Oct 30, 2013
Executives
Arista Joyner - Investor Relations Manager Mortimer B. Zuckerman - Co-Founder and Executive Chairman Owen D.
Thomas - Chief Executive Officer and Director Douglas T. Linde - Director and President Michael E.
LaBelle - Chief Financial Officer, Senior Vice President and Treasurer Bryan J. Koop - Senior Vice President and Regional Manager of Boston Office
Analysts
Steve Sakwa - ISI Group Inc., Research Division James C. Feldman - BofA Merrill Lynch, Research Division Joshua Attie - Citigroup Inc, Research Division Michael Knott - Green Street Advisors, Inc., Research Division John W.
Guinee - Stifel, Nicolaus & Co., Inc., Research Division Jordan Sadler - KeyBanc Capital Markets Inc., Research Division Robert Stevenson - Macquarie Research Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division Vance H. Edelson - Morgan Stanley, Research Division Vincent Chao - Deutsche Bank AG, Research Division
Operator
Good morning and welcome to the Boston Properties Third Quarter Earnings Call. [Operator Instructions] At this time, I'd like to turn the conference over to Ms.
Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.
Arista Joyner
Good morning, and welcome to Boston Properties' third quarter earnings conference call. The press release and supplemental package were distributed last night, as well as furnished on Form 8-K.
In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com.
An audio webcast of this call will be available for 12 months in the Investor Relations section of our website. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that 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 Tuesday'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. Having said that, I'd like to welcome Mort Zuckerman, Executive Chairman; Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer.
During the question-and-answer portion of our call, Ray Ritchey, our Executive Vice President of Acquisitions and Development, and our regional management teams will be available to address any questions. I would now like to turn the call over to Mort Zuckerman for his formal remarks.
Mortimer B. Zuckerman
Good morning, everybody. We're delighted to have the chance once again to have a dialogue with you.
As you all appreciate, I'm sure, we're living in a kind of uncertain economic time in general, with a very weak growth in the general economy. In real terms, it's probably growing at a rate of about 1.5% and the average over the last 4 years has been about 1.8%, 1.9% and this compares to previous 4-year periods coming out of recession of all 8 previous recessions since the end of '02 [ph] of 4.1%.
Nevertheless, I must say that we have found in our particular sector of the office building market. We have enjoyed, I think, a fairly good response from our general clientele and we continue to be comfortable with leasing that we are undertaking and experiencing in the context of these generally weak times.
And I think we are continuing to be very cautious about what we do and yet feel very comfortable that we have the both the financial resources and locations that will enable us to take advantage of both development opportunities, which we will describe, and leasing opportunities for our existing buildings. So on balance, I must say that we have demonstrated, I hope, it is a fair thing to say, that the quality of the assets we have in the locations we have and in the markets we have, have demonstrated not only their strengths in good markets but their strength in weaker markets.
We continue to do well in terms of our leasing and I think we're going to show that we are able to develop not only additional rental revenues but a number of additional development opportunities that will continue the path of growth that we have had over all these years. With that, I will turn it over to Owen, who will give you more information about the company.
I'll probably join in on a couple of other comments later on.
Owen D. Thomas
Okay, Mort, thank you. Good morning, everyone.
I'm joined here in Boston by Doug Linde and Mike LaBelle. And the 3 of us will describe our performance and results for the third quarter, provide some color on the current operating environment and describe our current capital allocation strategy.
We will also discuss in more detail the FFO guidance for 2014. As Mort described, we continue to experience a sluggish recovery in the U.S.
However, as we've discussed before, there are bright spots in several industries, such as technology, life sciences, health care and smaller-scale financials, which are benefiting our operating performance in several of our key markets such as Cambridge, San Francisco, Midtown, New York and Princeton. In the third quarter, we performed well.
Specifically, we executed 85 leases, representing approximately 1.9 million square feet of space with reasonable balance across our portfolio geographically. Though San Francisco and Washington were the largest contributors.
Our in-service properties, in the aggregate, are 92.8% leased at the end of the third quarter, up 70 basis points from 92.1% leased at the end of the second quarter. Also, importantly, during the quarter, we made significant progress in identifying tenants for our remaining existing vacancy and our properties under development, which we hope will be reflected in signed leases in the coming quarters.
Now turning to capital strategy. Due to a continued weakness in job creation, more mixed signals from the Fed and the nomination of Janet Yellen as Chairman of Federal Reserve, it would appear fear of rising interest rates, at least for the short and medium term, has subsided somewhat.
Nevertheless, our capital strategy has remained largely unchanged from the last quarter. We continue to actively monetize assets, most recently closing on the sale of a 45% interest in Times Square Tower.
Year-to-date, we've sold 5 assets, raising $1.2 billion in proceeds and we currently have 3 additional assets in the market: a small project in suburban Boston; a building in suburban Maryland; and our Avenue apartment asset in Washington. You should expect our selected monetization activity to continue.
Let me add one comment related to asset sales. While we've given ourselves the flexibility to enter into a 1031 like kind exchange with the Times Square transaction, at the moment, we have not identified such a property.
Therefore, our gain, which is approximately $386 million or $2.25 per share would likely result in a special dividend to shareholders. Now continuing with capital allocation strategy.
We do continue to pursue acquisitions but are finding pricing aggressive for high-quality office assets in our focus market. Our development pipeline remains robust at $2.5 billion in active projects, plus we have a number of additional high-quality developments under consideration, assuming receptive market conditions.
Delivery of all these developments will be a key driver of our growth in coming quarters. Thank you, and I'll turn the conversation over to Doug, for a more detailed review of our markets.
Douglas T. Linde
Thanks, Owen. Good morning, everybody.
I am going to try and give some color to the numerical information that Mike is going to talk about predominantly about our 2014 guidance. So I'm going to describe what's going on in the portfolio, what's going on in the markets, but most importantly, all of these things are influencing our 2014 projections and they're all embedded in the guidance for 2014.
So there's going to be a lot of facts and figures that I'm going to provide you, and I promise, I'll talk as slowly as I possibly can. I'm going to start in Boston or the Boston market.
Cambridge, on the other side of the river, is probably the strongest office submarket that we have in the region. It's got both the biotech and the life sciences and the technology companies all in a very concentrated area.
At this quarter, we delivered our expansion building for Google at Cambridge Center, which is going to hit this quarter but ramp up next year, and we also did our first early renewal. And I talked last quarter about the fact that we don't have any availability in Cambridge, which is in fact still the case, but we do have 14, 15 and 16 renewal opportunities.
So the first one was a 67,000 square foot renewal and the markup was 75% on that space. Office rents in Cambridge are in the low 60s right now, which is about a 30% increase year-over-year.
So, in 2014, we're going to get a full year of benefit from 17 Cambridge Center, that's the building that we delivered earlier this year to Biogen, we'll get a full contribution from the expansion for Google and net incremental revenue growth of about $7 million. Again with 100% occupied, we have a 140,000 square feet of late-2014 lease expirations and about 210,000 square feet of 2015 lease expirations, and there are significant opportunities for roll up in both of those assets.
In addition, we are working with the City of Cambridge right now on the entitlements for a new residential project in Cambridge Center, it's probably about 200 units, $100 million, plus or minus, of investment that we hope to get started, assuming we get the approval, in the early part of 2015. And we are also working on additional density on -- at Cambridge Center, through an overlay district that the city has encouraged us to pursue.
Across the river, in the Back Bay, the rents in the Back Bay Towers are in the mid-$70s at the top, starting rents in the lower portion of those buildings are probably in the high-$40s which interestingly is a discount to Cambridge right now. At the Hancock Tower, we are in lease negotiations with 5 existing tenants, which totals about 225,000 square feet on relocations or renewals in the building.
This quarter, we signed 115,000 square foot relocation and an extension. So to date, in Cambridge -- excuse me, at the Hancock Tower, we signed 446,000 square feet of early renewals or relocations.
Now the interesting thing is that 236,000 square feet of this isn't going to impact our revenues until 2015 because there's a prime lease with Manulife and these were all subtenants that are all going direct. But the roll up on all of this income is a minimum of $15 a square foot, or about 27% on average, in-place rents in the building.
Again, really good embedded growth that we're going to get, we just haven't got it yet and we're not going to get it in '14. The remainder of our urban portfolio in Boston really has pretty limited opportunities for occupancy or revenue gains in '14.
At the Pru Center Complex, we released our last full floor at 111 Huntington Avenue this quarter. And you have to remember that we signed a 15-year lease for about 310,000 square feet last year with Blue Cross Blue Shield, and they are going to be moving into 101 Huntington Avenue in the second quarter of 2015.
Now, we're getting this space back in 3 chunks in 2014 and the revenue loss from the rolldown -- or rollover from the existing tenants until we get to 2015 is about $10 million. So that is again embedded in our projections for 2014.
At Atlantic Wharf, we're 100% leased. And we will be at a full run rate in 2014.
At 100 Federal Street, we're getting back 1 52,000 square foot floor in January and we do experience -- we do expect to have some downtime on that floor in 2014. Average rents in the downtown market are between $40, mid-$40s at the base of the building to the low-$60s at the top of the building.
Our suburban Boston portfolio continues to be very active. Rents in Waltham are up slightly year-over-year and our deals with Bay Colony are all generally starting in the mid-$30s today.
During the third quarter, we completed 71,000 square feet of leasing, bringing our total to about 300,000 square feet during the year. At Bay Colony, we have now completed 165,000 square feet of new leases and we are in negotiations with 2 more large tenants that will bring the total to 275,000 square feet of incremental occupancy growth that's going to start in 2014.
These include another 55,000-square-foot life science company, our fourth at Bay Colony, as well as a large multinational software developer. There is a growing pipeline of additional suburban requirements and we continue to see strong activity in the Waltham market, really stemming from an expansion of life sciences and technology, as Owen described.
Moving to New York City. Our third quarter New York City activity on the in-service portfolio was really an acceleration of the strong activity that we described last quarter.
Demand from high-end small service -- small financial services firms really continued. During the quarter, we completed 18 separate transactions, totaling 168,000 square feet.
We did 6 more deals at 540 Madison, bringing our total in that building to 14, and we have 3 more in negotiation right now. At 510 Madison, we've completed 2 more full-floor deals, bringing the total year-to-date to 5.
So 510 Madison now sits at about 80% leased, not occupied vis-à-vis the supplemental, because the leases haven't commenced yet, but 80% leased. And our expectations for both buildings 510 and 540 are to be in the 90%s by the end of 2014.
The acting and the taking rents at 540 and 510 really have not changed for us over the last year, and quite frankly, nor has the overall pace of market activity at the high-end market, which we defined as tenants who were prepared to pay over $90 a square foot, and we really don’t see much in the way of changes in that in 2014. Our pricing at 540 Madison is from the mid-$70s to the low-$90s, and at 510 Madison, it's from the low-$90s to the mid-$130s.
The remainder of our in-service portfolio is 99% leased in Manhattan. We will be getting 1 floor back sometime towards the middle of 2014 at 767 Fifth, the GM Building, and we'll see how attractive that space is to the market, given the building is literally 100% leased today.
Our predominant user and our target tenant for all of our available space in Midtown continues to be the small hedge funds and asset managers, advisers and the other smaller entities who are involved in the financial services industry. And again, the tenant activity for this market continues to be very encouraging.
When we discussed 250 West 55th Street last quarter, we said we had a number of multi-floor prospects that we were considering and negotiating with, and that we had multiple tours but we really hadn't began to respond to proposals. Well, we've now signed Letters of Intent with 2 of these tenants, are in lease negotiations on space totaling an incremental 242,000 square feet.
We've currently leased 468,000 square feet, so this brings us to 710,000 square feet or 72% committed, and it leaves us with 7 full floors and 2 floors of prebuilt, many of which you, I think, have seen in your tours recently. We continue to have an active pipeline of 1- and 2-floor prospects that continue to tour the remaining space.
So the translation of this activity into revenues is as follows: we will commence revenue recognition on the 468,000 square feet in mid-2014; and the contributions to 2014 NOI is only $10 million. When the 2 leases that are under negotiation get signed, they will, along with hopefully other leases that we're working on, contribute in early-2015 and we expect to stabilize the building at an overall return of just above 6% in 2016.
Mike will address the offsetting capitalized interest reductions in his remarks. In DC, the budgetary issues and the continuation of sequestration still is a factor.
It creates an overlay of uncertainty in the private markets, as well as the public sector. In spite of all of that, we completed 2 major leases, totaling 368,000 square feet, during the quarter in Reston, with defense contractors, that covered 75% of our 2014 and 2015 leased expirations in Reston Town Center.
Rents in Reston Town Center continue to be $15 to $25 a square foot, in excess of what can be achieved in buildings on the Toll Road. Our new apartment development, The Avant, is opening at the beginning of November, and we expect to generate a stabilized return on cost of over 7.5% as it leases over the next 14 to 15 months, stabilizing by early 2015.
Now just before the government shutdown last month, we were able to sign a 125,000 square-foot 10-year lease with the Army Corps, to fully lease our new development at Annapolis Junction, which is adjacent to the NSA and the Cyber Command at Fort Meade. Again, revenue is not going to be able to be recognized until the second quarter of '15 because the tenant has asked us to manage a significant additional infrastructure investment.
The Montgomery office market continues to be the softest in the D.C. area and we are continuing to execute on our decision to exit our holdings in the market.
As Owen described, we have a suburban office building on the market right now and we really don’t anticipate much in the way of improvements in Montgomery County in '14. The absence of incremental demand from the GSA and the District; and changes in space utilization that we've talked about before; as well as the lack, to date, of any new demand generators, but there are people talking about changes to the city that will help that, are the headwinds that the CBD is still facing.
So second-generation space is still plentiful and landlords have, surprise, surprise, expanded their tenant improvement packages to encourage tenants to relocate. And guess what, tenants are going to migrate to newer, more efficient installations in the CBD.
We don't have any 2014 lease exposure but we do have some law firm relocation activity that we expect to happen in '15 and '16, but Ray and our team in D.C. is out in front of this and we're working on replacing tenants as we speak.
Our D.C. portfolio continues to be 96% leased.
At Carnegie Center, we continue to gain both occupancy and extend leases. During the quarter, we did 13 leases for 372,000 square feet.
So in 2013, we've completed 11 leases with new or expanding tenants, totaling 179,000 square feet or a 9% increase in occupancy at Carnegie Center, and we continue to be in discussions with tenants for additional expansion. And while the life science sector is really at the core of the expansion at Carnegie Center, you saw our press release last night, and we've completed a 15-year build-to-suit negotiation with NRG, which is an energy company, for 130,000 square feet that's going to get delivered in 2016.
NRG is going to be expanding from about 90,000 square feet today. So for '14, we will average over 90% occupancy at Carnegie Center.
The majority of our activity in San Francisco this quarter was outside the city. We did 2 lease extensions with Genentech at our Gateway project, but it involved a 50,000 square foot of reduction in their occupancy in 2014, which is embedded in our guidance.
Activity in South San Francisco continues to be slow and we expect to carry this pace for a while during 2014. Activity in the Silicon Valley during the third quarter started to shift from the large requirement to the 50,000 to 80,000-square-foot tenant that seem to be out in the space, given the IPO flurry and they're starting to ramp up their hiring and look for expansion.
We are in the midst of a re-skinning of our Zanker asset in order to prove the marketability of those assets to those types of companies. We've experienced extended vacancy in those buildings because they were older and so we decided to go through and do a major re-skinning, which we expect to be completed in early 2014.
Given that, we're not really budgeting much in the way an income in '14, and in fact, Lockheed Martin is going to be consolidating out of a 165,000-square-foot building in December of this year, so we're going to have about 438,000 square feet of availability at Zanker. In the San Francisco CBD, the lease expiration driven transactions from the traditional financial service law firm tenants are increasing.
There's an 8% availability rate in the market and there is continued expansion from technology tenants. But there's still a gap between tenant's expectations and our expectation for the right rents for renewals and for new leases in the premier buildings.
Last quarter, I suggested that there was a pretty wide gap, well it's narrowing, and deals are starting to be made. In fact, while the view rents are still in the $70s to the $90s, we are actually entering a lease negotiation now with a tenant for the 2.5 floors that we have available in the mid-rise of EC4, which we were waiting on patiently for quite some time.
We believe that the leases will get done in the mid $70s and that the market really is starting to improve for the financial-services-type tenants looking for their next space in the CBD. In 2014 to 2015, mark-to-market at Embarcadero Center is going to run between 15% and 25% on a lease-by-lease basis.
The overall pace of activity in '13 really is in line with the activity at this time last year which was about 5 million square feet of space for the first 3 quarters. Now last year did end with a million-square-foot expansion from Salesforce, so we don't have any expectations that, that's going to happen again.
But we think 2013 is going to look very similar to the overall activity in 2010 and 2011, which is about 6.5 million square feet. Activity from the tech sector, as a percentage of tenants in the market, interestingly, has actually decreased from 2/3 of the demand last year to about half of it this year.
It's not that the tech activity has declined at all, in fact, there are just as many tech users in the market. But the traditional financial services, asset management companies are now conducting searches as the wave of the lease expirations that we've talked about before, between 2015 and 2017, hit the market.
We are negotiating a lease for all of our available space at the 50 Hawthorne building, 55,000 square feet, with a tech user, so the tech demand is still there. And 680 Folsom, 50 Hawthorne is going to be put in service in the second quarter of '14 and is expected to generate about a 6.1% return.
The construction of 535 Mission Street is on schedule, steel is up to the 14th floor and we expect to be able to deliver space to tenants in the latter half of '14, with occupancy and rent revenue recognition starting in early '15. We're encouraged by the initial inquiries in fit plans for the tenants -- for the building.
Remember, the building has 13,000-square-foot floors and we anticipated that it was going to be leased to a broad range of small and medium-sized technology and legal and financial services and other kinds of tenants. Just to give you a perspective on that demand set, for the market.
In 2010, 2011 and 2012, there was about 2.5 million square feet of leasing activity under 25,000 square feet, but over 5,000 square feet, in 230 transactions. That's the market for 535 Mission.
And those tenants typically make leasing commitments within 12 months of their lease expiration. So if the building isn't really going to be available until the end of '14, early '15, we think that there's going to -- and we anticipate that the activity for this building really will pick up during the first half of 2014.
If we average leases with starting rents in the mid-$60s, we're going to deliver this building at a low 7% NOI return. I'm going to finish my remarks just with a little color on our second-generation statistics, because, unfortunately, each quarter, the devil is in the details.
In Boston, the transactions are almost exclusively in the suburbs and the gross rent went from $31.50 to $29.62, or less than a $2 difference. In New York City, there was one deal of 60,000 square feet at 601 Lex, where the rent went from $112 square foot fully escalated, the lease was signed in 2006, to about $100 a square foot.
That's the downturn there. And in Princeton, the decline included 12,000 square feet and the main negative was a 1-year holdover that went to a market deal.
So a surprise when the tenants had holdover, they're paying an above-market rent. In San Francisco, a majority of the deals were small transactions in Embarcadero Center.
And with that, I'll turn it over to Mike.
Michael E. LaBelle
Great. Thanks, Doug.
Good morning, everybody. Before I jump into a discussion of our 2014 guidance, I do want to spend a few minutes on our results this quarter and our expectations for the rest of the year.
For the third quarter, we reported diluted funds from operations of $1.29 per share, that was about $0.01 above the mid-point of our guidance range, or about $2 million. The portfolio NOI was about $2.5 million better than we expected, mostly due to savings in operating expenses and we anticipate giving those back in the fourth quarter.
Our hotel performance was up by about $1 million over expectations and on the other side, our G&A was up a little bit and we incurred some unbudgeted transaction costs that's mostly related to the sale of Times Square Tower. So overall, we were pretty closely aligned with our expectations.
As you see in our press release, we sold 1301 New York Avenue in the quarter and we booked a gain on sale of $86 million. We've successfully structured the sale of the 1301 Exchange with the acquisitions that we completed earlier this year.
So the gain will not have an impact on our dividend. The most significant impact to our funds from operation for the rest of 2013 is the sale of the 45% interest in times Square Tower, which we closed on October 9.
The sale was projected to reduce our FFO by $0.05 per share in 2013 and $0.20 per share in 2014. We will continue to consolidate the building on our books due to the control we retained in managing the venture.
So the deduction for our partner's share of the income is going to be reflected in noncontrolling interest. So it's similar to the accounting for the GM Building.
To help you understand our economic share, we actually added a new page to our supplemental disclosure this quarter, that provides the financial details of each of our consolidated joint ventures. As we foreshadowed, our occupancy this quarter improved by 70 basis points and our same-store cash NOI growth accelerated to 8% over 2012.
As Doug mentioned, we've seen good success this year, leasing a portion of our vacancy in suburban Boston, in Princeton, and at 510 Madison Avenue, which is showing up in our NOI. For the full year 2013, we now expect same-store GAAP NOI to be up 2.5% to 3% and same-store cash NOI to be up 5.25% to 5.75% over 2012.
Our straight-line rent and fair value lease income is expected to be $90 million to $94 million. Our unconsolidated joint venture portfolio is in line with our discussion last quarter.
We expect it to contribute $65 million to $67 million in 2013. Our hotel demonstrated better core performance this quarter and for 2013 we expect it to contribute NOI of $10.5 million to $11.5 million.
On the development and management services income side, we are right in line with our projections that we gave last quarter. We expect them to be $27 million to $28 million for the year.
This quarter, we modified our G&A presentation by incorporating the overhead costs associated with our San Francisco and Princeton regional offices into our G&A. Historically, as small regional offices existing primarily to manage Embarcadero Center and Carnegie Center, we have been recording the regional overhead as property operating expenses and with our growing activity in San Francisco, and to be consistent across the company, we've elected this quarter to reclassify the expense for this quarter and past quarters projected to be $8.5 million in 2013 that has been moved to G&A.
Now this is purely a geographic change moving from property operating expenses to G&A. It has no impact on our FFO, but it does result in some improvement in our property operating margin.
With this change and an increase of about $1 million in health care expenses, our projected 2013 G&A is now $116 million to $118 million. After a lot of movement last quarter from the consolidation of the GM Building and our activity in the bond market, our interest expense this quarter of $122 million, reflects a clean run rate.
For the year, we're projecting net interest expense of $437 million to $439 million, a little better than last quarter due to higher interest income. So in summary, for 2013, our FFO projection for the full year is now $4.86 to $4.88 per share, which is in line, but for the loss of $0.05 per share from the partial interest sale of Times Square Tower.
For the fourth quarter, we project diluted funds from operations of $1.23 to $1.25. Now turning to our stocks for 2014, Owen mentioned some of our sales activity which totals $1.2 billion this year, and that includes 125 West 55th Street, 1301 New York Avenue, 303 Almaden and Times Square Tower.
Now net of the positive impact from the acquisition that we made in Mountain View, our program will result in a reduction of about $32 million or $0.19 per share of FFO in 2014. On the positive side, we're recycling a portion of the sales proceeds into our development pipeline, part of which will start to deliver in 2014.
Next year, we will see a full year of earnings from 17 Cambridge Center, plus about $1.5 billion of our new projects will start to deliver, which includes 250 West 55th Street, 680 Folsom and our Avant residential development in Reston. As Doug detailed, these projects would generate some incremental income in 2014, but they won’t be stabilized and provide a full run rate until 2015 and 2016.
In aggregate, these projects are projected to provide incremental NOI in 2014 of $28 million to $30 million. When stabilized the aggregate of these developments, which is weighted by 250 West 55th Street, are projected to generate returns in the low- to mid-6% range and contribute meaningful growth to our earnings.
We expect our portfolio is going to continue to demonstrate growth on both the GAAP and a cash basis. Doug did mentioned a few larger explorations at the Prudential Center and at suburban San Francisco, and these leases that totaled 550,000 Square feet will tamper our NOI growth and occupancy improvement, which we expect to average between 92.5% and 93.5% during 2014.
We're projecting solid performance out of the rest of the portfolio including occupancy growth at Bay Colony, 510 Madison Avenue, Reston Town Center and Embarcadero Center, resulting in projected same-store GAAP NOI growth in 2014 of 1% to 2.5% over 2013, despite 100 basis points of drag from the 3 large move-outs. As we mentioned last quarter, on a cash basis, we're projecting another strong year of growth in the portfolio.
Our projections for 2014 same-store cash NOI growth are 5% to 6%, or roughly $65 million of improvement over 2013. This represents 2 consecutive years of strong cash flow growth.
And as Doug noted, we're building our 2015 cash flow by working through early renewals with positive mark-to-market in Cambridge and at the Hancock Tower and new leasing in Reston, Bay Colony, the Prudential Center, Embarcadero Center and Midtown Manhattan. Our noncash, straight line and fair value lease revenue for 2014 is projected to be $70 million to $85 million, and that includes $30 million from our developments.
We're projecting our hotel to continue to perform well in 2014 and projected contributing $12 million to $13 million in NOI. The contribution of FFO from our unconsolidated joint ventures is projected to be $29 million to $34 million, this reflects some improvement from our current run rate with anticipated occupancy growth at 540 Madison Avenue.
In our fee income from development and management services income, we project $20 million to $23 million in 2014. Now this is lower than 2013 and it's because the roll off of several key development projects that includes the Patriot's Park Development, the Broad Institute and 500 North Capitol Street, as well as the change in geography of the fees associated with the GM Building that we discussed last quarter.
We project our G&A expense to be $100 million to $104 million in 2014. This is about $15 million less than in 2013 projection due to the majority of charges associated with our management transition rolling off.
Our 2014 projection does still include $4 million of remaining transition charges. Also projected in 2014 is a 3% annual G&A increase and lower capitalized wages as a sizable portion of our development pipeline is delivering.
Our 2014 interest expense will be lower than our current run rate with the payoff of our $747.5 million of exchangeable notes that come due in mid-February that carries a GAAP interest rate of 6.55% and a cash interest rate of 3.625%. We also have another $63 million mortgage loan with an interest rate of 5.5% that expires in October, and we project paying that off with cash.
We are not projecting raising any additional capital in 2014 and we expect our cash balances to be in excess of $500 million at the end of the year even after paying off our expiring debt and funding our projected development costs through the end of 2014. We expect the capitalized interest will be $12 million to $15 million lower in 2014, which is mostly due to 250 West 55th Street, where we will stop all interest capitalization in the third quarter of 2014.
In total, we project our net interest expense for 2014 to be $448 million to $452 million. We project our 2014 capitalized interest to be $54 million to $58 million.
As we discussed last quarter, due to the consolidation of the GM Building, our interest expense includes $28 million that is associated with our partners' loans that will come back to us in the noncontrolling interest line. As I mentioned earlier, we're continuing to consolidate Times Square Tower after the partial interest sale.
And our partners' share of income will show as a deduction in noncontrolling interest. For 2014, we project the deduction for noncontrolling interest to be $68 million to $72 million, which includes $34 million for Times Square Tower.
So when we combine all of our assumptions, our projections for 2014 funds from operation are $5.27 to $5.35 per share. And this represents a significant increase of 8% over 2013 reflecting the steady portfolio NOI growth, the power of our development deliveries, and our taking advantage of an attractive interest rate environment by raising debt in the first half of 2013.
Once again, I want to stress that we made the strategic decision to sell certain assets in 2013 resulting in a loss of $0.22 per share of FFO in 2014. Had we kept these buildings, our projected FFO growth would be even stronger in 2014.
The sale of Times Square Tower, which we just announced 3 weeks ago, has the largest impact. And our 2014 FFO guidance range would have been $5.40 to $5.55 without the sale.
We also have several additional buildings on the market that Owen discussed. We have not included the sale of any of these buildings in our projections.
And combined, they contribute an annual FFO of approximately $0.08 per share.
Owen D. Thomas
Mort, before we get the questions, I don't know if you wanted to add anything else.
Mortimer B. Zuckerman
Yes. I think I would like to make a reference, if I may, to the continued shareholder interest in our Transbay development in San Francisco.
We wanted to provide an update of our progress to date and our thinking about our future plan. As you know, we have contracted to develop the property to grade.
Work on this phase of the project has commenced and will be completed in 2015. And our total investment in Transbay from site acquisition and development to grade will approximate $350 million.
We have assembled the market leading -- leasing team and are having productive dialogues with potential tenants. So we believe leasing prospects will be enhanced by demonstrated construction progress below and above ground, decisions on whether to proceed with the vertical development of the project, do not need to be made until next year.
We're refining our final design and exploring ancillary revenue opportunities given the scale and the location of the building. We remain very enthusiastic about the long-term prospects for the San Francisco market, which we believe is the best office market in the country.
And we see overall office and residential demand to be quite amazing in that market. And we continue to believe that when complete, Transbay will represent one of San Francisco's most iconic, well-located and valuable office assets.
We've had a long history of being able to go into markets and acquire sites and start building, even when we don't have leases. And in a market like San Francisco, this is the kind of market where we think we can really take advantage of both the site we have and the experience we have, and to produce what we will describe and what we will believe will be the single most prominent building in San Francisco.
I think that's really the one thing that I would like to add to our commentary. And I think at this point I will finish my own remarks.
Owen D. Thomas
Okay, operator, I think we can open up the lines for questions now.
Operator
[Operator Instructions] Your first question comes from the line of Steve Sakwa from ISI Group.
Steve Sakwa - ISI Group Inc., Research Division
Okay. Sorry.
I guess the question is really related around kind of the dispositions and the inability to put capital to work. And I guess I'm just wondering, it sounds like you've got a couple of small assets, but do you contemplate bringing other large assets to market today given how frothy the disposition market seems to be?
And then secondly, I know, historically, you guys looked at maybe selling off Princeton, but that market seems to be rebounding quite nicely for you. I'm just wondering kind of where that portfolio stands in the kind of the disposition process?
Mortimer B. Zuckerman
Well, please everybody join in. But -- look, we are, I have to say optimistic in a general sense, both in terms of development and in terms of disposition.
We are always looking to the possibility of translating some of the assets we have through sales into the kinds of revenues or cash flow or cash, simply because we think that there are times to sale as well as times to buy. And we have felt that this is a market, as you stated, where the purchasing market is, shall we say, frothy.
But I mean, I have received letters from major real estate firms asking if we have any properties for sale because there's a huge market for it. In that environment, sometimes we look at assets and are prepared to think and consider their possible sales, because we do believe we can recycle the money into developments and create a lot more value out of those developments and what we think is appropriate for an asset or what is relevant to an asset, which is fairly completed, fully leased with a different kind of appreciation future.
So with this, it’s just an opportunistic view of looking at our assets what we do and what we sell, and that has been a part of our history for long time and will continue to be a part of our future.
Douglas T. Linde
Just to add to the Steve. So I think there are sort of 2 buckets of assets that we look at from an exit perspective.
There are those assets that we have deemed to be sort of outside of where we think the patterns of growth or the abilities to add additional value sort of on an incremental basis are, and those are sort of few and far between. But there's a handful of suburban assets that could sort of fit that scope of criteria.
And then there are the assets that are, I would say, more core to what Boston Properties is all about. And to the extent that somebody's going to provide us with an offer that reflects a dramatically different perspective view on the growth characteristics of the cash flows from that assets.
I think we ought it to ourselves to consider looking at those assets and looking at whether or not we can better redeploy the capital elsewhere, all right. And so those are sort of the 2 baskets that we sort of look at when we're approaching those decisions.
And with regards to Carnegie Center, that's how we're going to approach it as we look into 2014 and we're going to make that determination as we best see fit.
Steve Sakwa - ISI Group Inc., Research Division
Okay. And I just had a follow-up for Mike LaBelle.
I guess when you were going through your list of FY '14 numbers, I think you said that the developments would contribute $28 million to $30 million of NOI partially, but I didn't hear a destabilize number that got to the low-6% yield, I guess, that would be by late '15 or maybe early '16. What was that number?
Michael E. LaBelle
Well, that's related to $1.5 billion of development delivering at a low- to mid-6% NOI yield. And that will deliver The Avant residential project, as Doug mentioned, is going to lease up during '14 and be stabilized in early '15, 250 West 55th Street will be fully stabilized by 2016.
It's going to be income coming in, in '14, income coming in through '15 and should be fully in by '16.
Operator
Your next question comes from the line of Jamie Feldman from Bank of America Merrill Lynch.
James C. Feldman - BofA Merrill Lynch, Research Division
I was hoping you could just provide your latest thoughts on some new supply risk in both San Francisco and New York?
Douglas T. Linde
Well, let's talk about San Francisco first. So in San Francisco, there is one building that is currently under construction after -- other than 535 that was done on a speculative basis which is Foundry III.
And I believe, at this point, Foundry III has leased 80% of its available space to 2 or 3 technology companies. And that all of that activity has happened in the last, call it, 9 to 10 weeks.
And I think a couple of leases haven't been signed yet. And then after 535, Tishman Speyer has one available building and assuming Jay Paul gets his permits, he will have a new building and then there's the Transbay Tower sort of for the next "group of potential assets that are likely to hit in '15 to '17 time frame."
New York City, I think is it's all about the Hudson Yards with regards to lead tenant activity and then the Brookfield land partial next to Farley. And then finally what happens down at the World Trade Center buildings from the perspective of new additional tenant demand starting off those buildings, I think, they're more build to suits than they are speculative opportunities.
To be honest about New York City, particularly in the large tenant market, the real issue is the consolidation of the large financial services companies. And I'm sure Brookfield talks a lot about this more than we do downtown, because they have, obviously, a portfolio there.
But Chase is going to be moving out of 1 Chase Plaza. Barclays had some space that's on the sublet market.
Citigroup is obviously talking about a potential consolidation someplace in the city, which would presumably mean giving up space. And so there are large blocks of space predominantly downtown that are going to be a factor in, in I think the way tenants view large opportunities for new real estate development over the next 3 to 4 years.
James C. Feldman - BofA Merrill Lynch, Research Division
Okay. Then I guess sticking with Citi, do you have any update on their plans at 399 Park?.
Douglas T. Linde
We don't. So Citi is in about 500-plus thousand square feet at 399.
100,000 square feet of that is retail-oriented space on the ground floor, about 90,000 square feet is concourse space. So they have about 350,000 square feet of office space in the building, and of that about 150,000 square feet is sublet to other tenants.
So their physical use of space at 399 is just over 200,000 to 225,000 square feet on the office side. And presumably, whatever decision that they make regarding their next home on a long-term basis will have an impact on 399.
Operator
Your next question comes from the line of Josh Attie from Citi.
Joshua Attie - Citigroup Inc, Research Division
How are your thoughts on Transbay evolving with respect to bringing in a capital partner.
Owen D. Thomas
We're still open to that possibility because there's more to gain. A lot will depend on where we are with major tenants and conversations with major tenants.
But for the moment we haven't made any decision on that.
Joshua Attie - Citigroup Inc, Research Division
You're generating a lot of asset sale proceeds and finding it difficult to source acquisitions. Beyond Transbay, is there a shadow development pipeline where you can put some of the money to work?
And if there is, can you talk a little bit about it?
Owen D. Thomas
Let me just say, just in general. That's the fundamental part of our business, which is really looking for these kinds of sites and seeing where we are in terms of the attractiveness of the sites and possibility of their development.
And the nature of the market is such, it's not a sort of a steady flow of opportunities or of leasing. So we just have to be opportunistic in that regard and we really don't have anything to make in the way of public comments other than just sort of general statements.
Anybody else want to add anything to this.
Douglas T. Linde
Yes. I think I kind of look at that sort of a layup question, because it sort of -- it points to sort of where the opportunities for us are in the near to short term.
So we have this residential development that we are taking about in Cambridge. We are in the process of permitting 2 additional residential sites in Reston on the site that we purchased earlier this year.
We're talking about a build-to-suit opportunity in suburban Boston on our sites at 10 and 20 CityPoint. We have 2 or 3 tenants there that are actively looking at that.
We are in the process of going through the rezoning of the significant development there. I think we referred to pretty directly in our Analyst Meeting about a year ago in Reston, when the new rail station comes to our property at overlook, and the opportunities to build millions of square feet of density, some of it commercial, some of it residential, some of it potentially hotel or retail.
On that particular parcel, tangent to our existing development in Reston Town Center. Surprise, surprise, Ray is actively looking at a couple of sites in Washington D.C.
and chasing some built-to-suit opportunities there. Given his track record of success we are optimistic about.
And then, obviously, in San Francisco, I think that what our development platform looks like today is probably a good place for you to think about what our activities will look like in the near future. There are some things going on in New York City that we're not going to really talk about, where there are, obviously, sites that could be redeveloped or additional density could be added to, current buildings that might make for terrific buildings in Midtown.
And so we are aggressively pursuing those types of endeavors.
Operator
Your next question comes from the line of Michael Knott from Green Street Advisors.
Michael Knott - Green Street Advisors, Inc., Research Division
Mike, I was wondering if you can just give a little more color on the occupancy forecast for next year, I think you said 92.5% to 93.5%, that's a year end '14 number?
Michael E. LaBelle
That's an average during the year number. So as Doug mentioned, and as I mentioned, we're losing 550,000 square feet during the year.
But we've got opportunities for lease up and the activity is strong in some of the other places. Where Bay Colony is, you can see this quarter we're up to about 72%, but there's a lot to still lease there.
And we're seeing great activities, so we're going to see upticks there. In New York City at both 510 and 540, again, this quarter doesn't look like we did much leasing.
Because it just -- the stuff we've done over the last one or two quarters hasn't started yet. So we have signed leases but they haven't started yet.
So they're not in our supplemental, plus we continue to see good activity. So the numbers that Doug gave of being at 80%, with the deals we have signed and being at 90% in those buildings during 2014 are very achievable kinds of numbers.
And when you look at Embarcadero Center, where we don't have a lot of vacancy, but we've got a letter of intent that we're working on, that Doug mentioned, on 2.5 floors at EC4, which will probably take us from 96% to 98% or something there. And then in Reston, we continue to lease up with the big transaction that Doug talked about, which is going to add to our occupancy there.
So I mean, it's really everywhere. I think we're doing really, really well.
And obviously, you have these move outs every once in a while and you got some downtime. The Blue Cross Blue Shield, 300,000 Square feet, we have that lease.
We know that income is coming in 2015. But we're just going to be down by 300,000 square feet in '14 and lose $10 million of '14 on a temporary basis.
Michael Knott - Green Street Advisors, Inc., Research Division
Okay. So it sounds like you guys feel better about the direction your markets are heading in.
Did you feel like your sentiment today is better than what you would have thought 6 months ago, 9 months ago?
Douglas T. Linde
I would say that our macro sentiment remains the same. I think that we've seen a consistency in the demand in our buildings, in our markets.
And remember that I don't think you can, for example, look at our portfolio in Midtown Manhattan where our availability has been, which is the high-end market of above $90 a square foot as the Manhattan market, right. I mean, it's an important subset and submarket in Manhattan.
But for us, it's been consistent for the last 6 months. So I don't think there's been a strong change in our view.
San Francisco is, again, as I had described, really pretty consistent with what we saw in 2010 and 2011 and 2012. And so we're very comfortable with the sort of the meat that's behind the demand there in that marketplace.
So it's -- I think, it's a sort of status quo with -- on the increment things, things still feel good, not frothy and not depressed.
Mortimer B. Zuckerman
Yes. I'm going to just add one general comment, because this goes back to our fundamental strategy which is to have the highest-quality buildings in the highest quality locations and in the best markets.
And frankly, these kinds of buildings have done really well, it seems to me, in this current environment. When you think about the overall macro environment, I think we have continued to do very well in our leasing.
We think, we're going to continue to do well in our leasing. So I think we are very comfortable in our position.
I mean, I don't think we expect there's going to be a bull market in everything, but I think we're going continue to do well.
Michael Knott - Green Street Advisors, Inc., Research Division
Okay. And then if I can just ask about a little more color on the maybe the magnitude of the D.C.
relocations that you're going to be dealing with, that Ray is going to be dealing with and his team there?
Owen D. Thomas
Michael, we've got 3 major leases that we're focusing on. And believe it or not, these leases don’t expire until '17, 2 of them '17, and then 1 of them in '19.
Jon Kaylor in our D.C. office was quite ingenious when he structured a renewable lease that forces the 19 Kirkland and Ellis at Met Square to exercise a renewal option in '15 to make some space becoming available.
So we're already focusing on that lease, that we're looking to consolidate 200,000 square feet on top of Met Square. And those of you who have visited the building know it is probably the best place in the city.
So we're very optimistic about that one. We're renewing, hopefully, Finnegan at 901 New York.
That's roughly 220,000 square feet, expires in '17, we've in active discussions with them. And lastly, at 1330 Connecticut, we have got Steptoe & Johnson, getting into 220,000 square feet.
We're in active discussions with them, down between to stay put and a possible relocation. But we reserved 50,000 square feet in the building we own directly across the street to give them optimal swing space.
So to facilitate the relocation in place. So I say we're looking very good shape in all 3.
Again, consistent with our past philosophy, we're way out in part of these leases before they get the new car smell of moving to the new building. So we're pretty optimistic about keeping all 3.
Operator
Your next question comes from the line of John Guinee from Stifel.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Doug, a smart guy in your D.C. office once said to me that, "A tenants pay a rents for a product."
And what appears to be happening in all these markets is excluding the hedge funds and looking at your rank-and-file law firms, defense contractors, financial service, tech tenants, they're willing to pay certain price for a good product in a good location, and then that demand almost falls off and that they've got a ceiling in terms of what they're going to pay. Do you have a sense for, in these various markets, the demand goes from reasonably strong to very thin at some certain price point?
Douglas T. Linde
I think you're asking the question sort of what's the size of the demand at the high-end in these marketplaces, and I'll say...
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
I would say not the hedge fund type high-end, but the law firms, tech firms, the financial service, who want to be in good quality space and they're willing to pay up to a certain price, but then all of a sudden, they just say, "It's not in my budget. I can't pay it."
Douglas T. Linde
Yes, see, the interesting thing, John, I think is that that's not the conversation that those people are having. Particularly, with regard to the technology firms, they're going to pay the market price to be in the kind of buildings that they want to be in for the mature companies, and there's -- I mean, I could describe a million square feet of leases that are getting done right now in San Francisco, where the rent effectively is in the high-$50s low-$60s, starting with dollar increases every year, and most of the tenants are paying their own electric, and that's sort of -- that's the going rent for those types of buildings.
The Cambridge market, again, there's no availability. So they will pay what is necessary to be there.
The high-end in Manhattan, I think is very strong from a demand perspective, but it's a small marketplace. And so if you're patient, you will get your price.
The question is how long it will take you to achieve enough demand to fill up the buildings. And as we've seen with 510 Madison, our pricing has been very consistent for the past 2-plus years.
And we're filling up the building, and we're getting more than our fair share of the market demand, but it's not a universe of millions of square feet of space. It's 750,000 to 1 million square feet of overall demand year-in, year out, and that's been the case for the last 3 years.
So that's where the market is.
John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division
Great. Okay, then the second question, and I think it's -- and correct me if I'm wrong on these numbers.
But I think your total development cost at Transbay are fairly reasonable at $700 to $725 a square foot, but correct me if I'm wrong. And to get a 7% yield on that, you really only need only maybe $75 gross and $50 to $55 net, which are numbers that are being achieved along California Street, and in Embarcadero for the better product.
First, are those numbers reasonably correct? And then the second question is that California Street still has a surprisingly large amount of parking, and the Mission Street market is surprisingly void of parking.
Is that going to be a hindrance in moving people from the traditional financial district to the Mission Street market?
Douglas T. Linde
So I'll answer the first part of the question, and I'll let Bob Pester answer the question regarding parking. We have assumed about $1 billion for total project cost and it's $1.4 billion.
So you can do the math, it's 710 bucks a square-foot, something like that, for our overall cost, and that's a number that includes the cost of capital associated with our equity, as well as a lease-up period of time that's pretty extended given the size of the building. And I think your rents are slightly low, largely due to the fact that we are in a Mello-Roos bond district, which means our taxes will be slightly higher than a building that's outside of that area.
So you have to factor that into the numbers. Rents at the top buildings at the higher end are being -- deals are being achieved now in the sort of low-70s to the mid-80s for relocations and renewals.
So we're very optimistic that, as I said before, the velocity of deals is going to pick up in that sort of higher end, I mean, that we're going to be able to attract both the traditional financial services companies, as well as some of the nontraditional, but very important and now becoming market growers in the mature technology companies into Transbay. So Bob, you can talk about the parking.
Bryan J. Koop
Obviously, the more parking that you can have in San Francisco, the better. Mission Street clearly is not going to have the parking that you see in the traditional South or North market office buildings based on current zoning.
We think the advantage is being next to the transit center and the potential for the Caltrain hook up and also for BART far outweighs the diminished parking that will be in that area.
Operator
Your next question comes from the line of Jordan Sadler from KeyBanc.
Jordan Sadler - KeyBanc Capital Markets Inc., Research Division
Wanted to just talk about New York for a second. It was reported in one of the local papers that you guys were in the running for 1 Chase Plaza at some point, and I'm just curious about your thoughts on sort of the Downtown market, and what the potential play might be for an asset like that
Mortimer B. Zuckerman
I'll take a shot at that. We really were never in serious contention for 1 Chase.
That was just not the kind of real estate that we thought was sort of in our sweet spot. So I have to start off with that.
Look, I think the downtown market is going to be a function, obviously, of the financial world, and the financial and the legal world associated with it, and it's hard really to be able to project that market because, in part, as we all know, technology is having a big effect on some of those firms, both the financial firms and the law firms. We have always stayed primarily in the midtown market, where we feel we can build the quality of buildings that has been in our traditional mode and that we can do well in terms of both the buildings that we offer and the management that we offer.
I think that will still be the predominant focus of our activities. It doesn't mean that we're not going to be willing to look at other sites because, frankly, we're going to be opportunistic.
It all depends on what we think is a specific site, and its specific attraction. But as a general rule, I think we're going to stay in the Midtown market, where we have done so well and continue to do very well.
Our buildings are doing are very, very well here. We think we're going continue to do well here, and this is where I think we're going to continue to focus.
Owen D. Thomas
Just to add to what Mort said, and Doug's comments earlier in the call, the downtown market is highly competitive from a leasing standpoint, given the standing vacancy. And I think for the buyers for 1 Chase Manhattan Plaza, it's clearly a value play that the reported price on the sale was $725 million at the 2.2 million square foot building.
That's $330 a square foot. We sold a 45% interest in Times Square Tower in Midtown for over $1,200 a square foot.
So clearly, a value play has got to be the thesis for the group that bought it.
Jordan Sadler - KeyBanc Capital Markets Inc., Research Division
Okay. That's helpful.
And then as it relates to construction costs, you guys are obviously doing quite a bit of development. Curious as to sort of your thoughts on construction cost going forward and how you're sort of underwriting them, and then just return expectations along the same lines for development?
Owen D. Thomas
So on the construction side, it's interesting, it's -- a part of it's very much market dependent, right? I mean because labor is such an important and critical factor in a lot of construction.
And so while we're seeing some creep in San Francisco, and we're seeing some amount of creep in markets like Cambridge and Boston just given sort of the number of cranes in the sky and the amount of apartments that are currently being conceived of and ultimately started. A market like Washington D.C., we just priced and finished our lump sum numbers at 601 Mass Avenue, and they were slightly below what we were projecting.
So we felt -- I mean, we feel really good about sort of the cost control views that we have on the hard cost associated with buildings like that and markets like that because there's just less going on. With regards to our return expectations, that's a tough one.
It's very much dependent upon where we view overall interest rates at a point in time, where we view the risk on the lease-up and where we view the quality of the credit demand associated with the building, and it's going to change. Is the number going to be 10% today.
God, I wish I could tell you that, but it's just not -- it's not achievable. Most of the deals that we are looking at have a overall cash-on-cash returns fully loaded in the mid-single digits.
So that's from the high-6s to the low-8s. I mean, that's sort of where things are being projected from a conceptual perspective.
We may do better than that. We may do slightly worse than that, depending upon where leasing ultimately turns out.
And obviously, in those locations, where we have embedded land value that's really in at 0 in terms of what is on our balance sheet, what it actually shows up at from a return on cost. When we deliver to you, it is actually going to be higher than that.
But when we think about how we're pricing our rents, we try and assume what the market value of that land is, not what our basis is.
Operator
Your next question comes from the line of Rob Stevenson from Macquarie.
Robert Stevenson - Macquarie Research
Doug, the law firm consolidation stuff's back in the news again. I mean, how much of threat do you guys view that to the business in the sort of short and intermediate term?
Owen D. Thomas
Well, I -- Rob, it's Owen Thomas. The -- I think the consolidation or the -- what I'd call densification of law firms is, I think, clearly been demonstrated in the marketplace.
A very have percentage of law firms that are renewing their leases are either they're renewing in their existing buildings or moving. They're downsizing and grasping various technology benefits in the use of their space.
In terms of consolidation of law firms themselves, I suppose that is a theoretical risk. I'm not sure that's as big an issue as it is, simply the downsizing of law firms when they are moving.
Douglas T. Linde
One of the things that's obviously going on in the legal industry is that every firm is dramatically changing the way that they're using space and doing their work, and there are 2 things, 2 sort of -- 2 primary thing to consider. One is that many firms are outsourcing what we would refer to as sort of the administrative function to lower cost environments, and those -- that is not Boston, Washington D.C, San Francisco or New York.
And so as that happens, if there is a consolidation, what is going to be left in the cities where they're consolidating? As an example, right now, they're talking -- there's a rumor on the mill that's 2 firms in San Francisco, Pillsbury and Orrick, are looking at merging.
Pillsbury just moved into Embarcadero Center, and they are using their space, and fully utilizing all of their space. And our understanding is that, Orrick, which did bring something similarly a few years ago in foundry has gotten very little space because, quite frankly, both of these firms have sort of gone through the first stages of the corporate densification that Owen just described.
So if they merge together, unless they are looking to cut the actual number of lawyers who are practicing in those firms because they don't think that they need them anymore, we don't see a lot of "space utilization risk" in the future from those types of operations. It's very possible that a decade from now, technology will have changed again, and there will be another change in the way law firms are utilizing space.
We think that there is very little shadow availability within any law firm that has done a lease in the last, call it, 4 or 5 years, certainly, the deals that are being done right now. And in fact, in many of the transactions that we have done, we've actually seen our law firms take a little bit of incremental space after they sign the original lease because they were being a little bit too cost-conscious with regards to how much space they were using.
But again, that's because they've driven things down by 25% or 30% in terms of the overall utilization of space that they have in their newer installations.
Robert Stevenson - Macquarie Research
Okay. And then one for Mike.
What's the thinking on the timing of the potential special dividend? And do you have any slack in the regular dividend to the extent to where if you guys did acquisition, but it wasn't enough to cover the full Times Square gains that you could accommodate some of that in the regular dividend and not have to pay a special?
Michael E. LaBelle
With regard to the timing, we're going to decide the timing over the next kind of 30 to 45 days. It's possible it could get paid this year.
It's possible it will be paid early next year. And like I said, we're going to be discussing that and talking about it.
With regard to having a smaller acquisition have an impact, it's unlikely. You got to eat through so much first before you can actually get the benefit.
So it would have to be a pretty large acquisition in order to be able to do the 1031, and the identification data's in mid-November. So it's coming right up.
And as Owen mentioned, we don't -- we haven't identified anything right now necessarily. So I mean, I think our view is it's pretty unlikely that we're going to be able to shelter any of that, which is why we've been talking about the potential for the $2.25 dividend if we don't find anything at this point.
Does that answer all of your questions?
Operator
Your next question comes from the line of Alexander Goldfarb from Sandler O'Neill.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
The first question is on the retail space, 2 parts. One is, obviously, there's still some retail space available at the base of 510.
But just more broadly, are you guys -- if the office market may not be as robust as we wish, are you guys seeing more opportunity in the ability to drive rents out of your retail space, especially, just given some of the recent flag trip -- flagship pricing trades that have occurred?
Douglas T. Linde
I'll try and answer this, and allow others to chime in if they want. So we have a retail space, which is a restaurant space at 510 Madison Avenue, and we are being, I'd say, very thoughtful about the overall image and use of that space.
There are a number of transactions we could have done that we've chosen not to do because we just didn't think it was the right thing for the building and tenancy in the building and the image that it might bring to the 305,000 square feet of other space that is being leased in the building. With regards to our portfolio, I think that as we look at 3 or 4 different places, right, the Reston Town Center and Embarcadero Center, and the Prudential Center, there's obviously a very significant retail component to all of those, and clearly, enhancing the retail demand and the ability for retailers to generate large sales, which will obviously lead to them being prepared to pay large rents, it's critically important to us.
I mean, it's something we spend a lot of time on. And then the other major asset, obviously, is the General Motors Building, 767 Fifth Avenue, where we did our deal with Ridgemont [ph], and the Toys 'R' Us lease is expiring in another 2 years, I believe.
And there's going to be a major rethinking of how that space is used and by whom. And we think, obviously, it's got a tremendous amount of embedded opportunity.
I think the Toys 'R' Us leases are fair -- probably a fair representation of what the current income is for a portion of that space. So I'm not sure there's tremendous amount of additional embedded growth there, but we certainly think that we can maintain something very similar to what we're currently getting there.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
Okay, and then the second question is with regards to the TD Boston Garden mix use development that you guys are contemplating in Boston, how do you envision the development program as far as would you be willing to undertake that at the same time that you have 250 finishing up and Transbay is still sort of in process as far as doing foundation? Or would you want to see Transbay really pre-leased and set to go before tackling another major development investment?
Douglas T. Linde
I think the implicit question you're asking is there -- do we have a tolerance for any amount of available space that we want to build at any one time right?
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
Yes, I guess, Doug, that's a much better way of saying it then.
Douglas T. Linde
So my answer is that I think it's something that we certainly think about overall given our portfolio, but we also have to consider what we're actually going to be having rolling over at any one point in time. So if we had 3 million square feet of additional space rolling over in those markets, adding to the available inventory vacancy might not necessarily be a good thing.
But if, in fact, we have very little space rolling over in those markets and maybe a risk and an opportunity even more importantly that we wanted to pursue. With regard to the TD north Garden site, in particular, I think it's a slightly different animal, and that the base of the building, knock on wood we get our permits, is going to be primarily anchored retail, where we will have lead tenant demand in place before we even start.
And then there are 3 towers that are being contemplated. One of them is a residential tower, which I think, at this point, we are -- we would probably have a strong desire to be involved with on an ownership basis.
There's a hotel, where I think the jury is out as to whether or not it's something we want to do and how that would get done. And then there is an office building component and there's low-rise office building component and a tower office component, and the tower is not being contemplated as part of the original phase.
So the amount of office space that might be built there at the base is pretty limited. It's 200,000 square of feet space.
So I don't think that the overall impact on what's going on at the North Station site is really impacted by the sort of original question that you asked.
Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division
Okay. So if I understand correctly, there's the base, the lead retail that would be once you get that signed, you would proceed, and it sounds like, obviously, apartments in Boston, assuming that market is good, you'd proceed, but then the office part would be something that would be out in later year?
So it wouldn't be part of the initial phase, is that correct?
Douglas T. Linde
Correct, the tower office would be in later year.
Operator
Your next question comes from the line of Vance Edelson from Morgan Stanley.
Vance H. Edelson - Morgan Stanley, Research Division
First on 250 West 55th, could you provide a feel for the lease durations? And more specifically, the conversations with the tenants, is there any element of granting lower rents in return for longer lease terms?
Or is it more the best of both worlds for you and that tenants are willing to pay higher rents for the prime real estate even when they sign on for the long-term?
Douglas T. Linde
So we -- the 2 leases that we've done are both 20 years, and the 2 leases that we're negotiating, I believe one is 15 and one is 20. So for a building like this, doing a long duration lease is sort of the norm.
I will tell you that we believe that the utility of the building, the efficiency of the building, the volume of space that we are providing our tenants is allowing us to get a rent that is a premium to the similar sized spaces in the upper west side market of Midtown Manhattan. In other words, the rents that we are -- we believe we are going to achieve and that we are achieving are rents that are a premium to what you could achieve on 6th Avenue or on 7th Avenue or on 8th Avenue in the other existing inventory in the marketplace.
Vance H. Edelson - Morgan Stanley, Research Division
Okay, that's great color. And then could you also just describe your conversations with NRG, leading up to the build-to-suit?
I'm just curious on the read across, if any, to New Jersey real estate. Were they unable to find anything even with relatively high vacancies out there that fit their needs?
Douglas T. Linde
Do you want to take that one?
Michael E. LaBelle
Sure. The real answer is that they want it to be under one roof.
They currently lease in 3 different leases from us, spaces in 2 buildings, and they were looking to both expand, as Doug mentioned, by about 40,000 feet and put all employees under one roof.
Operator
Your next question comes from the line of Vincent Chao from Deutsche Bank.
Vincent Chao - Deutsche Bank AG, Research Division
Just want to go back to the development conversation regarding sort of the risk tolerance. It sounds like the overall availability, including existing stock, is a big factor obviously.
But just curious, you're at about 10%, 11% of gross assets. I'm just wondering, how high would you let that go before just saying it's too much in terms of development risk?
And then I got a follow up after that.
Douglas T. Linde
We've never had a bright line test. It's really -- again, it's sort of, it factors back to the availability in those buildings.
So if we could build 5 million square feet of buildings that were leased to credit tenants, we would have absolutely no tolerance for surpassing the 10% and going to 20% or 25% because of the comfort level that we have with regard to the risks associated with development, managing construction, doing permitting, dealing with financing and then ultimately knowing that we have tenancies. So it's really a question of the speculative nature of that pipeline, I think, that is the more sort of pressing question.
And again, I have to go back to what I said previously, which is it's really a question of what the rest of our portfolio looks like and how we feel about the overall availability of space in each individual market relative to what our particular availability is in our portfolio in that market and how comfortable we are at that -- at any one point in time with that equation.
Owen D. Thomas
The other thing I would add, Doug, is we have $2.5 billion underway right now, but $1.5 billion of this is delivering. It's basically constructed.
680 Folsom is effectively leased, one of the residential projects, and then we talked about 250, where we've got it over 70% committed, and we think it's going to be stabilizing over the next kind of 12 to 18 months. So that's going to be rolling off.
And so there's opportunity for us to replace that with the new opportunities that we've been talking about, and I don’t think that we're necessarily limited by the opportunities that we could put potentially have.
Douglas T. Linde
Yes. And also, I'd just to point out, for example, the TD site in Boston is a partnership.
So it's not 100% Boston properties, which I think is also a factor.
Vincent Chao - Deutsche Bank AG, Research Division
Okay. That actually was my next sort of question was just with the 250, West 55th and about half -- almost half of the pipeline delivering relatively soon, and I know you don't want to give too much detail on what the shadow pipeline looks like, but can you give us a sense of the magnitude?
Are there enough projects in there that could replace that $1 billion within a reasonable timeframe?
Douglas T. Linde
Within a reasonable timeframe, absolutely, yes.
Vincent Chao - Deutsche Bank AG, Research Division
And that being within 6 months?
Douglas T. Linde
No, I mean, come one, this is -- development is a long-term process, right. So I mean, we have well in excess of $1 billion or $2 billion of potential deals that we have control over right now.
And I think the question is how long does it take us to sort of lay that stuff out. And then, additionally, as Mort described, there are other things that we're looking at, which would be incremental to that.
So if there were a site, as an example, in Manhattan, you're talking about likely a $750 million to $1 billion development right there. So these are chunky projects.
If we are lucky enough to get a lead tenant for our building at 888 Boylston Street, that's another 450,000 square foot project, which has got a significant cost associated with it. So again, there are lots of opportunities within the portfolio that we currently control that can replace that development portion that Mike talked about that sort of -- it's not really rolling off.
It's rolling into income, which is obviously a good thing. Mort, I don’t know if you have any closing remarks you want to make?
Mortimer B. Zuckerman
No. I just think that we pretty much covered the waterfront, and as you know, again, we have to underscore the fact that this is still an opportunistic business and an entrepreneurial business, and you just never know what's going to come up and we're still going to be open to these kinds of opportunities if they do come up.
That's just been the hallmark of what we've done for all these years, and we hope that it's going to continue. But we also are aware and you've heard a number of us, including myself, express some wariness about the overall macro environment, and we take that very seriously into account.
The one benefit of that, that we have been able to capitalize on, of course, is the record-low interest rates, and we intend to look at our portfolio in every way to take advantage of that, and that will still, I think, be an advantage to us as we look forward to financing or refinancing assets or developing assets because we can put together the kind of financing at rates that, frankly, we have never seen before, and that really does change the risk portfolio as we look forward to what we might or might not do.
Douglas T. Linde
Okay, just one last comment. So most of us will be in beautiful San Francisco in 2.5 weeks for NAREIT, and we are going to attempt to get a gathering together, where we can talk a little bit more about our San Francisco project specifically when we're out there.
So look for a notice of that over the next week or so. So we can hopefully get as many of you as possible to get a little bit more first-hand understanding of the Folsom Street project, 535 Mission, as well as the Transbay project.
Very good. Thanks a lot, and we'll see you in a couple of weeks.
Mortimer B. Zuckerman
Thank you.
Operator
This concludes today's Boston Properties Conference Call. Thank you, again, for attending, and have a great day.
Mortimer B. Zuckerman
Thank you. Thank you very much.