ago, for the client and the broker, et cetera, to get them out of homes and coordinate, it's significant. And one of the things that's been really interesting is the quality information that we get on each of these, call it, prospective assignments and these are all very definitive in terms of what kind of square footage they need. And they have no quality of representative of what you're talking about, where they're just out kind of taking a look at around at what might be out there. These are very specific requirements.

Manny Korchman -- Citi -- Analyst

Great. I appreciate that. And then, Owen, I know you give us more details on the sovereign venture or JV in about a month. But just thinking about the acquisition of transaction environment more generally, the assets that have transacted have been at rich valuations and sort of lockdown leases for a long amount of time. That's sort of not what I think you would want to buy, but maybe those sovereigns would buy.

So in those conversations that you're having with them, is this going to be a targeting value-add type stuff? Is it more the types of assets that we have seen trading? And how do you tie sort of the valuation environment right now between those two pools together with forming a JV right now?

Owen D. Thomas -- Chief Executive Officer and Director

Yes. Manny, this -- we're not going to be targeting core assets at low cap rates, that's not our goal. We're a property company. We want to use our real estate skills to create value. We're going to -- this venture is going to be targeting assets that need to be reimagined, repositioned or simply leased up. And we're going to be a major co-investor. And these two sovereign groups like our plans and also forecast that there will be opportunities. As I've mentioned in previous quarters, it is true that most of the deal flow, most of the things that are happening are in the more core like assets because there's liquidity for those, there's not a discussion about lease-up and market rents and those types of things. And the bid and the ask can merge.

I will say, I do think our pipeline of value-added deals is growing. We are looking at more of these deals today. COVID has been going on now for over a year. There's a lot of these -- there are a lot of owners of these kinds of assets that just want to sell for whatever reasons, and we're seeing it more of it come to the market. So we'll see if the bid and the ask will narrow on those deals, but our pipeline is definitely elevated in the last month or two.

Manny Korchman -- Citi -- Analyst

And then, Owen, just to clarify. The size of this venture would be $1 billion of equity total and that gets levered to $2 billion or it's going to be $2 billion of equity total and then you haven't talked about leverage?

Owen D. Thomas -- Chief Executive Officer and Director

Yes. It's not a committed fund. The $1 billion is just the capital that the investors have set aside for the venture. And I do think it's anticipated that we'll carry probably 50% leverage at the property level on whatever we buy. But it will be investment by investment. And if it goes well, it could be bigger. But these are just the initial allocation of the capital to the venture.

Manny Korchman -- Citi -- Analyst

Great. Thanks very much.

Operator

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

Jamie Feldman -- Bank of America -- Analyst

Great. Thank you. Good morning. So I want to get your latest thoughts on co-working and flexible space providers across the markets. As tenants start to think about coming back or the -- or their needs going forward, how do you think those types of users will -- those types of space providers will fit into their plans? And has that changed?

Owen D. Thomas -- Chief Executive Officer and Director

I think, Jamie, I think there will be demand for shared workspace products going forward. I think there'll be individual demand. I think there'll be small company demand. And I think large occupiers as well will want to procure a small percentage of their space on a flexible basis and will pay a premium for it. There's plenty of this product out in the market created by WeWork and many of the other companies as well as landlords like ourselves. And I think the first step will be the refilling of that space. But I do think that demand will come back.

Douglas T. Linde -- President & Director

I mean, you realize, Jamie, that there's a -- I'd say, flexible operator, 2.0 is happening, which is JLL is working with IGW. Newmark is working with another group. Knotel, CBRE or C&W and Hana have their arrangement with industrious. So there seems to be a change in the offering composition relative to it being more of a service as opposed to a transaction where someone is trying to arbitrage retail and wholesale rents, right, where you're taking the space at wholesale and there you're leasing in a retail. So there's going to be some change. And there -- presumably, the landlords that have gotten space back will work with these operators to figure out better ways to market and to achieve occupancy.

I think that the really interesting question, and I wish we had an answer to it is, how profitable can it be? And what are the economics of the transactions that are being signed by the tenants? And obviously, the densities are going to change to some degree because of the nature of how tight those -- many of those operators were packing people in. And will the users pay the premium in order to give the operators the margin necessary to make it work? And I think that we'll see what happens.

Raymond A. Ritchey -- Senior Executive Vice President

Doug, to that point, this is Ray. Bryan hosted a property management seminar with our four top tenants, professional services will offer them this tech. And he posed the question, does co-working play a role in your future spec space needs? Every single one said affirmatively that co-working does have a role in meeting their space needs in the future. And that's directly from the user group.

Jamie Feldman -- Bank of America -- Analyst

Thank you. So do you think from a BXP perspective, those types of tenants grow in the portfolio? Or do you think maybe you just have to have more flexible lease structures to compete for tenants -- larger tenants that want more like flexibility?

Owen D. Thomas -- Chief Executive Officer and Director

I think -- I would just say the following. I think what you're hearing from us is we expect the demand increase. I think the other thing that you've got is you've got a lot of the space that's not full at the moment because they're -- it's flexible. So a lot of the tenants left, the occupancy is quite low. So the first step is just going to be refilling all of the inventory that's out in the market that either landlords own or the flexible operators own themselves.

I think the interesting question, which Doug was touching on is, OK, once all that's full, then what happens? Are the economics of this business such that it makes sense to do the expense of build-out and to build more of it? And I think that's going to be the question that's going to need to be answered in the years ahead once all of the existing supply gets build up.

Raymond A. Ritchey -- Senior Executive Vice President

And Owen, this is Ray again. We're seeing a flight to quality on the co-working, which is really great for our portfolio because in the vast majority of our markets, the best co-working experience is in a Boston Properties' building. So there may be more less attractive co-working things that go by the wayside, and they're going to aggregate in the best options for their clients. And again, that's good for us.

Jamie Feldman -- Bank of America -- Analyst

All right. Great. Thanks for the color. And then you had mentioned both Dock 72 and Platform 16 is seeing a little bit more interest. Platform 16 is obviously larger -- longer out, but can you talk more about what's changed for those assets or how you think about the activity?

Douglas T. Linde -- President & Director

Yes. There are more tenants who are asking for proposals because there -- people have gotten out of hibernation, as Owen and I talked about earlier today. There's just more overall demand. And look, we're negotiating a lease. At Dock 72, we weren't negotiating a lease 90 days ago. And 180 days ago, we weren't talking to anybody. So there's just a natural progression. And look, it's a fabulous product that the team in New York built. And it's ready, available, and we just -- we have to get people to start walking through it and looking for space. And that's what's going on.

And again, I think you're seeing people come out of hibernation relative to large tech demand as well. We saw some of it that was going on during COVID. So it never stopped, but it's -- I think we're going to see some acceleration of that across the country. And hopefully, it will fall into some of the markets that we operate in.

Jamie Feldman -- Bank of America -- Analyst

But would you say it's more the fact that it's closer to where people live? It's not necessarily like a -- or a Midtown Manhattan asset. And there's a change in what people want or know. This is just because the building is finally built, people can tour it, interest is rising.

Douglas T. Linde -- President & Director

John, you want to describe the locational interest from the demand that we have?

John Francis Powers -- Executive Vice President of New York Region

Yes. Well, I think it's more the latter of what you said that, as Doug said, people were back as we got caught with that building with COVID and that we had not finished the amenities prior to COVID and the amenities are a very, very big part of the building. If you haven't seen it, you should really come out. And now it's done, and it's showing really well. The tenant -- one tenant, it's for Manhattan and another tour from Manhattan that Doug mentioned earlier with a lease out and paper being traded with the other 2. One -- two from Manhattan and one from Brooklyn. So it's really -- the buildings, as Doug said, the building looks great and people are out looking at things, knowing that they want to go back to the office and wanted to start the process.

Jamie Feldman -- Bank of America -- Analyst

Okay. Thank you.

Operator

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

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everybody. Thank you. From our data, this is probably the second softest leasing quarter in over a decade on volumes. But when we kind of mix in concessions, it clearly looks to be the weakest, which is understandable. So the question is, are you starting to reduce TIs and free rent? Is the reopening momentum gain steam? Or are concessions at elevated levels still required to get deals done in this environment?

Douglas T. Linde -- President & Director

So Derek, again, I just -- I want to ground you, right, that there was very little activity in the first quarter because of the nature of what was going on with the pandemic. And there's a lot more activity now. The real estate transaction leasing market is a relatively long sales cycle. And I don't think we're going to see dramatic changes and the economics in our marketplaces over the next couple of quarters. If you ask me, will transaction volume and will concessions start to reduce in 2022? I think the answer is, sure, absolutely. I feel very confident that, that's going to happen.

But I think the next couple of quarters, it's going to be -- we're going to be legging into the recovery of leasing volume. And as I said earlier, I think there's going to be not much in the way of positive absorption overall from new tenant growth, but there will be a positive absorption from sublet reduction. And so I think there's going to be concessionary pressure in certain kinds of buildings in certain kind of markets. I will tell you that you could have a building in a market in like New York or San Francisco or Boston, where rents are holding and concessions are not going up. And there may be two buildings next door that have a lot of available space and they're being very aggressive about how they're positioning their space.

So it's going to be very, very different from building to building and from submarket to submarket. But if you want to have a broad general comment about overall levels across the country or across major markets, I think you're going to see a continuation of these conditions for a period of time.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. That makes sense. So how would you describe the pipeline today versus pre-COVID? And I guess more importantly, versus pre-COVID, maybe versus 3Q or 4Q of 2020? And what levels are we at today versus prior?

Douglas T. Linde -- President & Director

So I'm not sure what you mean by pipeline. But what I said earlier in my comments was that in New York City, we have more tours that occurred in the first three months in X number of days of April in 2021 than we had in 2020 and, more importantly, than we had in 2019, OK? That's our portfolio. I don't think, obviously, you can make that same characterization for the market in general.

We have a lot of activity going on right now across the Boston Properties portfolio, and it feels not too dissimilar from what it would have been in 2019 with one exception. That exception is we are not negotiating any large leases with new office tenants on new buildings, OK? And that's a meaningful difference, right? That was a big driver of our volume in the last few years as the team led by Ray in Washington, D.C. and the team led by Bryan in Boston, they did leases with Verizon and with Leidos and with Fannie Mae and with Marriott, right? We're not seeing any of these office new developments in our portfolio at the moment. So I'd say, that's the one substantive change between where we are today and where we were pre-COVID.

Derek Johnston -- Deutsche Bank -- Analyst

Thanks, Doug.

Operator

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

Vikram Malhotra -- Morgan Stanley -- Analyst

Good afternoon. Thanks for taking the question. Maybe just first one on some -- I think you made a comment in San Francisco, maybe it was in the region, you're seeing sort of half the tenants looking for or expanding and half the tenants contracting. Could you maybe just give us a bit more color on those comments? And in the past, just related to that, you've compared and contrasted or, I should say, ranked markets in terms of rent growth expectation. Could you maybe just compare and contrast San Francisco versus New York?

Douglas T. Linde -- President & Director

So -- as I said, in our portfolio, with regard to the transactions we are working on, we're seeing about half of the tenants growing and half of the tenants shrinking a little bit. I mean -- and these are -- again, these are all deals that are under a floor. That's what we're working on. So there's -- these are modest increases up or down. I -- there is no rental rate growth in San Francisco, and there is no rental rate growth in New York in either market today. I would tell you that the conditions in New York, relatively speaking, are a little bit stronger than they are in San Francisco because and, again, I hate to be a broken record.

San Francisco is behind New York in its relative pandemic recovery. We -- New York has been up and running, people being able to go to work, people starting to do things for 9-plus months, and San Francisco really didn't open up until, call it, March. So it's just been slower going, but we are -- as I said, when I described the sublet activity that we are experiencing on the space -- piece of space that is available at 680 Folsom Street, which is a fabulous piece of space, there are a lot of tours from technology companies that are looking at that space. So it's slowly starting to happen in San Francisco, but it's behind New York City relative to recovery.

Vikram Malhotra -- Morgan Stanley -- Analyst

Got it. And just to clarify, so is the office utilization or census lower in San Francisco than New York?

Douglas T. Linde -- President & Director

Yes. Demonstrably, like by 50% of what we currently are at. So if we're running at 20-plus percent in New York City, we're running at 10-plus percent in San Francisco.

Vikram Malhotra -- Morgan Stanley -- Analyst

Got it. And then I think the broad announcement on BXP's plan to go carbon neutral, I think it's 2025 is really interesting and probably ahead of many of your peers. I'm just wondering if you can give us a bit more color. What does the company need to do maybe from a spend perspective or strategy perspective to achieve that? And from an operational perspective, getting to carbon neutral, do you think that brings some benefits?

Owen D. Thomas -- Chief Executive Officer and Director

I'll start. Doug may have some comments on this, too. I think it's three pieces. One is in reducing the energy intensity of our assets, which we have been doing for years. We're down roughly 30% already off a 2008 base year and that's improving and electrifying equipment in our buildings as well as some mixing in some new buildings. Second is converting our power sources from brown to green and we've been doing that with some limited increases in cost, but I've described them as limited and that's probably gotten us another 1/3 of the way there.

I think we will accomplish this goal. We'll continue to turn those dials, both in terms of energy intensity and green power. And then we may have to do some offsets to accomplish the final goal. There is some cost associated with it, but I wouldn't say it's material relative to the overall results of the company. And we think increasingly, it's important to be a leader in this area.

Again, I always say it's the right thing to do, but it's also a smart thing to do because our customers care about it. Our -- certainly, our cities do. We're all in coastal cities. They're increasingly concerned about this topic. Many have their own regulations. Our capital providers care about it. As you know, Vikram, we've seen more and more shareholders at ESG conferences. We did a green bond recently where we thought we got some small benefit from offering a green bond. And I can tell you, our employees certainly care a lot about it. So that's the plan and that's why we're doing it.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thank you.

Operator

Your next question comes from the line of Blaine Heck with Wells Fargo. Blaine, your line is open.

Blaine Heck -- Wells Fargo -- Analyst

Sorry about that. Can you just talk a little bit about -- more about L.A. in general and Santa Monica in particular? It seems like the West side of LA has seen a particularly high amount of sublease space come to the market. And while it's great to see you guys get the Roku lease signed, and I think you mentioned another lease you're close on. Given that you guys saw a pretty substantial occupancy drop at both assets in LA this quarter, can you just touch on whether you think that sublease space is competitive to your vacancy? Or is it mostly opportunistic like Doug was describing?

And then can you talk about any additional prospects you might have, the profile of those tenants that might be kicking the tires in that market? And any thoughts on expected timing to getting those assets back to stabilized occupancy?

Owen D. Thomas -- Chief Executive Officer and Director

So Ray, do you and, John, want to take that one?

Raymond A. Ritchey -- Senior Executive Vice President

John, would you start and I'll provide any core commentary?

John Francis Powers -- Executive Vice President of New York Region

Sure. So first, the commentary on the sublet market, there are a decent amount of both small blocks and large blocks available. And as Doug mentioned, many of which are quite opportunistic. We have some opportunistic sublet space in our portfolio here. But if you go ask the decision-makers at our customers, they'll tell you that, yes, the space is on the sublet market. But we want to be open and flexible in case we capture a sublet tenant. If they come across someone that could backfill part of their space, it doesn't necessarily mean that they're going away. They just might need to downsize or rearrange. So I think that we see a lot of the competing sublet spaces out there that are not actually directly competitive with us and the other West side landlords.

As it relates to kind of what we're structuring with our prospective tenants right now, we're seeing it be the story of the haves and the haves nots. Depending on the industry and the sector, you've got technology, entertainment and content companies that are continuing to grow in a big way. If you look at what we've done with Snapchat and a couple of the leases that we signed over at Colorado Center and the expansion that Doug mentioned with our existing tenant at Colorado, these groups are growing, and they're looking to grow right now. And so we're excited about the prospect of that, while we're being mindful of the need to potentially switch their space and really kind of focus on. Ray, I'll turn it over to you. I want to be cognizant of commentary of what you're seeing and what we're seeing from our tech tenants.

Raymond A. Ritchey -- Senior Executive Vice President

Okay. Well, I would just say that at Colorado Center, I mentioned earlier, flight to quality with another reference, but we're seeing the same at Colorado Center. We are currently, what, 90% occupied. And I think with the activity we've seen in the last three or four weeks, we could easily be 100% leased there within the next six months. Santa Monica Business Park, a little bit different, little older product. We just lost a tenant that decided to shift out of the center, but the internal demand from our existing tenants led by Snap and others. We're quite confident that, that park will return to a fully stabilized point very soon. And I have seen relative to reference to other markets.

I think the West L.A. market may have had a pause, but it's coming back very strong, led by the same tech sectors, as John just elaborated on. And not a lot of new supplies coming on, and Colorado Center and Santa Monica Business Park are really strong market leaders and highly respected by both the tenants of the markets and the brokers.

John Francis Powers -- Executive Vice President of New York Region

Yes. I would add that the proposals that we're putting out there to the tech, media and content firms net effective rates, the face rates are basically right there and the net effective rates are very close to what we're seeing pre-COVID. And there's renewed activity in the first quarter on our prospect list. And they're coming from the credit tenants. We do have a lot of start-up companies that are taking a look that are venture-backed and growing here in West LA. But the other companies, the large-scale tech firms and the large-scale content firms, it's a bit of a race to lock down the quality space. And so we're fortunate to have the Class A space that we do in West L.A. while we do see a lot of the other kind of B and B- space, aggregate these sublet blocks that we don't think are that competitive to what we have here.

Blaine Heck -- Wells Fargo -- Analyst

Great. That's very helpful. Thanks, John and Ray. Second question is just on the demand for life science outside of Boston and in South San Francisco. And I guess, what gave you the confidence to go ahead with three speculative product developments or redevelopments there? I understand that there are smaller buildings than you guys are typically constructing. But to go ahead with three of them at the same time, seems like a lot. So can you just talk a little bit more about your prospects or lease-up at those projects? And maybe more importantly, do you have any concerns related to the supply in the life science segment in the market?

Douglas T. Linde -- President & Director

This is Doug. I'll start. So the most important life science markets in the country by far are Cambridge, Waltham, Lexington, Boston and South San Francisco, Brisbane. It's not even a -- there's not even a close third. And the markets are being led by demand growth. And it's the demand growth that gives us the comfort to be able to start these buildings on a speculative basis with a relatively short delivery time frame because they're fully permitted and we have construction drawings and we bid the cost, so we know exactly what the cost side will look like, and we know what the delivery time is going to look like. And there are -- again, we literally just started the foundations at 751, and we have two RFPs that we're responding to and that's a show-me market. And similarly, as soon as we announced that we were going forward with 880, we've been having about a tour a week. We've already actually responded to two proposals. We have two more proposals that are coming in over the next couple of days that I'm told.

It's just the demand is there because the drug discovery and the changes in the way capital is flowing into the life science sector, particularly into new compound development and new technologies for compound development is concentrated in these two parts of the country, and there is just great demand and it's the demand, Brett -- Blaine, that's creating the confidence that we have to do what we're doing relatively speaking on a speculative basis. We also are sitting in markets that have, I don't know, the vacancy rate for first lab space in Boston is under 5%, and it's probably in the 5% to 7% range in the South San Francisco, Brisbane market when you add in all of the space that's been committed on the new developments.

Blaine Heck -- Wells Fargo -- Analyst

So no real concerns on the supply side?

Douglas T. Linde -- President & Director

Not in the next couple of years.

Owen D. Thomas -- Chief Executive Officer and Director

Yes. We -- look, before -- obviously, before we made these investments, we studied carefully, not only the requirements that were in the market, but also the forecast deliveries. And we do think that demand far outweighed the supply. The other thing I'll just add to Doug's comments, too, there are three projects. They're in two geographic locations and the Waltham assets actually are different, too, because one, they're on different schedules. The lab conversion deal can be delivered for tenant build-out next year, whereas the ground up is you're following. So that also creates a different demand environment.

Blaine Heck -- Wells Fargo -- Analyst

Great. Very helpful. Thank you both.

Operator

Your next question comes from the line of Brent Dilts with UBS.

Brent Dilts -- UBS -- Analyst

Hi, guys. Thanks. Just one question for me at this point in the call, but maybe you can talk about what impact do you think some of the current federal and local tax proposals might have on your tenant base in the leasing market, if they get enacted, just given some of your key markets are already high tax jurisdictions. Thanks.

Owen D. Thomas -- Chief Executive Officer and Director

Yes. I'll start with that. So look, I guess, the most important one that I would point to is the increased taxes in New York state. And the reason I'm pointing that is because it actually happened. Everything else is conjecture at this point. And as we know, plans don't always turn into legislation. So look, I do think that higher taxes are not great for business. I do think that in New York, it does impact a smaller portion of the population because it's primarily the high earning population, which is not a large percentage of people. And a lot of the employers that are attracted to New York are employing broader parts of the population that are not necessarily impacted by those tax increases. But it's certainly not a positive overall for business.

And then at the federal level, again, these are all plans. Nothing has been enacted. The things that we're paying attention to are obviously the capital gains tax change, the increase in taxes for high earners. Again, both of those are going to impact a pretty small percentage of the population. Don't really have a geographic overlay because it impacts the entire country. Then the other one that's in the most recent Biden plan is repeal of the like-kind exchange. And this has been talked about before by federal legislators and it generally doesn't pass. And I think at the end of the day, a lot of the like-kind exchange transactions just don't occur if you get rid of the like-kind exchange benefit. So -- but we'll just have to see how that plays itself through the entire system.

The other thing that we hear is being discussed in Washington is a repeal of the SALT exemption cap. We -- again, I have no idea. We have no idea whether something like that would pass. If it did, it would clearly be beneficial to our footprint.

Brent Dilts -- UBS -- Analyst

Great. That's it for me. Thank you.

Operator

Your next question comes from the line of Omotayo Okusanya with Mizuho. And your line is open. Your next question comes from the line of Daniel Ismail with Green Street.

Daniel Ismail -- Green Street -- Analyst

Great. Thank you. There's been a few mentions of requirements not changing due to the pandemic or at least not changing thus far. Does that include changes on densification due to health concerns? Or is that too early to tell as well?

Douglas T. Linde -- President & Director

We haven't seen anybody reduce their density because of health concerns per se, as John said, that nobody has pulled the building permit. I think it's pretty clear that a lot of companies are being a little bit more thoughtful as they buy new furniture. And they configure space going forward that the spatial separation of people that are in open office areas will be slightly more generous, which obviously is a tailwind to our business because it just means people will need more space. But it's -- honestly, it's not a significant factor at the moment.

Daniel Ismail -- Green Street -- Analyst

Makes sense. And then, Doug, you mentioned parking starting to pick back up in some of these ancillary revenue streams generally picking up in the back half of the year. And I recognize that it's a small portion of your overall business. But how does pricing compare to pre-COVID levels? Has there been any degradation in parking rates or the revenue associated with certain parking spots today versus pre-COVID?

Douglas T. Linde -- President & Director

Yes. So the answer is no, Danny. We have not changed our pricing on any of our ancillary parking revenue, in particular, on the monthly spot -- as a monthly spot. And I mean, look, we know that we will get to a point where we're not going to have parking availability for people. I don't know if that's going to happen in July, September or October. But there's going to be a point where we're going to have more demand for monthly spaces than we have monthly spaces to sell. And that's obviously a good thing for our revenue. It's just a question of when. And -- but we're also not going to raise prices to push demand off. We're in this for the long term. We generally look at our parking revenue, pricing model once a year, early in the year and we stick with it. And we don't -- it's not a dynamic pricing model. We're based upon particular demand. We reduce or increase our pricing on an hourly or on a monthly basis.

Daniel Ismail -- Green Street -- Analyst

And then just last one for me. Going back to the carbon neutral commitments, how many tenants or potential tenants are demanding some level of ESG requirements since just -- I'm trying to get a sense of how large the competitive advantage that 2025 carbon neutral commitment is versus some of your peers and the rest of the market?

Owen D. Thomas -- Chief Executive Officer and Director

I think that's very hard to quantify. I mean I'd just start with saying there's no way it's ever a negative. And I think there are segments of our customer base, some of it industry driven, some of it is city driven that are not as concerned or focused on ESG factors with the building or the landlord. And then there are other sectors and locations where they're hyper-focused on it, and that it's a reason they make a decision. So it's always hard to quantify that in terms of rent. I think certainly, speed the lease-up is helped by it. But again, it's hard to quantify.

The other thing I would say is, it's only going to get better or it's only going to become a bigger issue. And we're already seeing it. Every year, we talk about -- we've been doing this for years. And every year, we talk about sustainability and ESG, the focus on it from our customers and other constituents just goes up every year.

Daniel Ismail -- Green Street -- Analyst

Makes sense. Thanks, everyone.

Operator

And there are no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.

Owen D. Thomas -- Chief Executive Officer and Director

No closing remarks. Thank you, all, everyone, for your interest in Boston Properties. That concludes the call.

Operator

[Operator Closing Remarks]

Duration: 94 minutes

Call participants:

Sara Buda -- Vice President, Investor Relations and Communication

Owen D. Thomas -- Chief Executive Officer and Director

Douglas T. Linde -- President & Director

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

John Francis Powers -- Executive Vice President of New York Region

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

Raymond A. Ritchey -- Senior Executive Vice President

Alexander Goldfarb -- Piper Sandler -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Steve Sakwa -- Evercore ISI -- Analyst

Manny Korchman -- Citi -- Analyst

Jamie Feldman -- Bank of America -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

Brent Dilts -- UBS -- Analyst

Daniel Ismail -- Green Street -- Analyst

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