Good morning, and welcome to Boston Properties Third Quarter Earnings Call. This call is being recorded [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.

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 Wednesday'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 Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the question-and-answer portion of our call, Ray Ritchie, Senior Executive Vice President, and our regional management teams will be available to address any questions. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Arista, and good morning. First, I'd like to thank everyone who attended or listened to our Investor Conference in early October. Given that we just completed a thorough review of our portfolio and markets, we're going to focus our remarks this morning on the quarterly results, 2018 guidance and anything else that's new since the conference. On current results, our FFO per share for the quarter was $0.04 above our prior forecast and $0.03 above Street consensus. We also, as a result, increased the midpoint of our full year 2017 guidance by $0.02. We leased 2.6 million square feet in the third quarter, which is significantly above our long-term quarterly average for the period. Year-to-date, we've leased 4.1 million square feet, and are on track for above-average leasing for 2017. Our in-service office portfolio occupancy declined by about 60 basis points to 90.2% from the end of the second quarter, primarily due to the previously-discussed occupancy reduction at 399 Park Avenue. Rent roll-ups in the aggregate for the third quarter on commenced leases were up modestly on a net and gross basis. In the quarter, we also commenced 1.4 million square feet in two new developments that are 100% leased and delivered a 417,000-square foot project. Lastly, we've had a very active and successful year financing our business. Year-to-date, we've raised $5.1 billion in financings and increased our weighted average debt maturity from 4.7 to 6.1 years. Now moving to the macro environment. Economic growth has improved marginally to 3.1% for the second quarter, and advanced estimates for the third quarter are 3%. And though recent hurricanes have had a negative impact on the September job data, unemployment did decline to 4.2%. Consistent with my Investor Conference commentary, tepid but steady economic growth continues, and we're not making…

Thanks, Owen. Good morning, everybody. I've truncated my comments this morning since we provided you with a pretty robust view of the portfolio at the conference less than 30 days ago. Let me start with the mark-to-market comparisons because that's something that everyone sort of latches on to, and that's on Page 42 of our supplemental. So our second-generation leasing statistics. We're really pretty much in sync with all those rollover charts that we provided and are part of our investor package, all available on the website. In Boston, there was about 300,000 square feet of space that we hit the second-generation stat this quarter. The majority of it was in Waltham, our suburban assets, and we were up about 12% on a net basis. In San Francisco, it was a smaller portfolio. It's about 144,000 square feet, and it was heavily weighted to Embarcadero Center, and we were up 24%. In New York City, it included about 191,000 square feet. And remember, I explicitly talked about a roll-down that we were going to see during the quarter on about 38,000 square feet, one of the low-rise floors at 767 Fifth Avenue, and I mentioned that we were moving from $160 to $115. Now that's obviously with no -- very little transaction costs, low TIs, no downtime. And yet we were still only down 4% in New York City with that big rollover, which was down almost 50% on a net basis. And then in D.C., the pool was about 386,000 square feet. And it was dominated by a 15 year, 190,000 square foot renewal with the GSA at 500 East Street, again, very low transaction costs, only $7 of TIs, and that D.C. pool was down about 10%. So let me start with my regional comments. At Salesforce Tower,…

Great, thanks, Doug. Good morning. I don't mean to pile onto what Owen says, but I do want to thank everybody for attending our Investor Conference last month. We had great attendance, both in person and via our webcast, and we truly appreciate your interest in BXP. You got to hear from over 30 individuals across all disciplines talk about their projects and their initiatives, and I think it really demonstrates the strong depth and talent that we have in our company. This quarter, on the capital-raising front, we closed two new financings. The first is a $550 million, 10-year mortgage on Colorado Center. The loan bears interest at 3.56% fixed for 10 years, which is very attractive. We also closed a $205 million construction loan on our Hub on Causeway joint venture development. It's priced at LIBOR plus 2.25%, and it will fund all of the remaining development costs for this first phase of the project. Turning to our earnings. Our third quarter funds from operations came in at $1.57 per share. That is about $6.5 million or $0.04 per share above the midpoint of our guidance range from last quarter. Our portfolio generated about $0.01 per share of our outperformance, half from higher rental revenues and the rest from operating expense savings. We recorded $3 million of higher-than-projected development and service fee income, most of which was related to the completion of our services at one of our third-party development projects. We anticipated this income in our full-year guidance, but did not project it to be accelerated into the third quarter. And lastly, we experienced lower-than-expected G&A by about $0.01 per share related to lower health care and professional services costs. We don't expect this to recur. And next quarter, we should return closer to our second quarter…

[Operator Instructions] Your first question comes from the line of John Guinee with Stifel.

I've got a bunch of questions. Let me just ask a couple then I'll get back in the queue. First, if I'm looking at your numbers on Salesforce Tower, is the all-in development cost $766 a foot? And is there any chance that Salesforce Tower will actually be a double in terms of valuation at stabilization? And then my second question is, Marriott doesn't stabilize until 2022. I'm imagining you're trying to tie that to Ray Ritchey's 50th birthday, but why so long?

Well, on your first question, John, on Salesforce, we're not going to try and hazard a guess on how somebody might value the building. I think we generally view that high quality CBD assets that Owen has been describing for, I don't know, the last six quarters or seven quarters or eight quarters have been trading at valuations -- initial cap rates in somewhere between high 3s and low 5s depending upon the rent roll. I think the most interesting thing about Salesforce.com Tower is that it's underleased at this point. There's been so much growth in underlying rents in San Francisco that we have a big mark-to-market in that building. So I think that there's a lot of value creation there. With regards to Marriott, that is simply a question of when their lease expired in Bethesda out in democracy and when we can physically build the building. We are going as quickly as we possibly can, and our hope is to start our foundation work in the middle of 2018, which will allow us to deliver the shell and core to Marriott to build out their TIs in the middle of 2021.

John, on the sales -- just to add to what Doug said on Salesforce, we've also said that we're going to deliver the building at -- in excess of a 7 yield. And as I've been pointing out, as Doug mentioned, the comps in San Francisco for new buildings are definitely in the 4s cap rate-wise. And per square foot values have been rising. They pierced $1,000 of square foot in the last year, and there have been several trades above $1,000 a foot.

I think also, on Marriott, the one thing that Doug pointed out that's important is we're not going to be done with our obligation in 2021, which is building the shell. So it's kind of a 2.5-year, maybe a 3-year process. But Marriott is then going to do all their TI work and get into occupancy, and we can't recognize any revenue until they're done with that. So we're kind of -- we're dependent upon them to kind of finish that and be in sometime in '22 before we can actually book any revenue.

Well, let me ask another quick one. Morrison Foerster is a major tenant of yours. Is that the -- are they a major tenant in D.C.? And are they going to move to the OFC development site? Or is it a different city in which MoFo is an occupant? And then second, Owen, you talked about inflation being low. And I guess, for Owen or Doug, when you look at development costs, you look at operating expense, you look at labor. Does it actually feel as if inflation is as low as the national statistics indicate?

So MoFo is a tenant at 250 West 55th Street, so we don't have any Washington, D.C. exposure. I get together with people in Boston. We talk about what you've described with the head of the Federal Reserve in Boston every 90 days. And my conversation and comments have been that we continue to see two things going on with the inputs for new buildings. One is that labor costs are going up, and they're going up at a reasonable rate. The average union contract, I think, has got a 3% or 3.5% annualized increase. And it gets built into -- every six months, there's a portion of that that occurs. And the second is just how busy people are. And so the busier the sub-trades are, the less attractive it is for them to bid on new business, which means that they're bidding to lose effectively. And so they're pushing up their profit margins. And so those inputs are causing issues. And I think the one that's most interesting right now is, for example, the cost of concrete and the way the structures are being built in Washington, D.C. There seems to be so much going on that there's some significant pricing increases going on in that particular labor input. So we are seeing a higher rate of increase in our construction costs, and we are building those escalations effectively into all of our budgets that we're putting together. And so all of our returns that we described to you assume that, that escalation is the input when we actually come to a [GNP] and we finalize the bids on all of our subs.

Your next question comes from the line of Jed Reagan with Green Street Advisors.

You've talked about a pretty active near-term development pipeline I think 2.5 million square feet you guys outlined. Is there a cap? I guess a couple of questions on that. I mean is there a cap that you guys would consider for sort of the development as a percent of total assets? How are you guys thinking about financing that growth? And then would any of that leasing be coming out of existing BXP space?

So Jed, to answer your question, we don't have a cap. We do obviously pay attention to how much development we have as a percent of our total enterprise. We think right now, it's around $3 billion. And we're over a $30 billion enterprise, so we think that's completely reasonable. However, I would also point out that these developments that we just added this quarter, they're 100% leased, so add very attractive development yield. So our real -- obviously, we have theoretical credit risk with the tenants, but also the delivery risk of the building in terms of costs and timing. But those are very different risks than building spec buildings or building partially-leased buildings. So again, we don't have a cap. And all of the development that I described is either fully pre-leased or very substantially pre-leased. And that continues to be a condition going forward.

And only one of the tenants we're talking to in Washington has a presence with us in one of our buildings.

Yes.

And on the funding side, I think we made it pretty clear, when Mike made his presentation and James Magaldi made their presentations at our Investor Conference, that our net debt-to-EBITDA is going down, down, down. And we are burning off a significant amount of the development pipeline that's currently in process because those buildings are coming to fruition, and they're going to be cash flow positive. And so, effectively what we're doing is replacing the $2.5 billion to $3 billion that's currently today underway with a similar amount, with a much higher capacity to use our balance sheet to fund that. So again, if the question is, do we have a concern about funding, and are we raising equity, I think the answer is we don't have a concern, and we're not planning on raising any equity.

And I guess two kind of housekeeping items on guidance for next year. I might have missed this, but are you projecting any dispositions for next year? And then in terms of your year-end 2018 occupancy, what type of growth or sort of backfilling of the 399 Park space does that project?

So the guidance doesn't include any dispositions or acquisitions at all for 2018. And as I mentioned, at 399 Park, we do not expect any of that space to be in our occupancy figures in 2018. As I mentioned, the space, really, it's 20-year-old Citibank space that needs to be demoed and rebuilt. The new tenants coming in are going to be putting in their tenant improvements, and they won't be able to get those tenant improvements complete before the end of 2018 even if we signed a lease today. So we won't be able to get any revenue or any occupancy, we believe, in 399.

Even on a GAAP basis?

Because the space is demoed, we can't start revenue. The GAAP rules are that the space has to be ready for its intended use. So if you have somebody that comes in and uses the existing improvements, even if they make some of their own changes on their own -- not necessarily dime, but on their own, then you cannot recognize revenue until they're done.

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

You've had some activity in Reston this quarter. Can you just comment on why you decided to sell the land to the corporate buyer rather than develop for them?

Sure. So the parcel of land that Ray will describe is more of a -- I guess, what you'd refer to as a greenbelt parcel as opposed to an urban parcel in the center of Reston. And it's a site that we've owned for the better part of 15 years, and it's really not part of the Reston Town Center development per se. It's actually physically, I think, 1.5 miles to the south. And so we had a corporate user who came along and said they wanted us to build the building for them. And we said, we'd love to build the building and lease it to you. And they said, we want to own and so, ultimately, we decided to sell it.

And any time you can add a Fortune 50 name to the Reston tenant occupancy list, that's a plus. So it was not a strategically-important site, and it really just continues to validate Reston as the premier corporate location in the suburbs of Washington.

Who is that company? And also, can you also discuss the additional 3 million of FAR that you're looking to entitle as far as the cost and the use of that land?

I guess we can release -- it's General Dynamics, right? I guess I just did.

I think you did.

And it's actually 3 million to 4 million square feet. It will be a rezoning of the land that's currently occupied by Reston Corporate Center. That's directly across the street from the Reston Town Center Metro stop. As part of the additional density comes forth with the introduction of Metro to Reston Town Center, it will be a mix of, again, between 3 million and 4 million square feet, half of which will be residential, half of which will be commercial. And again, we're bringing that on at a very competitive basis, given that it's land we've owned -- a building we've owned for over 20 years. Peter, do you have anything to add?

No, I think that sums it up. It's just going to be a continuation of the mixed-use development we've got in the urban core town center.

At the GM Building, it's been over a year since you signed Under Armour for some of the retail space. Since then, their share price is down over 60%. Is there any risk that this lease does not go through?

So the lease is in full force and effect, and we expect Under Armour will occupy the building. We're not delivering the space to Under Armour probably until the very end of 2018, and then they're going to have to build it out. So my guess is their plans don't assume that they're going to be in there for quite some time. Remember, Under Armour had $1.4 billion of sales this quarter. They still expect to be over $5 billion for 2017. Even after a restructuring charge, they had positive net income. They have a net debt-to-EBITDA of just 1.5 times. This is a real strong company, and there's no question that their growth trajectory has changed over the last two quarters. But we're believers.

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

Mike, maybe just to help us with modeling or thinking about growth for next year. If you were to reaggregate NOI contribution from the same-store properties as well as the development properties and other external growth, how much year-over-year just NOI growth in general on both a GAAP and cash basis do you expect next year?

I think that's a question he's got to -- I'm not going to let him answer until he does some math. I think that we attempted to give you an answer to that by describing the increase in our revenue from '17 to '18. The issue with doing it on an NOI basis is that the development contribution is dependent upon the buildings coming online, and the margin on those development pipelines changes over each quarter as the space is delivered. So I think Mike will have to get back to you on that one.

I mean, the size of our same-store pool is $1.460 billion approximately. That's the kind of 2017 roughly same-store contribution. So if you want to add the $40 million to $50 million of development NOI to the guidance that I provided on the same-store of 0.5% to 2.5%, I guess, that's how you would get it.

Got it, that's helpful. And then, Mike, at the Investor Day, you gave a few nuggets of 2018 guidance without giving us full guidance. One of them was interest expense being up $25 million to $45 million. It looks like that increase is now smaller given the guidance last night. Is there anything specific driving that?

No. I mean, there's nothing specific. Obviously, we do re-projections every quarter. We do re-projections on what our development outflows are and how they're going to be funded versus cash, versus use of our line based upon what our projections tell us. And that we've got some refinancing that we still need to do on a couple of loans that expire in 2018. So you kind of change around what you think the interest rates might be and some of the timing might be on that as well as, again, at -- last quarter, we expected that we would be in our line in December. We now don't expect that we'll be in our line until February, and that's simply a function of the development outflow changing a little bit. So when you kind of put all those things in the model, it just brought the interest expense down a little bit.

One of the most interesting things about when you do development is that we provide TI dollars to a lot of our customers. And a lot of them spend the money, and it takes them a long time to ask for it. And so the outflow that Salesforce Tower on the TI side are not insignificant, and there -- we just haven't gotten much of a draw yet. And so we're getting the advantage of not having to pay the capital out as early as we would have liked.

Your next question comes from the line of Daniel Santos with Sandler O'Neill.

Just two questions for me. The first one is on 2018 guidance. You guys gave a midpoint of $6.28, which is below where The Street is. Just wondering if you had any insight into what the major items that The Street is missing that caused that disconnect?

We did our best to try to, at our Investor Conference and in the last couple of quarters, describe the impact that 399 Park would have on our same-store growth. If it weren't for those 200 basis points, our same-store would be up like 2.5% and 4.5%, which is really pretty strong, I think. So I feel like we tried to do everything we could in the major items. Perhaps the termination income that is down $18 million, maybe some people didn't kind of focus on that. Although, all the termination income that we're talking about for 2017 is already in the numbers, right, and we've already got $22.5 million of the $24 million that we project. So I think that we typically and The Street typically understands that we don't estimate that we're going to have big terminations in the following year that we don't know about. I also think that the refinancing of the GM Building was very confusing because of all the impact on our non-controlling interest and our interest expense. And I'm very happy that it's now cleaned up, but until you kind of get through a full year of it or a full run rate of it, it's just kind of harder to estimate. So some of the non-controlling interest that -- I commented in here non-controlling interest in our guidance is up by $8 million, at the midpoint about $0.05. Maybe people didn't quite get that, and it really had to do with both their share of the demolition expense is not happening anymore in the GM Building refinance. So I think those are the areas.

And separately, given the desire to expand in L.A. and the CBS Studios being up for sale, do you guys have any interest in that asset?

We're not going to comment on specific investments that we're pursuing. As you know, we are -- our goal is to grow in L.A., and we're going to do it on a measured basis. We're actively looking at both development opportunities and acquisitions. I would say that our pipeline has probably improved over the last month since the Investor Conference. We've seen more things. I think having our new colleague, Jon Lange, on the ground in L.A. has also been very helpful.

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

Mike, thanks for the detailed guidance and a very comprehensive Investor Day. Can you talk about what the guidance means for your AFFO outlook? And also, any thoughts on dividend coverage and prospects for maybe a bump next year?

So I think that our AFFO is going to be up. For 2017, we think it's going to be somewhere in the $4.20 to $4.25 range. And for 2018, I think that our range will be closer to kind of $4.35 to $4.65 range. Our same-store rents are going to be lower. I mean, our noncash rents are going to be lower. We've provided guidance of that. And I think our tenant transaction costs we've got to do about 2.8 million square feet of leasing to meet our occupancy goals. So we think that that's probably somewhere between $180 million and $210 million of leasing transaction costs. And we should have a return CapEx of somewhere around $80 million to $90 million. And then if you kind of look at what our run rate is for stock compensation and straight-line ground rent and other stuff, you get adjustments of probably somewhere in the high 200s, $275 million to $300 million. So I think we're going to be up pretty strongly at the midpoint. That's up 8% over 2017, and it's actually up 40% since 2015. So our AFFO has been very, very strong growth over the last few years, as we've burned off a lot of free rent and things like that. What was the other question, Jamie?

Just whether you'll start pushing up against the need to bump the dividend?

Yes. So I mean, we've talked before about where we are and where we expect to be in 2017 from a taxable income perspective and our dividend, which is I think fairly close in line. We haven't made any decisions on our dividend for the fourth quarter of 2017. We're going to be meeting with our board in the fourth quarter to talk more about it. I mean, I can say that we believe our cash NOI is going to grow significantly over the next few years. And if we don't sell a lot of assets, which are not currently in our business plan, our expectation over the next few years is we would have dividend growth in line with what that growth is. But we haven't made any decisions yet about this year.

And then I know at your Investor Day, you guys spent a lot of time talking about WeWork and coworking. Since that time, we've seen WeWork go direct into owning assets, buying assets. I'm just curious, is that something you guys expected to happen? And what are your general thoughts as a landlord as they do seem to be looking to own more assets going forward?

Our posture hasn't changed on coworking or on WeWork. As I think we have all described in different ways, we have felt that coworking and, therefore WeWork, has been a positive factor for the office business this cycle. I think we gave some data at the Investor Conference that coworking represented around 20% of the net absorption in the country. And again, that's a big positive. With respect to WeWork investing in real estate, one thing that is -- certainly, if you study it, people are aware of, they're not doing it all themselves. They have a partnership with an outside fund manager. And I don't know the specifics of what the percentage interests are in all these properties, but WeWork is not buying all these buildings 100% onto their balance sheet. They're doing it, I assume, partially, but not fully. And they, again, have a partner with which -- with whom they're doing it. And we certainly haven't run into a situation where we have -- are competing with them for investing in a particular building.

Any other color from anyone else?

No, I think that's it.

And then just last for me. Ray, General Dynamics, the tenant you mentioned, would you say you're starting to see a meaningful turn here in defense contractors and leasing demand from defense in your region?

Well, clearly, we've been through a two-year or three-year cycle, where they've really been focused on cutting costs and perhaps uncertainty in the defense budget, and now we're seeing more clarity. We see more contracts being funded. We still see those defense users looking to be efficient in their space use and consolidate. And we see them going to locations like Reston Town Center, where they can recruit, retain and motivate the best and brightest. So it's always been a situation in Northern Virginia where the demand for space can rise and fall on the defense budget. But for now, right now, we're getting very good direction from these users that they'll continue to be taking down space and it's obviously very helpful for our specific market in Reston.

Your next question comes from the line of Nick Stelzner with Morgan Stanley.

So if I heard you correctly, you said that the rent roll-down at 767 was about 50% on a net basis. But overall, New York City was only down about 4%. I guess can you give a little color on the mark-to-market leasing for the rest of the New York portfolio? And I guess, was 767 the only space with a rent roll-down this quarter?

From a weighting perspective, it bore way more than its fair share of the roll-down. As I said, we had about 190,000 square feet of space rolling over. And most of the space in New York City was rolling up. We had a couple of small pieces of space that rolled down. But if you were to pull that one out, we would have had a significant roll-up in New York City.

And then I may have missed this earlier on, but could you give us an update on the leasing activity at 159 East 53rd?

John Powers, do you want to take that one?

Yes. I think we have two good prospects at 159. Both would take more than half the building. We hope we make one of those deals. And we have a number of smaller prospects, so I think it's going well. The curtain wall is almost done now, and it's showing much better than it did.

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

Doug, you guys don't have a lot of expirations in 2018, but some of them, especially in New York, have pretty high rental rates. So I'm guessing we're going to see some moderation in spreads this coming year. Is that the right way to think about it? And maybe, Mike, can you comment on any rent spread assumptions you guys have built into guidance?

So there's very little rollover on a going-forward basis in New York City at this point. And so as we lease up space, what hits our statistics are, for the most part, the leases that are within one year. And so, for example, were we to lease the space at 399 that is currently available, you would see basically a flat number. The rents that rolled off were in between the high 80s and low 100s. And we expect the base of the building will be leased in the high 80s, and we expect the space in the tower will be leased in between $105 and $120 a square foot. So as I think I've said this for a couple of quarters, we're basically running to be in place at that building. If we were to lease the 33rd or 34th floor of the General Motors Building, there would be a very big roll-up because those rents were very low when we took the space back from Weil Gotshal. And those are the two major parts of the vacancy, where there was a second generation that occur in 2018.

And then, Mike, anything assumed specifically in guidance?

For the 2018 rollovers?

Yes, for rent spreads?

I think that as Doug said, the rent spreads are pretty flat. The one deal that we do have going on is we've got 60,000 square feet rolling at 601, where we've got an active tenant on one of those floors, that's two floors, in one of those floors. So that hopefully will happen with no downtime. The other floor we're going to assume is going to be down for a period of time. So I think for the most part, that rollover, we're expecting that it would have a negative impact on our 2018 guidance because we would have some downtime with all of that piece.

But mark-to-market will be up.

Yes.

We're going to roll space that's leased at $105 a square foot and, hopefully, we'll get $120 or $125 a square foot. That's the sort of the nature of the difference in the rents.

And then Doug, you touched on this, but at 399 Park, you guys consolidated the space on seven, eight, nine and maybe even 10, if I'm remembering right, from the Investor Day. I think it totals around 250,000 square feet. Can you talk about whether that consolidation resulted in kind of a noticeable pickup in interest? And any more color on the types of tenants you're talking to and what stage of negotiations you are in at this point?

I'll make one short comment, and I'll let John -- John, if you want. So big picture, what we did is we substituted a 102,000-square foot really big base floor on three with 2 60,000-square foot floors on eight and nine. So we immediately improved our sub-divisibility. John, you can talk about the block.

Well, that eight and nine goes with seven, and we're also getting 10 back from Eton Park next year. So that's the block. And you're right, it's about 250,000 feet. And we have very good activity on the block. And that's much more leasable. It's further up in the building. It's more light and air. It's a little higher priced, but block of 250,000 feet with 60,000-foot center core, that's unique on Park Avenue. So we have good activity on it.

Owen, your commentary points to an investment sales market in New York that's, I guess, still somewhat active, but we've seen transactions come down substantially year-over-year, and there's been concern about the appetite from foreign capital sources. Can you just give us your view on how you expect pricing to trend in the next 12 months? Have we hit a bottom for cap rates? And do you think we'll see any meaningful expansion over the next year?

Well, as I said, transaction volume's down overall in the country. The number's around 27%, and it's true in New York as well. I do think more of the assets have traded to long-term institutional holders now, particularly the larger trophy assets like REITs and other institutional holders. And they're less frequent sellers versus investors that are more opportunistic and have a shorter-term time frame. And so by definition, I think you see less assets in the market, and I also think the investment community is becoming more exacting about risk. So is this building -- just being in New York's not good enough. Where is it in New York? What's the location? Public transportation? Neighborhood? And then the leasing status. The leasing risk is less of interest, and I think return requirements for those kinds of risk have gone up. In terms of -- but that being said, I think there's a continual rotation of investors that are in and out of the market. I think that New York and our other gateway markets continue to be of interest to investors from Canada, the Middle East, Europe, China, Japan, Singapore, other places in Asia. I don't think that's changed. I think there is a little bit of cycling. Right now, perhaps the Chinese investors are a little bit less active. The Japanese investors are getting a little bit more active. In terms of forecasting for next year, it's difficult. I do think it's going to be very related to interest rates. And as I mentioned, even though we see some things that might lead you to think interest rates will be higher, like the Fed increasing the short end of the curve and the gradual reduction of QE, I do think we're going to continue to operate in a relatively-low interest rate environment. And therefore, the yields from real estate will be attractive. And I think New York and our other gateway markets will continue to be of keen interest to institutional investors from around the world.

I think the scarcity of the products as well.

I think what Mike's just saying with less buildings on the market that also creates more scarcity when one does come on the market.

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

Mike, on the $850 million maturing at the -- near the end of '18, just can you kind of give updated thoughts on how far out in the curve you guys are thinking to go there and what pricing expectations are in the guidance?

So our guidance expectations are that we refinance it within 90 days of its maturity. There's an open window, and that we refinance it with a comparable term. So if you kind of look at our expiration ladder, 2028 is open for a 10-year deal. We can do a 10-year deal today at about 3.5%. Also open is 2025. So we could do a 7-year deal, and a 7-year deal is closer to 3.25% today. So I think that's what we probably would think about from a maturity perspective. I don't think we would go out and do a 30-year or something like that. And with respect to timing, we'll see. We're always kind of monitoring the market and looking at where we think interest rates are going, where we think the bond market is going. And the bond market has been very [pitiful] in 2017. I have no reason to believe why it won't continue to be so, but we're consistently looking at those markets.

And we shouldn't expect -- you have a higher coupon piece maturing in October of '19. The make-whole would probably be too onerous to bring that in during '18. Is that kind of a fair way to look at it?

It's fair to say that the prepayment penalty associated with the 19 and the 20s is pretty high, and which makes it a little bit less attractive to try to do something like that. We do these calculations all the time and thinking about it all the time, and we'll continue to do so, but it's certainly not in any guidance that we have.

We have time for one final question, and that question comes from Rob Simone with Evercore ISI.

I was on mute. Just a quick question on the incremental debt. Mike, I think you mentioned that it was about $550 million on the term facility and the credit line. Is that -- the funding requirement there, is that solely from the existing development pipeline? Or does that contemplate any future developments? And I have one quick follow-up on interest expense.

That's only assuming the existing pipeline that we've shown everybody. So it does not assume that we're successful in signing additional leases at some of the other properties that both Owen and Doug talked about, which would increase our pipeline. And some of those properties would start to fund in 2018, so that would increase the requirement to fund those and also increase our capitalized interest, however. Again, normally, funding development projects doesn't necessarily increase your interest expense because you've got a capitalized interest offset. But in this case, we're delivering a lot of stuff in '17 and '18, which causes us not to kind of get the benefit of that, which is why almost all of the funding that we have projected so far for '18 kind of just drops into the interest expense bucket as an increase in interest expense.

And then one final last question. Mike, you mentioned that the Colorado Center financing was going to increase your share of interest expense from unconsolidated by about $5 million. The range that you guys provide for guidance, is that only on a consolidated basis? Or is that inclusive of your share of all interest expense, just for clarity?

The range we provide is only on a consolidated basis. So it's kind of unusual that we have a big change on the unconsolidated JVs, and it's typically pretty small because that portfolio's pretty small. But this quarter, obviously, I wanted to point it out because it does affect '18. We -- on the NOI for the unconsolidated properties, we include that in our same-store guidance, our share. So the only thing we kind of don't pick up is any changes in interest expense that might affect year-to-year. And as I said, typically, it doesn't have much of an impact. This year, it does, which is why I wanted to point it out on the call and to put it in our press release.

That completes our call. Thank you for your questions. Thank you for your interest in Boston Properties, and we look forward to seeing many of you at NAREIT in Dallas in a couple of weeks. Thank you.

This concludes today's Boston Properties conference call. Thank you again for attending, and have a good day.